October 1, 2014

Washington Budget Report: June 21, 2010

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AmericaSpeaks: National Event This Saturday

The public is invited to participate in an event presented by AmericaSpeaks called the "Our Budget, Our Economy National Town Meeting" this Saturday, June 26. It will consist of town meetings, community conversations and online participation around the country. The results will be reported to the White House and Congress. For more information go to http://usabudgetdiscussion.org/

Tax Break Extensions Would Be a Good Place for Congress to Start More Serious Scrutiny of the Tax Code

As Congress continues to wrestle with the so-called “extenders” legislation that would renew dozens of narrowly targeted tax breaks, the debate still lacks an essential element: Any serious scrutiny of the extenders themselves.

Do these tax breaks – which are much the same as federal spending programs in disguise – really accomplish their stated goals? Are these goals worth the cost? “No one really knows because no one ever asks,” says Robert Bixby, executive director of The Concord Coalition.

“At a time when the President is commendably urging all federal agencies to identify their lowest priority and least effective items, Congress should devote the same level of scrutiny to the tax code,” Bixby writes in a recent blog post. “The extenders would be a good place to start.”

Ending some or all of these tax breaks – also known as “tax subsidies” -- could raise revenue needed for deficit reduction while simplifying the tax code and broadening the tax base. But the annual scramble over the extenders means special-interest campaign contributions for legislators and repeated billing opportunities for lobbyists.

These tax breaks should no longer get a free pass. At a minimum, they should be subjected to careful scrutiny before Congress acts on them. Now that they have expired, however, Bixby says the best decision might be: “Do not resuscitate.” 

Read more with Kill the Extenders!

Belt-tightening at the Pentagon Could – Surprise! – Strengthen National Security

The U.S. military, which has seen its budget grow dramatically over the last decade, now faces widespread calls for less waste and greater efficiency. On Sunday Defense Secretary Robert Gates drove home that message, saying that he was confident President Obama would veto legislation that included funding for an alternative jet engine or C-17 cargo planes that the administration does not consider necessary.

Many Americans assume that belt-tightening in the national security budget would mean weaker defense capabilities. But many defense experts argue that tighter budget restraints could actually improve how the Pentagon operates. 

This idea came across loud and clear at a recent conference at the Naval War College, according to Diane Lim Rogers, Concord’s chief economist. She said that almost everyone at the conference seemed to recognize that tighter defense budgets were inevitable, given the nation’s fiscal problems.

But in a blog post today, Rogers said she was surprised to hear how many conference participants – including those in uniform -- said this could have a positive effect by forcing defense policymakers to better plan and prioritize: “Instead of just trying everything, they would need to put scarce dollars where they would have the most benefit.” 

Fear of being called “soft on defense” leads many elected officials to ignore their responsibility to give the defense budget the same scrutiny that they give to domestic spending. These politicians need a push from the public to ensure that tax dollars are well spent at the Pentagon.

What is a “structural deficit”?

Not all deficits are created equal. They can be grouped into two major categories: cyclical and structural. A recession drives down government revenue because many workers and businesses are no longer earning income that the government can tax, or at least their income has dropped. At the same time, government spending rises because more people need assistance through programs such as Medicaid, unemployment benefits and health insurance subsidies. The result is a temporary, or cyclical, deficit. Once the economy recovers, tax revenue and government spending on assistance programs return to normal levels.

In contrast, a structural deficit reflects a chronic problem. If government spending exceeds tax revenue even when the economy is strong, then the deficit is structural. Structural deficits must be addressed through major changes in tax and spending policies, notably for entitlement programs that claim a large percentage of the federal budget. With structural deficits, one-time spending cuts or temporary tax increases will not solve the problem.

The United States currently faces both a cyclical and a structural deficit. The cyclical deficit is caused by the financial crisis and severe recession from which the country is still recovering. The structural deficit reflects the chronic mismatch between government revenue and spending that under current policies will dramatically worsen as health care costs rise and the population ages.