Line Items: After the Treats Edition

Sugar Crash – Another Halloween has come and gone. Many kids (and adults) have been quickly going through their sugar-filled loot. Eventually, the candy always runs out and everyone is left with a severe letdown and an empty bag. The thrill of trick-or-treating and the subsequent sugar rush are gone. It feels that way in Washington now. There are no more treats left, though there is still potential for tricks. The budget conference committee has begun deliberations on the right foot, but lots of obstacles remain. Lawmakers are spooked by low approval ratings and lingering voter resentment over the government shutdown, but they are still wary of giving any treats to the other side in order to accomplish anything substantive. The House is out this week and the Senate is out next week. Are there any goodies left in the bag on Capitol Hill, or just stomach aches?

Budget Conference Treats Itself to Positive Start – The budget conference committee formed by the deal ending the government shutdown began formal deliberations last week. The first meeting consisted of opening statements from the 29 committee members. The rhetoric was mostly positive and there was a great deal of common ground in the statements, but the real work is just beginning to get a budget deal. In a hopeful sign, CQ (subscription required) reports that there may be an opening to achieve some bipartisan Social Security reforms, with some Republicans expressing an openness to raising the cap on incomes subject to the payroll tax in exchange for other reforms, such as chained CPI, raising the eligibility age and means testing. The next public meeting is November 13, where the committee will hear from expert witnesses. The committee must report to the full Congress by December 13. CRFB board member Jim Nussle provided his ideas for ground rules in an op-ed. We offer our own thoughts on “What We Hope to See from the Budget Conference Committee.” Need to learn more? Take a look at “Everything You Need to Know About a Budget Conference.”   

On the Lookout for Budget Tricks – With agreement difficult to come by between the two parties, the potential for gimmickry is there. It’s happened before. We get out in front by warning against the use of the “war savings gimmick,” which uses the savings from the military drawdown in Iraq and Afghanistan, which is already happening, to offset another policy, such as repealing sequestration.

Don’t Be Fooled, Deficits Are Still a Problem – It was announced last week that the federal budget deficit for fiscal year 2013 was $680 billion, significantly less than the trillion-dollar-plus deficits of the previous four years. While the smaller deficit was heralded by Administration officials, we point out that deficits will begin rising again in a few years because of an aging population. The longer-term fiscal outlook remains troubling and requires thoughtful action. Relatedly, Wall Street Journal economics editor David Wessel responded to the contention of former Treasury Secretary Lawrence Summers that the deficit is not an issue. We made a similar argument earlier. Americans don’t need convincing. A recent poll sponsored by our partners at the Campaign to Fix the Debt shows that the deficit is the top issue (tied with the economy) for voters. And another poll corroborates the finding that Americans support a comprehensive approach to addressing our fiscal challenges.  

Will Congress Pull a Doc Fix Out of the Bag? – Last week the House Ways and Means and Senate Finance Committees released a discussion draft of a bipartisan proposal to replace the sustainable growth rate (SGR) formula and make other reforms. The so-called “doc fix” will prevent a 25 percent cut in Medicare physician payments on January 1. Lawmakers still have to find a way to offset the cost of the fix, but plenty of ideas have been presented by bipartisan plans like Simpson-Bowles.

Tax Reform is Tricky, But Could Offer Treats – Efforts to fundamentally reform the tax code continue on Capitol Hill. Senate Finance Committee chair Max Baucus (D-MT) said that next week he will release discussion drafts with specific tax reform ideas. This comes as several members of the budget conference expressed support for creating a fast-track process for enacting tax reform at the first meeting. Other members seem to prefer a piecemeal approach where some tax breaks known as “tax expenditures” are eliminated in order to offset changes to the sequester. Follow our “Tax Break-Down” series to learn more about many of these tax expenditures. There is also talk that the conference committee may target user fees as a means to generate revenue as part of a budget deal without raising taxes. At the same time, several tax breaks, known as “tax extenders” will lapse on January 1. With the focus on comprehensive tax reform, getting another extension is questionable unless part of larger reform. Addressing tax reform is key to getting a smart budget deal.  

Key Upcoming Dates (all times are ET)

November 7, 2013

• Senate Armed Services Committee hearing on the impact of sequestration on national defense at 9:30 am.
• Bureau of Economic Analysis releases advance estimate of 3rd quarter GDP.

November 8, 2013

• Bureau of Labor Statistics releases October 2013 employment data.

November 13, 2013

• Joint Economic Committee hearing on the economic outlook at 2:30 pm.

November 20, 2013

• Bureau of Labor Statistics releases October 2013 Consumer Price Index data.

December 13, 2013

• Date by which the budget conference committee must report to Congress

January 1, 2014

• The "doc fix," temporary tax extenders, extended unemployment insurance benefits, and the farm bill expire.

January 15, 2014

• The continuing resolution funding the federal government expires
• 2014 sequester cuts take effect
• First set of IPAB recommendations expected

February 7, 2014

• The extension of the statutory debt ceiling expires