September 17, 2014

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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...

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...

Friday, March 30, 2012 - 1:38 PM

 

Sometimes it can seem like none of our elected representatives are willing to buck their own party leaders, let alone vote for something because it’s for the good of the country, rather than serving some ideological purpose.

That’s why bipartisan support this week in the House to use the Simpson-Bowles commission recommendations to guide the 2013 budget was like a breath of fresh air. No, the amendment did not come close to passing, but the 38 members who broke ranks and voted aye are true heroes of fiscal responsibility. Political considerations took a backseat to doing the right thing, and we enthusiastically commend these brave men and women for stepping up and being counted:

Jim Cooper (D-TN) Sponsor
Steven LaTourette (R-OH) Co-sponsor
Rob Andrews (D-NJ)
Charlie Bass (R-NH)
Dan Boren (D-OK)
Leonard Boswell (D-IA)
Ann Marie Buerkle (R-NY)
John Carney (D-DE)
James Clyburn (D-SC)
Jim Costa (D-CA)
Henry Cuellar (D-TX)
Charlie Dent (R-PA)
Bob Dold (R-IL)
Chaka Fattah (D-PA)
Chris Gibson (R-NY)
Jim Himes (D-CT)
Tim Johnson (R-IL)
Ron Kind (D-WI)
Rick Larsen (D-WA)
Dan Lipinski (D-IL)
Cynthia Marie Lummis (R-WY)
Pat Meehan (R-PA)
Ed Perlmutter (D-CO)
Collin...

Monday, March 12, 2012 - 12:14 PM

Last week two committees in the House of Representatives voted to repeal the Independent Payment Advisory Board (IPAB). This is an alarming attempt to undo a key cost-saving enforcement mechanism without putting anything else in its place.

You may recall that the IPAB was created by the Affordable Care Act (ACA – aka “health care reform”) to reduce the growth in Medicare spending through the use of a spending-target system and a fast-track legislative process. 

The Concord Coalition has long supported the IPAB because it provides a crucial backstop to ensure federal health care savings from the ACA. (See here and here).

The ACA imposed cuts to Medicare, raised some taxes and fees, and created a penalty for people who don’t buy insurance. The legislation also created pilot projects and experiments to determine how to help curb the growth of health care costs. The IPAB was designed to ensure that the Medicare cuts -- or others that would achieve the same level of savings -- will go into effect. The IPAB will also make it less likely that parochial political interests will be able to...

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, December 6, 2011 - 10:49 AM

The current debate over extending the payroll tax cut well demonstrates that policymakers often mean different things when referring to policies that “help” or “expand” the economy. I often hear the words “stimulus” and “growth” used interchangeably, but when economists use them, we typically are making a distinction between different economic goals that apply to different circumstances.

“Stimulus” usually refers to short-term policies to increase demand for goods and services in an economy  operating at less-than-full capacity -- i.e., an economy with high unemployment. In such a recessionary economy, the problem is not a lack of productive resources (capital and labor), but a lack of demand for the goods and services that those resources produce. Under such conditions, public sector deficits -- whether through tax cuts or direct spending -- can be an effective way to increase demand (consumption) and the level of economic activity.

“Growth” usually refers to the long-term expansion of the “supply side” of the economy -- that is, the supply of capital and labor. When the economy is at “full employment,” the binding constraint on it is not the demand for goods and services, but the supply of inputs to production. Fiscal policies that are good at growing the economy over the longer term are therefore those...

Tuesday, November 1, 2011 - 12:00 AM

Members of the Joint Select Committee on Deficit Reduction (“super committee”) have a timing problem that compounds their political problem. Put simply, they may run out of time to reach agreement on the kind of comprehensive changes that are needed to put the nation’s finances on a sustainable path. However, with a little cooperation and a strong dose of leadership, they need not let the clock run out on their efforts.

The super committee’s political problem is easy to see. Its official goal is to cut the deficit by $1.5 trillion over 10 years. This won’t be easy, but as the Government Accountability Office (GAO) recently pointed out, even if lawmakers are able to achieve this goal it would still leave the debt on an unsustainable growth track. That is why the President, the chairman of the Federal Reserve Board, many members of Congress and countless outside commentators have urged the super committee to aim for a more ambitious target – anywhere from $3 trillion to $5 trillion.

However, to reach this goal, often described as “going big,” the super committee will have to tackle the two thorniest fiscal policy issues – entitlement and tax reform. These issues have stymied every other long-term budget negotiation this year because they are where the parties have their biggest differences.

And yet, we...

Thursday, October 20, 2011 - 12:00 AM

Last January, members of Congress paired up with colleagues of the opposite party for the State of the Union Address. It was a welcome, if symbolic, display of political civility.

In the ensuing months, Congress and the Obama administration have struggled to put this civility into practice as they have grappled with sincere disagreements over the best approach to meeting the nation’s fiscal and economic challenges.

Agreements were eventually reached on funding levels for the remainder of the 2011 fiscal year and on a complex process for raising the statutory debt limit. These agreements, however, largely avoided entitlement and tax reform -- the core issues on which Democrats and Republicans disagree and on which so much of our future depends.

Moreover, the partisan, petty and contentious atmosphere that continues to hang over Capitol Hill has angered the public and rattled financial markets.

There is hope, however, that the new joint congressional committee -- set up to find ways to reduce projected deficits by $1.5 trillion over the next 10 years -- can change things.

With an even split between the two parties and the backing of congressional leaders and the President, the committee has an opportunity to transcend politics as usual, exceed its modest mandate and forge a fiscal...

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...

Thursday, September 8, 2011 - 12:00 AM

It is not inconsistent to provide effective short-term support for the economic recovery while laying the groundwork for long-term deficit reduction. To do so, however, Washington will have to move beyond the inflexibility and partisan vitriol of the recent debt limit debate.

President Obama took some helpful steps in this direction in his speech to Congress this evening. He offered several short-term proposals that could conceivably provide both an economic boost and a basis for bipartisan cooperation – which are together essential ingredients for effective fiscal policy and for repairing some of the damage that the debt limit debate inflicted on public confidence.
 
A full evaluation of the President’s plan, however, will need to take into account the ideas he will release later for paying for his new proposals and moving the federal budget toward a sustainable path. A credible plan to stabilize the debt over the long term will be essential to making short-term measures more effective. It is not just a matter of making the numbers work; it is sound economics.

As The Concord Coalition has long argued, “fiscally responsible deficit spending” need not be an oxymoron. During periods of economic difficulty when deficit spending may be required, the key is to ensure that the country gets the...