Line Items: Zombie Edition A Weekly Update on Budget and Fiscal Policy Developments and a Look Ahead
Undead Ends – Recent reports of disturbing behavior have raised the specter of a zombie apocalypse, where the undead overrun civilization. Flesh/brain-eating creatures aren’t the only things that don’t want to die. Political gridlock also keeps coming back and threatens to make a wasteland out of the political system. Policymakers cannot agree on a budget blueprint at a time when we most need a fiscal plan that shows the way out of the depths of debt. The appropriations process lingers on; a slowly moving, virtually-lifeless corpse. Maybe the zombies have already taken over DC, though the most cynical among us would argue that there are no brains to be had there.
Appropriations: Plight of the Living Dead – The fiscal year 2013 spending bills continue their slow march to an uncertain fate. The House approved of FY 2013 appropriations bills for Energy & Water Development, Homeland Security, and the Legislative Branch last week before leaving for another week-long break. Due up when the House returns are spending bills for Transportation, Housing & Urban Development and Financial Services. The Senate has yet to pass any appropriations bills. Senate Appropriations subcommittees will mark-up the bills for Financial Services and Labor, Health & Human Services and Education this week. Because the House and Senate disagree on spending levels, no one believes that we will have appropriations in place when the fiscal year begins on October 1. The best case scenario appears to be a stopgap measure that provides temporary funding (and avoids a government shutdown) into the next calendar year. We need budget process reform.
Highway to Zombieland – Congressional negotiators appear to be at an impasse on the multi-year reauthorization of highway and transit programs as they face a deadline at the end of the month. The Hill newspaper quotes a source saying the talks are on “life support” and House Speaker John Boehner (R-OH) is suggesting that a six-month extension (the tenth temporary extension) may be needed. A six-month extension would add highway funding to a long list of issues Congress will have to deal with in a post-election lame duck session and a depleted Highway Trust Fund would be added to the fiscal cliff that is already full of peril.
Farm Bill Withering on the Vine? – Congress is considering changes to agricultural programs that could help reduce the deficit, but disagreements could derail the package. The Senate is poised to begin debate on a farm bill that would scrap controversial subsidies and replace them with a form of insurance. We previously noted that this approach would achieve some savings and moves in the right direction, but the way the insurance program is constructed could result in higher than expected costs down the road. But Senators must come to an agreement on what amendments will be considered before serious consideration on the Senate floor begins.
Sequester Quest – Speaking of the farm bill, Sen. John McCain (R-AZ) has offered an amendment to the bill calling on the Department of Defense to provide a detailed report to Congress by August 15, 2012 on the impact to national security of the defense sequester under the Budget Control Act. And many lawmakers are trying to figure out how to replace the defense cuts under the sequester. This comes as a report from the Bipartisan Policy Center says the defense sequester will result in over 1 million jobs being lost. As we have stated in the past, the sequester should be replaced with a comprehensive fiscal plan.
Moving Away from the Fiscal Cliff – The sequester is a part of the “fiscal cliff” that we face at the end of the year, along with the expiration of the 2001/2003/2010 tax cuts, the “doc fix,” the AMT patch and several other tax extensions. A bipartisan group of Senators is quietly meeting to develop an alternative that achieves the debt reduction goals of the fiscal cliff, but in a smarter manner that is more comprehensive and phased in. The latest Long-Term Budget Outlook from the Congressional Budget Office (CBO) illustrates what is at stake. The report highlights two baselines: the Alternative Fiscal Scenario which shows debt skyrocketing to unprecedented and unimaginable levels if action isn’t taken, while the Extended Baseline Scenario shows that public debt is reduced to a much more manageable level if the policies of the fiscal cliff take effect. But, the CBO previously warned that the fiscal cliff could do significant harm to the economy in the short term. CRFB updated its own long-term Realistic Baseline that also paints a not-so-pretty picture. CRFB has been vocal in advocating for a comprehensive debt reduction plan to replace the fiscal cliff.
Moving Towards Tax Reform – Fundamental tax reform should be a part of a comprehensive fiscal plan. On Monday, Senate Finance Committee Chair Max Baucus (D-MT) laid out his vision for tax reform. Baucus said tax reform should contribute to debt reduction and said his committee would hold hearings on the reform proposals from the Simpson-Bowles and Domenici-Rivlin commissions.
Key Upcoming Dates (all times ET)
- Senate Appropriations Subcommittee on Financial Service and General Government meeting to markup proposed budget estimates for fiscal year 2013 at 3:30 p.m.
- Senate Appropriations Subcommittee on Department of Defense hearing to examine proposed budget estimates for fiscal year 2013 at 10:30 a.m.
- Dept. of Labor's Bureau of Labor Statistics releases May 2012 Consumer Price Index (CPI) data.
- Presidential primary in Utah
- US Dept. of Commerce's Bureau of Economic Analysis releases its third estimate of 2012 first quarter GDP growth.
- Dept. of Labor's Bureau of Labor Statistics releases June 2012 employment data.
- Dept. of Labor's Bureau of Labor Statistics releases June 2012 Consumer Price Index (CPI) data.
- US Dept. of Commerce's Bureau of Economic Analysis releases its advance estimate of 2012 second quarter GDP growth and revised estimates of 2009 through 2012 first quarter GDP growth.