Game On – The Super Bowl in Texas won’t be until Sunday, but Washington had its own big game last week as President Obama gave his State of the Union address. The big moment came amid much fanfare: game time conditions and the state of play were observed, analysts looked for clues on what the game plan would be and assessed possible strategies, fans offered their opinion on how it should play out, and prognosticators predicted the outcome. Afterwards, the winners and losers were acknowledged, spectators reacted, there was much post-game analysis, and a great deal of Monday morning quarterbacking followed. But, unlike football, budget season is just getting underway. Next up on the schedule are congressional action on FY 2011 spending and the President’s FY 2012 budget, both scheduled for the week of February 14. Read the CRFB reaction to the State of the Union here and our view on what should be in the budget here. In the speech, President Obama outlined an ambitious agenda to invest in areas that promote U.S. economic competitiveness – such as education, innovation and infrastructure – while also reducing the deficit. House Budget Committee Chairman Paul Ryan (R-WI) stressed the need for substantial spending cuts in the GOP response.
CBO Sees the Fiscal Goalposts Moving Back – The Congressional Budget Office (CBO) last week issued its 2011 Budget and Economic Outlook. The new report shows the U.S. fiscal position worsening, with a record (in nominal terms) 2011 federal budget deficit of about $1.5 trillion projected, the ten-year deficit ballooning to nearly $7 trillion, and national debt rising. The report also describes a deteriorating outlook for Social Security, with the program now projected to run annual deficits each year. The new report should be a wake-up call to policymakers to enact a fiscal plan now that puts the country on a sustainable fiscal course because inaction only allows the problem to grow worse. CRFB analyzed the new CBO baseline in a policy paper.
Conrad Vies for Budget MVP Honors – Senate Budget Committee Chairman Kent Conrad (D-ND) said last week that his committee may go beyond producing the traditional five-year budget blueprint and instead put forth a long-term comprehensive fiscal plan. Conrad said that he would prefer a summit between the White House and congressional leaders to work out such a plan, but absent a summit he feels that the Budget Committee may have to do the heavy lifting and produce a plan similar to the one presented by the White House Fiscal Commission he participated in. Several of his colleagues on the committee, including Ranking Member Jeff Sessions (R-AL) and Sen. Mike Crapo (R-ID), who sat on the Fiscal Commission with Conrad, seconded the idea. Conrad also recently remarked that a deficit reduction plan should accompany a vote to increase the debt limit.
CBC Fields Its Own Deficit Team – The Congressional Black Caucus has formed its own deficit commission to address the issue from the perspective of minority communities. The group says it will present a final report with recommendations before the President releases his budget next month. It will join an extensive list of fiscal plans that lawmakers can look to.
House Heads for the Locker Room as Senate Takes the Field – The House is in recess this week while the Senate commenced its legislative business just last week. Before leaving town the House passed a bill eliminating the public financing of presidential campaigns and political party conventions. It is a part of the House leadership initiative to bring at least one spending cut vote to the floor each week. An amendment from Rep. Gary Peters (D-MI) ensuring that all savings from the measure go towards deficit reduction also passed.
Starting Lineups for Committees Announced – Congressional committee rosters have been finalized on both sides of Capitol Hill. The key fiscal policy committees have seen significant changes in membership.
House Budget: As it deals with growing deficits the House Budget Committee will have a surplus of new blood. Rep. Paul Ryan (R-WI) rises to chairman with the new Republican majority. Rep. Chris Van Hollen (D-MD) joins the committee as ranking member; he had served as a member of the Democratic leadership as chairman of the Democratic Congressional Campaign Committee. Another rising star among Democrats, Rep. Debbie Wasserman Schultz (D-FL), also joins the committee. Prominent Blue Dog Democrat Rep. Health Shuler (D-NC) also got a seat. On the Republican side, several leading conservatives – such as House Republican Policy Committee Chairman Rep. Tom Price (R-GA), Rep. Jason Chaffetz (R-UT) and Rep. Tom McClintock (R-CA) – join a group of Tea Party-backed freshmen including Rep. Todd Rokita (R-IN). Full committee list.
House Ways and Means: New Chairman Dave Camp (R-MI) has already got the ball rolling on tax reform. He will be helped by several new GOP members, including Rep. Tom Price (R-GA), Rep, Aaron Schock (R-IL), Rep. Chris Lee (R-NY), Rep. Lynn Jenkins (R-KS), and Rep. Erik Paulsen (R-MN), as well as Freshman Reps. Rick Berg (R-ND) and Dianne Black (R-TN). Full committee list.
House Appropriations: Rep. Harold Rogers (R-KY) takes over as chairman of one of the typically most sought-after committees at a time when its influence is waning. While in previous years membership in the committee meant the ability to bring home the pork to constituents, the House earmark ban and GOP promise to slash spending mean that instead of securing funds for their districts, members will have to make unpopular decisions to cut programs and projects. New faces include anti-earmark crusader Rep. Jeff Flake (R-AZ), Speaker Boehner (R-OH) ally Rep. Steven LaTourette (R-OH), and Rep. Cynthia Lummis (R-WY). Full committee list.
Senate Budget: Sen. Jeff Sessions (R-AL), who has been a leading advocate for discretionary spending caps, takes over as ranking member, replacing the retired Judd Gregg. New members include potential presidential candidate Sen. John Thune (R-SD), former OMB Director Sen. Rob Portman (R-OH), former Club for Growth President and anti-tax crusader Sen. Pat Toomey (R-PA), and Sen. Ron Johnson (R-WI). Full committee list.
Senate Finance: Sen. Orrin Hatch replaces Sen. Chuck Grassley, who was term-limited by Senate GOP rules, as new ranking member. He is joined by leading deficit hawk Sen. Tom Coburn (R-OK), Sen. John Thune (R-SD), and potential deal maker Sen. Ben Cardin (D-MD). Full committee list.
Senate Appropriations: Anti-earmark crusader Sen. Lindsey Graham (R-SC) joins the panel, along with several freshmen including Sen. Mark Kirk (R-IL) and Sen. Ron Johnson (R-WI). Full committee list.
Budget Valentines on Their Way – The White House will have a special package for Congress on Valentine’s Day, but it won’t be roses and sweets. The President’s FY 2012 budget proposal will be released on Monday, February 14. Congress will return the favor; House Majority Leader Eric Cantor (R-VA) announced last week that the House of Representatives will vote on Fiscal Year 2011 spending that same week. Although the continuing resolution (CR) currently funding the federal government does not expire until March 4, House leaders are anxious to initiate spending cuts as soon as possible in order to keep their promise of reducing federal outlays to FY 2008 levels or lower, which will require at least $55 billion in cuts. To reach that goal House Budget Committee Chair Paul Ryan (R-WI) next week will set FY 2011 spending targets that appropriators will have to abide by.
Howdy Nabors – The White House has undergone a major personnel overhaul in response to the mid-term elections and in preparation for the 2012 presidential campaign. One of the staff changes places Rob Nabors in charge of outreach to Capitol Hill as Director of Legislative Affairs. As a former House Appropriations Committee staff director and deputy director at OMB, Nabors has connections and expertise that position him well to facilitate a budget deal between the White House and Congress.
Budget Process Reform Proposed – Senators Jeanne Shaheen (D-NH) and Johnny Isakson (R-GA) introduced legislation to switch the annual federal budget process to a biennial one in which a two-year budget is enacted one year and oversight of federal programs is conducted in the next. Reforming the federal budget process will be a critical part of addressing our fiscal challenges. The Peterson-Pew Commission on Budget Reform offered a comprehensive framework for overhauling the budget process in order to ensure that fiscal goals are established and met in order to bring more focus and discipline to federal budgeting. Furthermore, a recent paper prepared for the Federal Budget Reform Initiative of The Pew Charitable Trusts examined how changing the membership of the congressional Budget Committees could improve federal budgeting.
Scales Tipping for Balanced Budget Amendment? – Momentum appears to be quickly building for a balanced budget amendment, especially among Republicans. At least six different legislative proposals have been introduced in the House since the beginning of the 112th Congress. The most prominent among these is a bill from Rep. Bob Goodlatte (R-VA) that has 178 co-sponsors. An additional two proposals have been unveiled in the Senate: one from Senators Orrin Hatch (R-UT) and John Cornyn (R-TX) that has 21 co-sponsors and another from Senators Jon Kyl (R-AZ) and Mike Lee (R-UT). Both Senate proposals are being tied to an increase in the debt limit. CRFB supports tying the debt limit increase to a comprehensive fiscal plan that is complemented by budget reforms that facilitate establishing and enforcing fiscal goals. The fiscal targets and triggers recommended by the Peterson-Pew Commission in the Getting Back in the Black report provide another way to enforce fiscal discipline that may be more appropriate given our current fiscal situation and more feasible than a Constitutional amendment.
Will Dancing on the Debt Ceiling Equal Dancing on Our Economic Grave? – Positioning has already begun in advance of reaching the debt ceiling, which is on track to occur this spring. The Treasury Department announced it was adjusting its borrowing practices in order to delay reaching the limit. And related bills from Sen. Pat Toomey (R-PA) and the House Republican Study Committee were introduced to avoid a U.S. default if no agreement is reached to increase the limit by instructing the Treasury to pay interest and principal on debt before making any other payments. See CRFB’s updated Debt Ceiling Primer to learn more about the issue and why it is important.
Cents and Sensibility – Recent weeks have seen a slew of proposals to reduce discretionary spending. These included the five-year domestic spending freeze proposed by President Obama in his State of the Union speech; the Republican Study Committee proposal to reduce non-defense discretionary spending to 2006 levels; the plan from Sen. Rand Paul (R-KY) to slash discretionary spending by $500 billion a year by eliminating or cutting agencies such as the Departments of Education, Energy, Health and Human Services, and NASA; and the Rep. Michele Bachmann (R-MN) idea to cut discretionary spending by over $425 billion annually. All of these ideas are important to advancing fiscal responsibility in Washington and each could play a key role in deficit and debt reduction. However, alone they will not do much to improve our fiscal outlook because discretionary spending, especially when defense is taken out of the equation, is a relatively small piece of the pie. Even the most aggressive of the plans would amount to little more than pocket change without changes to defense spending, entitlements and revenues. Lawmakers must work together in a bipartisan manner on a sensible, far-reaching plan. Read what many of the comprehensive fiscal plans have in common here and compare them here.
Credit and Credibility – Last week the U.S. received more warnings on the need to develop a credible fiscal plan soon to address growing debt. The International Monetary Fund (IMF) strongly advised the U.S. to devise a “credible, medium-term fiscal strategy” to bring down the debt. Another shot across the bow came when credit rating agency Standard & Poor’s downgraded the credit rating of Japan, citing that the government “lacks a coherent strategy for addressing” its debt. At the same time, rating agency Moody’s repeated its warnings that the U.S. risks a future downgrade unless it confronts its mounting debt. It added some urgency, saying that because of the tax cut deal reached late last year and uncertainty over whether the U.S. will act on debt reduction “the time frame for possible future actions appears to be shortening, and the probability of assigning a negative outlook in the coming two years is rising.” In order to maintain its AAA credit rating and keep interest rates as low as possible, the U.S. needs to develop a credible fiscal plan soon that can convince creditors and markets that we will stabilize our debt.
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Key Upcoming Dates
February 1 – Senate Budget Committee hearing on the economic outlook at 10 am.
February 1 – Institute for Supply Management releases manufacturing index for January.
February 2 – Senate Budget Committee hearing on “Tax Reform: A Necessary Component for Restoring Fiscal Responsibility” at 10 am.
February 3 – Weekly unemployment claims data released by the Department of Labor.
February 3 – Preliminary non-farm productivity data for the fourth quarter of 2010 released by the Department of Labor.
February 3 – Senate Budget Committee hearing on “Challenges for the U.S. Economic Recovery” at 10 am.
February 3 – Federal Reserve Chairman Ben Bernanke speaks on the economic outlook at the National Press Club at 12:30 pm.
February 3 – Senate Budget Committee hearing on modernizing government performance at 2 pm.
February 4 – Bureau of Labor Statistics releases jobs data for January at 8:30 am.
February 14 – White House unveils its FY 2012 budget.
Week of February 14 – House of Representatives will vote on extending the continuing resolution currently funding the government.
March 4 – The current continuing resolution (CR) funding government operations expires. Congress must adopt spending bills funding the federal government for the rest of FY 2011 by then or pass another stopgap measure.
March 31 - May 16 – Period in which Treasury Secretary Geithner says the U.S. will likely reach the debt ceiling.