September 21, 2014

Posts on federal budget

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Friday, August 10, 2012 - 2:05 PM

Congressional procrastination could lead to chaotic decision-making on the federal budget after the November elections, but many economists believe this procrastination is already harming the economy.

The damage stems from widespread uncertainty over what elected officials will do, if anything, about the “fiscal cliff” – a combination of sharp “automatic” spending cuts and the scheduled expiration of tax cuts at year’s end.

The Wall Street Journal reported today on its survey of 47 economists, noting their widespread concern about the growing economic cost of congressional inaction. This “adds insult to injury to an economy already flirting with a stall rate,” said Diane Swonk of Mesirow Financial. Another analyst, Julia Coronado of BNP Paribas, said: “We are already feeling the effects in hiring and investment.”

The general expectation in Washington is that elected officials will not take action on the fiscal cliff until after the elections, despite encouragement throughout much of this year from The Concord Coalition and many other analysts and groups to work out a bipartisan action plan as soon as possible.

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Thursday, August 9, 2012 - 9:10 AM

Beginning in January, approximately $109 billion in across-the-board spending cuts are scheduled to automatically take effect. Known in budget policy circles as a “sequester,” these cuts are unusual in that the executive branch directs how the spending cuts occur, as opposed to the traditional locus for such cuts -- the congressional Appropriations Committees.

Because this sequester could have such a dramatic impact on many federal programs and the economy in general, Congress is eagerly awaiting specifics about how the administration plans to implement the cuts. On Tuesday President Obama signed the Sequestration Transparency Act, which requires him and the Office of Management and Budget to put forth a report in 30 days on how a sequester would be implemented. An overwhelming House majority passed the legislation last month, and the Senate approved it unanimously.

Sequesters have been part of the budget process for decades. Were this sequester to go into effect, however, it would be among the few that have ever actually taken place in this country’s history, and would certainly have the greatest budgetary effect.

The sequester was initially intended as a “Sword of Damocles” over the “super committee” created by the August 2011 deal to raise the debt limit. It was not actually designed to take effect;...

Tuesday, July 17, 2012 - 12:52 PM

Today Concord Coalition Co-Chair Sam Nunn, a former U.S. senator from Georgia, helped launch the Campaign to Fix the Debt.  This project is a non-partisan initiative to put America on a better fiscal and economic path.  Nunn is a member of the campaign's steering committee.  

In advance of the campaign's launch, Nunn said:

"On fiscal matters, neither political party can impose its will on the other, and that it is not likely to change after the election.  Successfully tackling our fiscal challenges requires Members of Congress to come together across party lines with a balanced plan that will strengthen the economy, reassure markets, and save future generations from an unbearable debt burden.  There are good people across the political spectrum who recognize this in putting together the Simpson  – Bowles and the Domenici  – Rivlin plans.  There are many Members of Congress who are willing to work together, but they get hit hard from both sides and need a foundation of citizen support.  The Campaign to Fix the Debt hopes to give these folks in Washington, DC and across the country the support they need to work together to put our nation's interest above political parties and to strengthen America to protect our children's...

Friday, May 25, 2012 - 10:06 AM

The Congressional Budget Office (CBO) has released an excellent analysis on the "Economic Effects of Reducing the Fiscal Restraint That Is Scheduled to Occur in 2013."  The CBO term “fiscal restraint” has been more popularly referred to as “the fiscal cliff.” That is because there are so many large, sudden fiscal policy changes awaiting us at the turn of the year that if we think of the U.S. economy as a train, it is heading straight for a dramatic fall-off in consumer demand (and hence in overall activity in an economy still constrained by inadequate demand) as these policy changes all happen at once.

Some of the main changes we will face are the expiration of the 2001 and 2003 tax cuts, the expiration of the payroll tax cut, and the beginning of automatic spending cuts required by the debt limit law passed last August. The concern is that taking so much money out of the economy at one time, through either tax increases or a reduction in government spending on goods and services, would slow consumer spending. That would reduce businesses’ desire to increase hiring, which would lead to continued high unemployment. 

And yes, the worry is that the rapid deficit reduction will be harmful. As I explained...

Tuesday, May 15, 2012 - 8:34 AM

Throughout this painfully prolonged economic recovery, economic developments as they are reported have often been confusing. They seem to send mixed messages about the best courses of action for fiscal policy.

Sometimes we are told that more personal spending (consumption) would be good, and sometimes we are told we need to save more. Sometimes we are told that we need to reduce the government budget deficit, and sometimes we are told that continued deficit spending is needed to avoid a double-dip recession.

So what should we be doing with fiscal policy right now -- consolidating or stimulating?

The most recent economic news is that the economy’s overall growth rate has slowed and is falling short of expectations (2.2 percent annual growth rate of GDP for first quarter of 2012 compared with 3 percent in the prior quarter and 2.5 percent expected). Personal spending has slowed as well (0.3 percent monthly growth in March, down from 0.9 percent the prior month and below the 0.5 percent expected). Job gains have also weakened and are not keeping pace with the natural growth in the working-age population.

This news suggests that more private consumption spending, encouraged by continued stimulative, deficit-financed government spending and tax cuts, is needed to further expand...

Monday, April 2, 2012 - 12:00 AM

A rare display of bipartisan fiscal cooperation broke out on Capitol Hill last week when 38 House members (22 Democrats and 16 Republicans) braved an onslaught of interest group pressure to vote in favor of a budget resolution designed to rein in the deficit through a combination of spending cuts and tax increases. The budget plan, offered by Representatives Jim Cooper (D-TN) and Steven LaTourette (R-OH) as an amendment to the House budget resolution, was based on the recommendations of the Simpson-Bowles fiscal commission. It came 15 months after a bipartisan majority of that commission put forth a credible and comprehensive plan to address the deficit and was the first budget plan based on the commission’s work to come up for a vote in the House or Senate.

While the nays on the Cooper-LaTourette amendment outnumbered the yeas by 10 to 1, the very existence of a bipartisan budget alternative signaled an important breakthrough. It demonstrated growing frustration with the starkly partisan plans that members are routinely pressured to choose from and established a framework upon which future bipartisan efforts can be built.

There is little doubt that future efforts will be needed.

Legislation will have to be enacted by the end of the year unless Congress and the President want to allow all expiring tax...

Tuesday, February 14, 2012 - 9:58 AM

For the fourth time in four years, President Obama has tucked a little gem of a tax policy proposal into his budget: the proposal to limit the tax benefit of itemized deductions to 28 percent.  It’s a great idea because it would reduce a large tax subsidy (i.e., “tax expenditure”) for those who need it least, improve the economic efficiency of the tax code and raise revenues that could be used as part of a deficit-reduction package. Last year the Congressional Budget Office estimated the president's proposal would raise $293 billion over 10 years. A more ambitious version limiting itemized deductions to a 15 percent rate, as presented in the CBO's compendium of budget options, would raise $1.2 trillion over 10 years -- in other words, equivalent to trimming overall tax expenditures (which are over $1 trillion per year) by about 10 percent through that one policy change alone.

This year, however, the Obama Administration went bolder on their general theme of reducing tax expenditures for high-income households and proposed the 28 percent limit not only for itemized deductions but also for foreign-excluded income, tax-exempt interest, employer-sponsored health insurance, retirement contributions, and “selected” above-the-line deductions.  All these current tax preferences would be limited to that...

Monday, December 12, 2011 - 1:00 AM

If Congress were to simply follow the budget path laid out in current law, the federal government might escape some of its widely anticipated fiscal problems over the next few years. But that is a big “if,” as became clear Friday at a forum at the University of New Hampshire School of Law.

In the keynote speech, Mark Zandi, chief economist for Moody’s Analytics, said he was more optimistic than many economists about the nation’s prospects and the likelihood that Washington would move the country onto a more sustainable track.

Robert L. Bixby, executive director of The Concord Coalition, offered a more guarded assessment of the nation’s fiscal problems and noted the possibility that elected officials could stray far from the promising budget path laid out by current law. “The catch is following through,” he said.

The forum was sponsored by the law school, the Whittemore School of Business and Economics, the New Hampshire Business and Industry Association, and Concord. It was part of “Next-Generation Matters,” a series of conversations in New Hampshire about the country’s economic future.

Despite this year’s political squabbles over increasing the federal debt limit, Zandi said, elected officials in both parties see the need to...

Tuesday, September 27, 2011 - 7:49 AM

The “dynamic scoring” debate is back again. Last week the House Ways and Means Committee—chaired by Dave Camp (R-MI), who also happens to be a member of the debt-limit deal’s “super committee”—held a hearing on the subject, calling on the Joint Committee on Taxation’s chief of staff, economist Tom Barthold, to explain why that committee still estimates the revenue effects of tax legislation using “static” methods.

The Washington Post’s Lori Montgomery reported on this “old battle,” wondering out loud whether the super committee will resort to dynamic scoring as a “magic elixir that greases the skids to a more far-reaching compromise.”

Well, unfortunately for certain policymakers, dynamic scoring is not so magical.

“Dynamic scoring” refers to revenue estimates that would be...

Monday, September 19, 2011 - 12:00 AM

President Obama deserves credit for putting Medicare and Medicaid on the table for deficit-reduction efforts and for encouraging the new super committee to exceed its assigned goal. But the President’s  new proposals to that panel, released today, fall short of comprehensive structural reform in health care and tax policy, and his decision to leave Social Security out of the plan is disappointing as well.

Amid growing concerns about a double-dip recession, the administration has focused this month largely on short-term measures to support the economy. These measures should not preclude putting long-term deficit reduction plans in place, and in fact such plans can dramatically boost the effectiveness of the short-term initiatives.

So Obama’s suggestion that Washington proceed on both the short- and long-term fronts is welcome.  So is his willingness to discuss changes in Medicare and Medicaid, two of the federal government’s largest and most rapidly growing programs. Significant changes will be needed in those programs  if the nation is to have any hope of eventually putting itself on a more responsible and sustainable fiscal course.

The proposals to change other mandatory spending programs, such as cutting agriculture subsidies and increased cost-sharing in...