October 25, 2014

Washington Budget Report: November 29, 2011

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Lessons from This Year’s Failures

In the wake of the super committee’s failure last week, Congress faces some key decisions on expiring policies over the next few weeks that could have a significant impact on the federal deficit in the years ahead.  

On Monday, for example, Senate Democrats introduced legislation to temporarily extend and increase this year’s cuts in Social Security payroll taxes, to 3.1 percent of wages for employees and reducing employers’ contributions as well. Also Monday, Senate Republican Leader Mitch McConnell called for prompt passage of legislation aimed at creating jobs.
 
Some lawmakers also continue to express interest in undermining the “automatic” cuts that are supposed to make up for the super committee’s inability to agree on a $1.2 trillion deficit-reduction plan.
 
In moving forward, lawmakers should heed two important lessons from this year’s mistakes on the budget, says Robert L. Bixby, executive director of The Concord Coalition: “Focus on the issues that matter most, and don’t exclude the public from the discussion. If the events of 2011 have taught us anything, it is that backroom negotiations over limited goals are not how our fiscal challenges will be solved.”
 
In a new op-ed for CNN, Bixby emphasizes that Congress must also look even beyond the coming decade. With Medicare, Medicaid and Social Security all growing faster than both the economy and projected government revenue, he says, it is crucial for Congress to make cost-saving reforms in those programs.
 
At the same time, he adds, there is “ample room” to reform the tax code by cutting back on loopholes, lowering rates and bringing in more revenue.
 
Because such sweeping changes will need public understanding and support, Concord has urged members of Congress with different viewpoints to hold “two-by-two” fiscal forums in which they present undisputed facts and engage with each other’s constituents about budget options.
 
“Back in Washington,” Bixby writes, “members should also pair up in co-sponsoring bipartisan plans to address the deficit, with or without the support of congressional leaders. Efforts such as the Senate’s ‘Gang of Six’ should be revived and expanded. The logical place to start is with the recommendations of the Bowles-Simpson and Rivlin-Domenici commissions.”
 
Read more with Debt Crisis Must Be Solved in the Open

Rocky Mountain Residents Accept Tough Budget Choices

With the national debt reaching the $15 trillion mark this month, average citizens are showing a keener appreciation of  the need for more sustainable federal budgets than many elected officials. 

“When given a chance, ordinary citizens, college students and even high-schoolers have done much better at reducing the deficit than members of Congress,” says Paul W. Hansen, Rocky Mountain states regional director for The Concord Coalition.
 
In a guest column in the Billings Gazette, he points to recent budget exercises that Concord has conducted in his region and around the country: “In the Rocky Mountain states, citizens from across the political spectrum have been able to agree to budgetary changes that would reduce deficits by at least the $1.2 trillion that eluded the super committee. In most cases, these citizens found amounts close to the $4 trillion, which would move us much closer to stabilizing the debt.”
 
Hansen notes that both political parties deserve some blame for the rapidly growing debt, and both must be part of the solution.
 
“Anyone who is serious about budget reform must be equally serious about compromise,” he says, adding: “We cannot simply cut, tax or grow our way out of this fiscal crisis. We must do all three.”
 
Read more with Ordinary Citizens Can Agree on Solving U.S. Deficit Challenges
 

Worried by Federal Debt, Fitch Lowers U.S. Outlook

Fitch Ratings on Monday affirmed the U.S. government’s AAA rating but lowered its long-term rating outlook from “stable” to “negative” and warned that there is “a slightly greater than 50 percent chance of a downgrade over a two-year horizon.” 

The U.S. economy remains one of the most productive in the world, Fitch noted, while the dollar is still “the pre-eminent global reserve currency.” This enables Washington to borrow at low interest rates, at least for now.
 
But Fitch projects that federal debt held by the public could exceed 90 percent of the Gross Domestic Product  by the end of the decade – with interest consuming more than 20 percent of the government’s tax revenue. That level of debt, Fitch warned, would limit the government’s “ability to respond to future economic and financial crises.”
 
The recent failure of the congressional super committee on deficit reduction, Fitch said, “underlines the challenge of securing broad-based consensus on how to reduce the out-sized federal budget deficit.”
 
Fitch echoed warnings from The Concord Coalition and many other budget analysts that further deficit reduction efforts would not be credible if they relied solely on promised cuts in discretionary spending and failed to include tax and entitlement reforms.
 
Another big credit rating agency, Standard & Poor’s, lowered the U.S. one step below AAA in August. That controversial move came shortly after political disputes threatened to cause the government to default on its financial obligations.


Citizens Can Make Themselves Heard

Although the nation’s economic and fiscal challenges are daunting, Diane Lim Rogers, The Concord Coalition’s chief economist, encourages ordinary citizens not to give up in pressing politicians for effective action. 

“Think the only way to influence them is with money? Wrong,” she argues in a recent guest column for The Christian Science Monitor. “Just as the ‘Occupiers’ and tea partyers have discovered, there's tremendous potential power in using one's freedom of speech – whether it's attending rallies, writing letters to politicians or local newspapers, speaking up on social networks, or exercising the right to vote. These are all free ways each one of us can make a difference.”
 
Rogers also emphasizes that the country has many strengths and its problems are not insurmountable: “The U.S. economy can produce far more jobs, once confidence returns, and has the resources to plug any fiscal shortfalls, once we get politicians to cooperate.”
 
Read more with The Economics of Gratitude