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CRFB Analysis of CBO’s January 2011 Baseline

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CBO now projects the 2011 deficit to reach a record-breaking $1.5 trillion, and increased its deficit projections over the 2011-2020 period by $1.4 trillion. The 2010 tax cut package and a weakening of economic forecasts account for most of the deterioration in budget projections. CBO's baseline makes it all the more imperative to enact a fiscal plan now to deal with our mounting federal debt.

Op-Ed: Time for Obama to Get Bold on the Debt

CNN Money | January 24, 2011

 

 

Big speech, tonight, sir. I have a plea: Focus on large and specific proposals to truly fix the budget. Please.

First, let me say, you certainly have had to govern through some trying times not of your making.

You had to figure out what to do with the TARP bailout and how to fix the banks. When you took office, the economy was tanking and clearly needed additional stimulus on top of what the Bush administration had passed. And then there are the trillion dollar deficits.

That's a pretty short straw to pick.

But here we are. Whether or not it's a political winner, we both know that some pretty dramatic measures are needed to turn this fiscal ship around. And leadership on this issue has to start at the top. So here you are.

This is the year we need to put in place a plan to fix the budget. The longer we wait, the more likely that markets will doubt our ability to get ahead of this problem. Once our lenders show signs of skittishness, it will be too late.

I know that you would much rather concentrate on other important issues. But there is little fiscal room right now to work on education, infrastructure and next generation technologies.

You are under immense pressure from the far left to not focus on the budget. All we have to do is wait it out, and then raise a bunch of taxes down the road, they argue. And, I know, those groups that say "leave Social Security alone" can be awfully aggressive.

Then there are the House Republicans, who don't see the reality that revenues have to be part of the equation. In fact, they now also seem to be in denial about the need for major entitlement reforms.

So, fair to say, you are not getting any help from either end of the spectrum.

That's where tonight comes in. If you make the case that we need to tackle the budget challenges in a serious and bipartisan manner, I believe you will have the vast majority of the country with you.

The public has been waiting for leadership on this issue for many years. So it won't be news to them that we have to address the budget.

True, there is disagreement on the right mix of changes, such as spending versus taxes or defense versus Social Security.

But "free lunch" solutions that pretend we can either cut taxes or spend more on certain investments to grow our way out of the problems ring so hollow it is laughable.

And you might as well go big. Sure, we could approach the task incrementally. We could start with symbolic moves like cutting Capitol Hill office budgets and eliminating a few outdated programs. Then we could move on to cutting bigger items and gradually tackle entitlements and tax reform.

We might get all that done before credit markets run out of patience. But we might not.

Furthermore, ironically, it would probably be easier to get a deal if you put all the budget pieces in play.

You should use the fiscal commission's bipartisan plan, which has become the new gold standard for budget fixes by saving nearly $4 trillion over a decade. After all, the commission was your idea! Its report offers a balanced path that would reassure investors and help the economic recovery. The panel's co-chairs, Erskine Bowles and Allan Simpson, put everything on the table and demonstrated that, politically, bipartisan compromise is possible.

Build on this momentum. Using the commission's work as a starting point will focus the national discussion on all the parts of the budget that have to be part of the solution. It also provides you with political cover.

Second, declare that, as a national priority, you and Congress must work together until this problem is resolved. Invite the leaders of Capitol Hill from both parties to join you for a "budget retreat" where you agree to keep on working until a plan is developed. Lock the doors, order in, and hammer out the necessary compromises.

Yes, that is a pretty aggressive approach. But we both know that the longer this drags out, and the closer we get to the 2012 campaign, the harder it will get.

This is one of those moments where you can change the national direction. I hope you will take this opportunity, because the last thing we need on the budget is more of the same. Oh yeah, and I hope that when we look up into the balcony, we see Bowles and Simpson waving from above.

Op-Ed: Tax Plan: Get Ready for a Big Debt Hangover

CNN Money | December 13, 2010

What happened!? Just two weeks ago we were celebrating the willingness of the political class -- or at least an influential subset of it -- to finally get realistic and confront the nation's fiscal challenges.

The remarkable success of President Obama's fiscal commission came as a welcome surprise. The panel came up with an outstanding budget reform proposal that could put the U.S. budget on track and reassure credit markets.

And in highly uncharacteristic fashion, a diverse group of political leaders from Republican Sen. Tom Coburn to Democratic Sen. Dick Durbin chose to embrace the plan rather than use it to score political points.
 
It felt like we had climbed out of the rabbit hole, and responsible governing and leadership had returned.
 
And then with whipsaw speed, the White House and members of Congress came up with a stinker of a compromise tax cut plan. In typical Washington fashion, it included lots of goodies. The result was new spending; tax cuts for businesses; tax cuts for the rich; tax cuts for the middle class; tax cuts for the poor ... even tax cuts for the dead.
 
And it comes at a massive cost.
 
The Republican side of the group that struck this deal wanted to ensure that tax rates not rise while the economy is still weak (or ever, for that matter).
 
A temporary tax cut extension should have been accompanied by a mechanism to develop fundamental tax reform over the coming 12 months focusing on economic growth -- and not adding to the debt.
 
Instead, they merely extended all of the Bush tax cuts for two years, and added in a few extras for good measure, with every intention of extending them all again two years from now. (Related commentary: Will Dems fall for temporary tax gambit again?)
 
Did they offset the costs by suggesting spending cuts or future tax reforms? Nope.
 
On the other side, the White House wanted to put in place another round of stimulus (as well as find a vehicle for a slew of other measures they wanted to get through Congress).
 
They should have crafted a targeted and effective stimulus package -- focusing on the major weaknesses in the economy such as housing and the cash-strapped states -- with a plan to pay for the borrowing.
 
But did they come up with a particularly effective stimulus package: Should we expect a good return on the massive cost? Nope.
 
Tax cutters and would-be stimulators may try to call the deal a victory. But as for the rest of us, we get to look our children in the eye and explain how our nation just added another $1 trillion to their tab.
 
What has to happen now: We have a number of challenges in this country, including ensuring that the recovery sticks and controlling our national debt (which, in fact, is a necessary component of helping the recovery hold).
 
Yes, we should keep the overall tax burden low, but only by cutting spending, not by running up the debt.
And yes, we should put in place a well crafted stimulus package, based on good economics rather than convenient politics, that is both paid for over time and linked to a broader budget plan.
 
Stimulus should not be an excuse to throw in every last initiative on the wish list and pretend it is good for the economy.
 
Going forward, the first step will be creating a new budget framework, such as the one the Peterson-Pew Commission (which I served on) recommended.

 

The starting point for this plan would be to identify a particular fiscal goal, such as bringing the debt back down to 60% of GDP by the end of the decade. Then, if Congress doesn't pass a plan to meet that goal, automatic spending caps and revenue increases would kick in.

From this point forward, policymakers should not add a single dollar to the debt without combining it with this kind of a responsible budget framework. It doesn't matter what the issue is -- the budget, the debt ceiling, or any new spending and tax bills. No more blind debt.

And then over the next year, lawmakers and the president must come up with the specific spending changes and tax reforms to fill in the plan.

If they choose instead to continue borrowing hand over fist and using the weak economy as an excuse not to offset any costs or enact a debt reduction plan, no one should be surprised when credit markets cry "enough!" And that would bring about a very unhappy ending to the borrowing binge that it appears we are still on.

 

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