April 18, 2014

Washington Budget Report: Apr. 19, 2011

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Dueling Long-Term Plans

President Obama has jumped into the debate over long-term fiscal responsibility with a plan that differs sharply from the one unveiled earlier this month by Rep. Paul Ryan (R-WI), chairman of the House Budget Committee. In a welcome move, Obama last week also called for high-level, bipartisan negotiations aimed at developing a concrete plan to stabilize the debt-to-GDP ratio by the end of June.

Obama is pushing for his new plan outside of Washington, including Chicago, San Francisco and Los Angeles, but he is unfortunately doing so in campaign-style events that will stoke partisan emotions. The plan would eliminate many tax breaks, cuts hundreds of billions of dollars in both domestic and defense spending in the coming decade, allow the Bush tax cuts for high-income people to expire, and try to curb the growth in Medicare and Medicaid spending.

Last week the House approved Ryan’s plan – which also promises even more deficit reduction while revamping Medicare and Medicaid -- without a single Democratic vote and with no chance of Senate approval.

Now that both parties have laid down their policy markers, it would be helpful if the President could use his appearances around the country to explain the dimensions of the fiscal challenges and lay the groundwork for the bipartisan cooperation that will be essential to reaching solutions.

On Monday Standard & Poor’s provided a reminder of the need for such solutions when it lowered its outlook for the credit rating of the United States from “stable” to “negative.” This raises the possibility that the country could eventually lose its top AAA rating. An S&P analyst noted that U.S. policymakers continue to disagree “on how to reverse recent fiscal deterioration or address longer-term fiscal pressures.”

2011 Budget Finally Done

The 2011 budget process finally came to a close last week when President Obama signed legislation funding the government for the remainder of the fiscal year.  According to the Congressional Budget Office, the $1.05 trillion in non-emergency spending in the bill will save approximately $38 billion in budget authority but only $352 million in outlays this year.

The larger CBO estimate and earlier estimates released by the Appropriations Committees are in budget authority and the smaller estimate is in outlays-- two different ways of measuring spending. Budget authority is the authority to enter into obligations that will result in spending. When the funds are actually spent, they become outlays and have an effect on the deficit.

Because many of the cuts in the new legislation were to programs that spend slowly and the fiscal year is more than half over, CBO estimated that most of the outlay savings would occur after this fiscal year. Over the next ten years, the outlay savings will increase so that the $38 billion in budget authority savings will eventually result in outlay savings of $20 billion to $25 billion.

Total outlay savings fall short of the budget authority savings because CBO concluded that many of the proposals included in the bill (particularly changes to mandatory programs) would have little or no effect on outlays.  In some cases, cuts were made to budget authority that was unlikely to be spent in the first place.  While this practice is frequently criticized as a budget gimmick, it has the beneficial effect of taking these balances off the table for funding future legislation.

Follow the Money

"Where is all of the money going?" While filling out tax returns and writing checks to the federal government, people often ask this question. Finding answers became easier last week when the White House released an online federal tax receipt.

By entering a few numbers from their tax returns, taxpayers will now be able to receive an itemized list showing how their tax dollars are distributed among federal programs, including interest on the debt.

President Obama proposed the receipt in his State of the Union address this year.  A similar receipt was also proposed in bipartisan legislation introduced in the House last week and in the Senate earlier this year.

Iowans Hear Case for Comprehensive Reform

As Washington wrapped up this year’s spending plans last week, The Concord Coalition’s Fiscal Solutions Tour encouraged Iowa residents to focus on larger challenges facing the country: an aging population, rising health costs, and structural problems in the federal budget.

Tour speakers, in programs Wednesday in the Iowa City area, emphasized the need to embrace a wide range of options to hold down federal debt and prepare the country to effectively provide for an aging population.

“Not only is there no easy solution, there’s no single solution,” said Alice M. Rivlin, a senior fellow at the Brookings Institution and a member of two bipartisan fiscal commissions.

Much of the day’s discussion centered on the need for fundamental change in the health care system. James C. Capretta, a fellow at the Ethics and Public Policy Center, noted that many Americans directly pay little for their own care and consequently have little incentive to economize.

Robert L. Bixby, Concord’s executive director, drew attention to the ethical aspects of budget reform: “It is not just a numbers issue, it really is a moral issue about leaving behind a better future for our country.”

Needed: Courage, Cooperation and Public Support

Projected federal deficits are so large that Congress should look far beyond the non-defense spending on which it has heavily focused in recent weeks.

In a guest commentary on ABC.com, Concord Coalition Executive Director Robert L. Bixby notes that bipartisan groups have recommended a much broader approach that would include military spending cuts, more effective curbs on health care costs, entitlement reform and the closing of tax loopholes.

“Fortunately, there are many possible solutions to the enormous fiscal and economic challenges facing the country,” Bixby said. “But they will require political courage, bipartisan cooperation and the active support of voters around the country.”

Debits & Credits

Doing The Right Thing: Sen. Saxby Chambliss, a Georgia Republican who has been heavily involved in the “Gang of Six” effort in the Senate to develop a bipartisan deficit-reduction plan, has shown great political courage in explaining to some conservatives that the fiscal problems are so large that additional revenue will be needed. “You’ve got to do the right thing and what’s best for the country,” he says.

Choosing Their Own Umpires: The nonpartisan Congressional Budget Office traditionally scores legislation for Congress, but House Republicans and the Congressional Progressive Caucus recently clouded analysis of their plans by using estimates from outside organizations. Because these organizations often have agendas and a stake in the outcome, Congress is best served by consistently relying on estimates by government agencies.