Line Items: Summertime Edition

Heat Is On – Summer had its traditional kick-off with Memorial Day weekend and the temperatures in DC rose to the occasion. If only the same could be said of the city's political process. As the November election gets closer, temperatures will continue to rise this summer, along with the debt. But will the best solutions rise to the top? Meanwhile, the fiscal cliff also gets closer and will become hotter to handle. Both the House and Senate are in session this week and the Congressional Budget Office released its Long-Term Budget Outlook Tuesday.

Tax Reform in 2013? – After years of being on the back burner, there are signs that serious tax reform will move to the fore. Politico reported that Senate Finance Committee chair Max Baucus (D-MT) is laying the foundation for reform by meeting with committee members and working with House Ways and Means Committee chair Dave Camp (R-MI). Baucus will speak on the subject at the Bipartisan Policy Center next week.

Republicans Cooling to Tax Pledge? – With prospects for fundamental tax reform increasing and the need for revenue to be on the table as lawmakers negotiate a comprehensive fiscal plan, recent reports indicate that some Republicans may be willing to buck the party line on tax increases in order to get a deal that cuts spending significantly and simplifies the tax code. More Republicans are stating that they are no longer bound to the Americans for Tax Reform pledge prohibiting tax increases in any form. Former Florida governor Jeb Bush on Friday was the latest prominent Republican to speak out against the pledge. Many are advocating for an approach similar to that proposed by the Simpson-Bowles plan that would simplify the tax code, broaden the tax base, lower tax rates and still raise additional revenue towards lowering the debt by eliminating the loopholes, tax breaks and credits known as tax expenditures. 

Long Road to the Fiscal Cliff – Like many vacationers this summer, Congress appears to be planning a road trip. Though in this case, the intent is to avoid the planned destination and find an alternate route. The tourist trap in question is the so-called “fiscal cliff” – the end-of-the-year combination of the expiration of the 2001/2003/2010 tax cuts, the across-the-board spending cuts triggered by the sequester, a decrease in Medicare physician payments, the end of the Alternative Minimum Tax (AMT) “patch” sparing thousands of families from higher taxes under the AMT, and the expiration of several tax breaks. Federal Reserve chair Ben Bernanke has warned that falling off this cliff would be disastrous to the economy. The Congressional Budget Office (CBO) backed him up with a report detailing the adverse economic effects if these policies were allowed to occur all at once. The CBO numbers confirmed CRFB’s own analysis. Leaders in Congress have pledged to address the issue, but as usual, the two parties appear far apart on the solution. House leaders plan to hold a vote on extending all the tax cuts next month and are considering extending dealing with the fiscal cliff for another year, while Senate Majority Leader Harry Reid (D-NV) says that he is open to a deal that would maintain most of the tax cuts, he has also made it clear he is committed to the sequester unless Republicans budge on increased revenue. Republican lawmakers have introduced legislation requiring the president to detail the specific cuts under sequestration by July. In the meantime, economists fear that a protracted battle over the fiscal cliff will hurt an already reeling market. While the posturing is already beginning, the real action isn’t expected until a lame duck session of Congress. Policymakers must replace the fiscal cliff with a phased-in smart, comprehensive plan. 

No Vacation for Budget Reform – The ideas to reform the budget process keep coming. Last week the House Budget Committee held a hearing that examined three budget reform bills that were part of a package introduced by House Budget Committee Republicans late last year. The Spending Control Act would set spending and deficit limits, enforced by a sequester. The Balancing Our Obligations for the Long-Term Act would cap total spending over the long term and CBO to provide estimates for the budgetary effects of legislation beyond the traditional 10-year window. And the Review Every Dollar Act would require all federal programs to be regularly reviewed and reauthorized. Former CBO director Douglas Holtz-Eakin discussed the need for a fiscal rule in his testimony, and cited the work of the Peterson-Pew Commission on Budget Reform. Find more budget process reform ideas here.

Romney Secures Nomination – The Associated Press reported that former Massachusetts governor Mitt Romney secured enough delegates to lock up the Republican Party nomination for president with his primary win last week in Texas, meaning we know who the major party contenders for the White House will be this fall. We think the presidential candidates should debate the debt as they make the case for who should lead the country. Check out Debate the Debt and sign the petition.

Key Upcoming Dates (all times ET)

June 5

• Congressional Budget Office releases its Long-Term Budget Outlook.
• Presidential contests in California, Montana, New Jersey, New Mexico, and South Dakota.

June 6

• House Budget Committee holds a hearing on CBO's Long-Term Budget Outlook at 10:00 a.m.
• House Appropriations subcommittee Mark Up – FY 2013, Agriculture Appropriations Bill at 10:00 a.m.
• House Appropriations subcommittee Mark Up – FY 2013, Financial Services Appropriations Bill at 11:00 a.m.
• Beige Book on regional economic conditions, released by the Federal Reserve at 2:00 p.m.

June 7

• Joint Economic Committee hearing on “The Economic Outlook” at 10:00 a.m with Federal Reserve Chair Ben Bernanke.

June 14

• Dept. of Labor's Bureau of Labor Statistics releases May 2012 Consumer Price Index (CPI) data.

June 26

• Presidential primary in Utah

June 28

• US Dept. of Commerce's Bureau of Economic Analysis releases its third estimate of 2012 first quarter GDP growth.

July 6

• Dept. of Labor's Bureau of Labor Statistics releases June 2012 employment data.

July 17

• Dept. of Labor's Bureau of Labor Statistics releases June 2012 Consumer Price Index (CPI) data.

July 27

• 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.