Line Items: December Doldrums Edition Weekly Update on Budget and Fiscal Policy Developments and a Look Ahead
Blue Christmas? – December can be a depressing time for many. Shorter days and the stress of the holidays affect many of us. Unfortunately, the news out of Washington won’t give any cause to perk up. Following fiscal cliff developments lately has been more depressing than watching the Washington Wizards play. Little progress has been made and earlier projections that a deal could be reached before Christmas now appear sanguine. With each passing day an 11th hour deal looks to be the best case scenario for avoiding the fiscal cliff. Yet there are still some hopeful signs that parameters for a deal are shaping up. And the Wizards beat the defending champs last night, so anything is possible.
More Downs than Ups – National Journal’s Charlie Cook has called the fiscal cliff negotiations a “roller coaster” ride, which is an insult to roller coasters everywhere...even the really bad ones at carnivals. The ride has been a slow downhill trip as of late and the last dip could be a doozy if we go over the cliff. Things looked promising early last week as the White House and the congressional leadership met with business leaders and other stakeholders, including business and community leaders with the Fix the Debt Campaign. However, things took a downward turn Thursday when the White House offered an opening bid that was roundly criticized by Republicans. Things got no better Monday as House leaders offered a counter proposal that was quickly derided by the White House.
Not Bowled Over – The White House offer last week includes $1.6 trillion in new revenue, mostly through allowing the tax cuts for incomes over $250,000 to expire, $400 billion in entitlement savings from the President’s FY 2013 budget and $435 billion in additional stimulus spending. House Speaker Boehner (R-OH) countered with a proposal that he claimed was based on a plan previously put forth by Fiscal Commission co-chair Erskine Bowles, but Bowles quickly issued a statement distancing himself from it. The Boehner proposal includes $800 billion in new revenue through limiting tax deductions, $300 billion in discretionary spending cuts and $900 billion in entitlement savings. See a comparison of the plans here.
A Taxing Debate – Taxes continue to be a sticking point in fiscal cliff talks. The White House continues to insist that additional revenue must come from raising tax rates on the wealthy while Republicans remain firm in insisting that limiting deductions be the source of more revenue. However, in an interview with Bloomberg TV on Tuesday, President Obama hinted that rates don’t have to rise back to the Clinton-era levels as part of a fiscal cliff deal and he also opened the door to bringing rates back down in 2013 as part of a comprehensive tax reform package. He also said that tax expenditure reform could contribute to bringing rates back down. Our Fix the Debt Campaign convened a panel of experts on Tuesday that looked at prospects for tax reform and how it could contribute to deficit reduction. At the forum Senate Finance Committee Chair Max Baucus (D-MT) said he was committed to fundamental tax reform in 2013. You can watch video of the roundtable here. CRFB recently examined how reducing tax rates while limiting or eliminated tax expenditures could reduce the deficit. Another paper looked at how base broadening could be used to raise as much revenue from high-earners as increasing rates. A recent White House analysis took issue with this notion and CRFB responded with a blog post arguing that the analysis was too limited in scope. Meanwhile, the Tax Policy Center put out a new calculator which shows how the fiscal cliff will affect different groups of taxpayers.
Debt Limit Lonely No Longer – The debt ceiling must have felt left out with all the attention being paid to the fiscal cliff. It is now getting more attention as the Treasury Department said last month, and the Congressional Budget Office confirmed last week, that the debt limit will likely be reached before the end of the year though “extraordinary measures” can be used to hold off default until early next year. The prospect of another debt limit fight is not a cheerful thought and the business community is sending the signal that action must be taken. The Bipartisan Policy Center estimates that the last debt ceiling battle will end up costing taxpayers $18.9 billion over ten years. The Obama Administration wants to change the way the debt ceiling is approached to avoid such fights in the future. Keep track of debt limit developments here.
Key Upcoming Dates (all times are ET)
- Joint Economic Committee hearing on "“Fiscal Cliff: How to Protect the Middle Class, Sustain Long-Term Economic Growth, and Reduce the Federal Deficit" at 9:30 am.
- Unemployment statistics for the month of November released
- Consumer Price Index data for November released
- Third estimate of third quarter GDP figures released
January 1, 2013
- The "fiscal cliff" occurs, including the expiration of the 2001/2003/2010 tax cuts and across the board spending cuts the following day
- 113th Congress will convene
- Unemployment statistics for the month of December released
- Consumer Price Index data for December released
- President Obama publicly sworn in for his second term (a private swearing in will occur on Sunday the 20th, the technical inauguration date)
- Advance estimate of fourth quarter GDP figures released