September 17, 2014

Washington Budget Report: May 3, 2010

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President Obama's Bipartisan Fiscal Commission Holds Its First Meeting And Gets An Earful of Advice

President Obama’s bipartisan fiscal commission held its first meeting last week amid ample -- and appropriate -- warnings that the nation was on a path to fiscal disaster. Commission members, who are charged with recommending solutions to the nation’s short-term and long-term budget problems, were told that time was of the essence. As Robert Reischauer, a former director of the Congressional Budget Office (CBO), put it in one particularly dire comment: the longer reforms are delayed, the greater the risk of “catastrophic economic collapse.”

The commission met Tuesday at the White House with Obama, who said people in both parties must put politics aside and “take a hard look at the growing gap between what the government spends and what the government raises in revenue.”

Federal Reserve Chairman Ben Bernanke emphasized the importance of making the tax system fair, efficient and comprehensible while considering how much revenue would be needed. The commission also heard sobering analyses from Peter Orszag, the White House budget director, and Rudy Penner, another former CBO director.

Obama created the panel – officially known as the Bipartisan National Commission on Fiscal Responsibility and Reform -- in February after congressional efforts to set up a fiscal commission failed. Budget hawks, including The Concord Coalition, had long urged the creation of such a group.

There are 10 Democrats and 8 Republicans on the commission, and any recommendations will require at least 14 votes. The recommendations are due Dec. 1.

Many analysts and lawmakers say the 14-vote requirement will be a high hurdle. But Robert Bixby, Concord’s executive director, says that even if only a limited number of recommendations receive that much support, the commission's work could "still be helpful in defining the magnitude of the problem and the realistic trade-offs that must be made in finding solutions.”

Concord has also urged the commission to focus on long-range, structural problems in the federal budget and to avoid getting bogged down on short-term issues.

The commission's new website features video of the panel’s first meeting as well as prepared testimonies. The commission plans to meet monthly but three smaller groups – focusing on taxes, entitlement spending and other spending – could meet weekly. The next full commission meeting is scheduled for May 26.

Pressure Put On Deficit Panel to Issue Pre-Election Recommendations and Ignore Some Policy Options

Even as it is still getting up and running, the President’s fiscal commission faces pressure to take certain options off the table and to produce early recommendations before this fall’s election. To succeed, the commission must resist such pressure.

The fiscal problems facing the government are so large that the commission cannot afford to leave any stone unturned. Immediately ruling out tax increases or exempting some programs from review would result in accusations of favoritism, undermining the panel’s public credibility.

Many conservatives argue that the commission should only focus on spending reductions. The AARP, meanwhile, has issued a press release headed “Take Social Security Off the Table for Deficit Reduction; Long Term Solvency of Program Should be Addressed Separately.”

Budget experts have wisely advised the commission to carefully consider all the options. President Obama emphasized the same theme last week, saying “everything has to be on the table.” Fortunately, the leaders of the commission have said they intend to take that approach.

A group of House Democrats has suggested “interim” recommendations before the November elections so they could “be a part of various federal, state and local campaigns around the country.” Some Republicans had already suggested that the commission issue recommendations before the elections; John Boehner, the GOP leader in the House, sent commission leaders a letter in March asking that the final recommendations be released on Oct. 1.

Advocates of a bipartisan fiscal commission, however, have long warned that its work could be easily derailed by election-year politics. Issuing recommendations on difficult policy choices shortly before the election would present an irresistible target for political demagoguery.

An Irresolute Congress Continues to Dally on Overdue Budget Resolution

The Senate isn’t moving forward on a budget resolution, and there is an increasing possibility that the House will produce no budget at all.

Action in the House has been delayed by a dispute over discretionary spending. But there are political problems as well: There is simply no way to make the numbers look good. Deficits will remain unusually high over the next five years, and heading into the fall elections many Democrats do not want their names on a budget plan that looks so bad. Republicans are sure to pounce on the “irresponsible debt” regardless of their role in running it up.

That is no excuse, however, for ignoring the problem. Failure to adopt a budget resolution when fiscal “resolution” is needed most would signal to foreign and domestic investors in Treasuries that the government is still in denial about its problems. It would also say to the public that their leaders are incapable of leading or unwilling to do so.

House Passes Bill to Address Improper Payments

The House has passed a bill to strengthen requirements for federal agencies to audit, report and review improper payments. The Office of Management and Budget estimates such payments cost the government $98 billion or more last year.

Generally, these are payments that should have not have been made or were made for incorrect amounts. For several years the Government Accountability Office and other agencies have warned policymakers about the negative impact that improper payments have on the federal budget.

Provisions in the House bill approved last week (HR 3393) strengthen an agency’s obligations to report improper payments and require reviews every three years. These are positive steps. Their value goes beyond dollars saved; reducing waste is a crucial step in restoring public trust in government. Otherwise the public will remain skeptical that broader reforms in popular entitlement programs or tax increases are necessary. A similar bill was approved by the Senate Homeland Security and Government Affairs Committee last July but has not been passed by the full Senate.

Large Losses on Auto Industry Pensions Are a Risk, According to GAO Report

A recent Government Accountability Office report spotlights problems in pension plans at General Motors, Chrysler and related companies that could mean huge losses for the government agency that insures pensions. The federal government has already committed dozens of billions of dollars to helping the auto industry through the Troubled Asset Relief Program (TARP).

The GAO says that projections by the two companies, now partly government-owned, indicate “large contributions may be needed to comply with federal pension funding requirements within the next 5 years.” This could be done if GM and Chrysler return to profitability.

If they do not and their pension plans are terminated, however, the GAO warns that the federal Pension Benefit Guarantee Corporation (PBGC) “would be hit hard.” That agency, which is responsible for protecting the pensions of 44 million American workers and retirees, has estimated its potential losses at $42 billion in the auto sector.