Line Items: Leftovers Edition Weekly Update on Budget and Fiscal Policy Developments and a Look Ahead
Putting the Turkeys Behind Us – We hope everyone had a good holiday weekend! As we all recover from the annual turkey-induced coma, we are especially thankful for our growing network of supporters who are demanding fiscal responsibility of their leaders. That message is especially important as lawmakers return this week to address unfinished business such as the fiscal cliff and possibly an appropriations package for the rest of the fiscal year. The fiscal cliff is a result of the failure a year ago of the Super Committee to agree on a plan to reduce the deficit and the larger inability of policymakers to work together to address major issues and make policies permanent when they are intended to be. The coming weeks will be a key test as to whether we can clean up the leftovers and put behind the failures of the past in order to strengthen our future.
Fiscal Cliff a Makes Full Plate – Though the talks on avoiding the fiscal cliff have gotten off to a slow start, many lawmakers remain optimistic that a deal can be reached that replaces it with a smart deficit-reduction plan, perhaps through a two-step process that produces a comprehensive plan next year. Sen. Jon Kyl (R-AZ), the number 2 Republican in the Senate told CNN, “There will be a solution–not a final solution–that gets us into next year with a plan to get us through these issues over the next Congress.” In case the talks break down, Sens. Michael Bennet (D-CO) and Lamar Alexander (R-TN) have developed a three-part back-up plan that involves a down payment on reducing the deficit this year, creates a process for finishing the job next year and implements a default deficit reduction plan if one is not enacted. On the other hand, Sen. Bob Corker (R-TN) argues for getting a comprehensive deal done now in a Washington Post op-ed. House leadership will meet with business leaders this week while small business owners and middle class Americans visit the White House. Concerned citizens from across the country will also make the rounds on Capitol Hill.
Talking Turkey on Taxes – Although the consensus in Washington seems to have crystallized around raising revenue as part of a fiscal cliff deal, there is still no agreement on how exactly to do it. More and more Republicans are signaling that they are willing to break from pledges to raise taxes by supporting raising revenues through eliminating or limiting tax deductions on the wealthy while many Democrats insist on raising tax rates on top earners. According to a poll by Republican pollster David Winston, 61 percent of respondents support raising revenue by “reforming the tax code to lower tax rates, and close loopholes” compared to 28 percent who support “raising tax rates on those making over $250,000 a year.” Josh Barro defends such base broadening and a recent paper from CRFB shows how it can raise the same amount of revenue as raising rates on high-earners. The New York Times' Jonathan Weisman reports that negotiators are exploring a potential compromise that would raise effective rates for the wealthy without raising the nominal rate. Campaign to Fix the Debt steering committee member Steven Rattner reminds us that capital gains and dividends rates need to be part of the equation as well and Warren Buffett calls for a minimum tax on the wealthy.
Getting Stuffed on the Cliff – Voters are paying attention to the fiscal cliff drama and not liking what they are seeing. A Pew Research Center poll says more Americans are following the fiscal cliff than the drama surrounding the resignation of former CIA chief David Petraeus. A new CNN poll shows that 67 percent of voters believe that elected officials in Washington will act like "spoiled children" as opposed to "responsible adults" in dealing with the cliff. The same poll finds that 68 percent believe a crisis or major problems will ensue if the fiscal cliff takes place while 77 percent say that their personal finances will be affected if we go over the cliff. A new White House report backs up the sentiment, finding that tax cuts on the middle class next year would significantly impact retailers and other businesses. The Wall Street Journal also reports that nearly all American households would be affected next year if the fiscal cliff occurs and that low-income families could be hit particularly hard. In addition, Federal Reserve Chairman Ben Bernanke last week reiterated his call for policymakers to act on the fiscal cliff, saying that "a fiscal shock of that size would send the economy toppling back into recession." Meanwhile, a study by the Pew Center on the States looks at how the fiscal cliff would affect state finances.
The Gravy on Top – With the fiscal cliff the main priority, lawmakers are still trying to finalize a federal spending package by the end of December that will finance government operations until the end of the fiscal year in September 2013. The government is currently funded by a stopgap measure through late March of next year. Appropriators are trying to create an omnibus bill that would wrap all the spending bills together. While it would be a pleasant surprise to enact a spending bill now, it won’t make up for the inability of Washington in recent years to devise a budget blueprint or complete its appropriations bills on time.
Key Upcoming Dates (all times are ET)
- Conference Board releases consumer confidence data for November.
- Second estimate of third quarter GDP figures released
- 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