Wedding Vows and Vows Kept – Last week the royal wedding in England between William and Kate garnered a great deal of attention on this side of the pond. Meanwhile another union seemed to blossom in this country – the pairing of a debt limit increase with some type of trigger mechanism. Now, the word that Osama Bin Laden has been killed and buried at sea puts an end to the quest for the man most responsible for the 9/11 attacks and finally fulfills a promise to bring him to justice that spanned two administrations. The news comes amid a trend where the primary focus for Americans is shifting from foreign entanglements to domestic economic concerns and confronting what the chairman of the Joint Chiefs of Staff and others have called the greatest security threat to the U.S. – the national debt. Will the new avenue for compromise and foreign policy success spawn bipartisan collaboration to address the debt?
An Arranged Marriage – The debt ceiling (read the CRFB debt limit primer) has been looking for a suitable partner for some time. Failure to increase the statutory debt limit is not an option as it would have catastrophic consequences for the economy, yet many lawmakers want to take advantage of the opportunity to address the unsustainable fiscal policies that have brought us to this point by taking concrete steps to reduce mounting federal budget deficits and national debt. [Read the CRFB paper on responsible approaches to raising the debt limit.] With a wide divide among party leaders over how to reduce the debt and with time growing short before action on the limit is required (the Department of Treasury says it can stave off a national default no later than early August), coupling a debt ceiling increase with a budget enforcement process designed to ensure that the debt is brought under control has become the prime candidate for a compromise solution. Leaders in both the House and Senate support pairing a debt limit increase with a trigger mechanism, although there is no agreement yet on exactly what the trigger would look like. The growing interest in the concept was evident in a Capitol Hill briefing on triggers convened on Thursday by the Peterson-Pew Commission on Budget Reform that attracted a packed room of congressional staffers and many others. The commission (a project of CRFB) last week released a paper answering the types of questions that policymakers are now asking about how to make a trigger work and offering recommendations on how to create an effective trigger. Furthermore, CRFB President Maya MacGuineas wrote about the subject in a Washington Post op-ed. A trigger is a worthy suitor for the debt limit increase and this is one arranged union that could work.
Ganging Up on the Debt – The hats at the royal wedding sure were…interesting. Hopefully, we soon will be able to say ‘hats off’ to the bipartisan “Gang of Six” senators who have been busy working on a comprehensive debt reduction plan. Members of the group say they are close to a deal and it could be unveiled as early as this week. The group is eying a mix of spending cuts and revenue increases. Word is the group is also discussing a trigger mechanism to accompany the plan to ensure it stays on track once enacted. Once an agreement is reached, the focus will turn to the “Gang of 64” senators who signed a letter in March calling for leadership and bipartisanship on a comprehensive deficit reduction solution. These will be the senators most likely to support the plan. Another bipartisan group of lawmakers will meet at the White House on Thursday to begin talks led by Vice President Joseph Biden aimed at finding common ground. A plan from the Gang of Six could inform those talks.
No Honeymoon for Congress – Congress is back in session this week after a spring recess that featured scores of town hall meetings where the budget received more attention than Kate’s wedding gown. Senate Majority Leader Harry Reid (D-NV) has promised to put the FY 2012 budget that the House passed just before the break to a vote on the Senate floor, where it very likely will fail. Republicans want to have a vote on the President’s budget as well, to show that it also cannot pass. Committee hearings on the budget continue and the House hopes to begin mark-ups in the Appropriations Committee on spending bills this month. House leaders are keen to have an orderly appropriations process this year that produces all 12 spending bills, in order to contrast with the recent budget failures under a Democratic House. The Senate, however, is not likely to move quickly or go along with anything the House passes. Senate Budget Committee Chair Kent Conrad (D-ND) has been waiting on the Gang of Six, of which he is a member, to produce a plan before he marks up his budget resolution.
Panetta to Pentagon – Last week the White House officially announced that CIA Director Leon Panetta will be nominated to replace Defense Secretary Robert Gates when he steps down later this year. In addition to directing U.S. military strategy in a post-Osama world he will also manage the effort to streamline the Pentagon and find significant savings in the massive Defense budget. In addition to his experience at the CIA, as a former House Budget Committee chair and OMB director (and former CRFB co-chair for that matter) Panetta is uniquely qualified to administer organizational changes in the department’s bureaucracy and budget and increase efficiency without damaging the military's missions.
Can Oil Subsidies Grease the Skids for Tax Reform? – Much was made of comments last week from House Speaker John Boehner (R-OH), even though they were walked back some soon afterwards, that he would consider eliminating some of the tax breaks for the oil and gas industry. Other prominent conservatives like House Majority Leader Eric Cantor (R-VA) and House Budget Committee Chair Paul Ryan (R-WI) have also expressed a willingness to eliminate tax subsidies like those for oil and gas in the context of a larger reform of the tax code. This is part of the growing momentum on both sides of the political aisle to eliminate and reduce tax expenditures as a part of fundamental tax reform and a comprehensive debt reduction plan. Read the CRFB paper on tax expenditures here and see more ideas for tax expenditure reform here and here.
Key Upcoming Dates
- Senate Finance Committee hearing on Budget Enforcement Mechanisms at 10 am.
- First meeting at the White House of the bipartisan talks led by Vice President Biden to seek consensus on reducing the deficit.
- Senate Homeland Security and Governmental Affairs Committee hearing on duplication in the federal government at 2:30 pm.
- April unemployment data from U.S. Department of Labor, Bureau of Labor Statistics.
- Treasury Secretary Tim Geithner says the statutory debt limit will be reached no later than May 16.
- Treasury Secretary Geithner says that the U.S. will default on its obligations by around August 2 if the statutory debt ceiling is not increased before then (revised).