August 22, 2014

Washington Budget Report: Apr. 5, 2011

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Ryan Budget Suggests Big Changes

House Budget Committee Chairman Paul Ryan today released a budget plan that promises to cut projected deficits by more than $1.6 trillion over the coming decade. While this is a serious and commendable effort, the plan’s policy mix is unlikely to attract bipartisan support.

To its credit, the plan includes substantial savings from Medicare and Medicaid, programs that account for much of the projected growth in the federal budget. A key question: Are the proposed cuts in Medicare and Medicaid sustainable for patients, providers and state governments?

Ryan’s budget would reduce outlays, revenues and deficits compared to either the President’s budget or the Congressional Budget Office baseline. However, even with dramatic domestic spending cuts, debt held by the public would remain higher in terms of GDP than it is today – and higher than recommended by various bipartisan commissions.

Ryan takes an important step towards sensible tax policy by recognizing the need to close loopholes and broaden the tax base. But his plan fails to use any of the savings for deficit-reduction; that misses an opportunity to build bipartisan consensus.

Ryan also fails to look for substantial defense savings and offers no specific proposals to reform Social Security, even though the reform options are actually much clearer for Social Security than they are for Medicare and Medicaid.

Say, Look at That Cliff . . .

As the political squabbling has continued over proposed cuts in a small part of the federal budget, dozens of fiscal, economic experts and business leaders renewed calls for President Obama and Congress to begin serious talks aimed at developing a comprehensive reform plan to curb the rapid growth of the federal debt.

Robert L. Bixby, executive director of The Concord Coalition, said the debate in Washington over the current year's budget has reminded him of the Three Stooges fighting in the back seat of a car without noticing that they were headed for a cliff.

It is encouraging, however, that 64 senators and the Blue Dog Democrats in the House have committed themselves to use the recommendations of the President’s bipartisan fiscal commission as a starting point for developing a broad, long-range reform plan.

But similar commitments are needed from more House members and the President himself. And elected officials need to quickly clear the deck for this critical effort by cooperating with each other to wrap up a deal on this year’s budget.

Struggles Continue on 2011 Budget

With the continuing resolution (CR) that currently funds government agencies set to expire on Friday, policymakers will need to reach agreement this week on a new resolution to avoid a government shutdown.

Yesterday Republicans on the House Appropriations Committee proposed yet another short-term CR.  It would include an additional $12 billion in cuts, fund the Department of Defense for the remainder of the fiscal year, and fund other government agencies for another week while negotiations continue.  Six previous CRs for the fiscal year included a total of $10 billion in cuts.

President Obama discussed appropriations with congressional leaders at a White House meeting this morning.

A Debt Limit Deadline

The Treasury Department now estimates that the federal government will reach its legal debt limit no later than May 16, although it could use “extraordinary measures” to avoid default through July 8.

Some members of Congress have suggested that refusing to raise the debt limit would be an effective way to curb government spending. But defaulting on the debt is hardly a realistic option, for reasons outlined by Treasury Secretary Tim Geithner in a letter to Congress on Monday.

Failure to increase the limit, Geithner wrote, would mean “a broad range of government payments would have to be stopped, limited or delayed, including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds.” It would also cause a financial crisis “potentially more severe than the crisis from which we are only now starting to recover.”

In February the Government Accountability Office (GAO) issued a report that also warned that delayed action on the debt limit could have a number of negative consequences, including disruptions in the financial markets and higher borrowing costs. The GAO suggested that decisions about the debt level should occur, as in some other countries, "in conjunction with spending and revenue decisions as opposed to the after-the-fact approach now used."