August 22, 2014

Washington Budget Report: Jan. 25, 2011

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State of the Union: Deficit Reduction Plan Needed

In preparing for tonight’s State of the Union address, President Obama would do well to heed suggestions recently offered from two fiscal experts who have advised him in the past.

Christina Romer, former chairwoman of the President’s Council of Economic Advisers, urged him in a New York Times op-ed to focus on the need for a comprehensive plan to deal with long-run projected budget deficits.

“I am not talking about two paragraphs lamenting the problem and vowing to fix it,” Romer wrote. “ I am looking for pages and pages of concrete proposals that the administration is ready to fight for.” She cautioned against immediate fiscal austerity measures that would jeopardize the economic recovery but said legislation this year to gradually trim future deficits could boost the economy by “raising confidence and certainty.”

Romer said the recommendations of the President’s bipartisan fiscal commission would be “a very good place to start.” She pointed to the need for shared sacrifice, tax reform, entitlement reform and spending cuts as well as revenue increases.

In a subsequent New York Times piece last Sunday, a member of that commission -- Alice Rivlin, who also recently co-chaired the Bipartisan Policy Center’s Debt Reduction Task Force -- touched on many of these same suggestions while also emphasizing the need for job growth.

The President should urge "immediate action on a multiyear deficit reduction plan,” Rivlin wrote. “America’s future prosperity and global power are on the line.”

A day after the president's speech, the Congressional Budget Office will release updated budget projections that will further highlight the importance of deficit reduction.

The Bitter and Sweet of Health Care Reform

Republicans say they are working on new proposals after the House on Thursday approved repeal of last year’s health care legislation.

The 245-189 vote was considered largely symbolic because the President and Democrats, who control the Senate, support the original legislation. Several House committees, however, are still planning to work on alternative plans.

Even after voting for repeal, some Republicans praised popular elements in last year’s law such as a ban on the denial of insurance coverage because of pre-existing medical conditions.

The problem is that the popular features are funded or otherwise made possible by less popular parts of last year’s bill. Retaining costly improvements in the health care system while doing away with the less popular measures to support them is a recipe for disaster as health costs skyrocket for individuals and businesses, federal deficits increase, or both.

All of the Budget Should Be Scrutinized

Members of the Republican Study Committee and the Senate Steering Committee have proposed legislation to cut $2.5 trillion in spending over 10 years -- cuts that go beyond those proposed by House Republican leaders or President Obama.

Non-security discretionary spending (which excludes defense, homeland security, and veterans programs) would be cut to 2008 levels for 2011 and non-defense discretionary spending would be cut to 2006 levels for 2012-2021. While the bill includes some specific cuts, most of the savings are not specified.

The House is scheduled to vote today on a resolution instructing the House Budget Committee chairman to set 2011 budget allocations reducing non-security discretionary spending to 2008 levels or less.

Both proposals rely primarily on discretionary spending for savings.  Increased scrutiny of appropriations is a positive development, but costly items such as tax breaks, defense, Social Security and Medicare should also be scrutinized. Even eliminating all discretionary spending would account for less than 40 percent of the budget -- less than 20 percent if defense is excluded.

Time to Clean Up the Tax Code Mess

Lawmakers in both parties promised to work together to revamp the tax code as the House Ways and Means Committee last week held a hearing on the subject. Several recent panels, including the President’s fiscal commission, have suggested that tax reform could play an important role in deficit reduction.

Nina Olson, the IRS taxpayer advocate, offered a blunt assessment echoed by other witnesses at the hearing: “In my view, the tax code today is a mess.” Committee Chairman Dave Camp (R-MI) and Ranking Member Sander Levin (D-MI) both released statements emphasizing the need for substantial changes.

Eliminating tax breaks would make it possible to reduce tax rates yet bring in more revenue than in the past. Lawmakers must resist the temptation, however, to try to streamline the system without addressing the massive imbalance between federal revenue and expenditures. The fiscal situation has deteriorated past the point where we can afford the sort of “revenue neutral” tax reform that Congress approved in the 1980s.

The Concord Coalition urges the President and both parties in Congress to work together in putting a high priority on tax reform this year -- an effort that can both support the current economic recovery and promote long-term deficit reduction.