November 24, 2014

Washington Budget Report: Oct. 23, 2012

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Finding Common Ground on Approaches to Reform

Despite all of the partisan disagreements over the federal budget, some former government officials and other experts have found some common ground on possible approaches to fiscal reform. In a recent blog post Paul Hansen, western states regional director for The Concord Coalition, said he was encouraged by the amount of agreement he saw while watching four recent Strengthening of America forums from his office in Wyoming.

The forums, held in Washington and New York, were convened by a group of former U.S. lawmakers and co-sponsored by Concord and a number of other organizations. Hansen says that much of what he heard in the programs matches what Concord has found working with average Americans around the country.

“These leaders emphasized that nothing we can do would have a more positive effect on growth than Washington embracing a credible long-term deficit reduction plan and sticking to it,” Hansen writes. He also points to agreement among forum speakers on the need to revamp the tax code, curb the growth in health care costs, and reform entitlement programs.

“The strong bipartisan agreement among these experts that something like the Bowles-Simpson framework is a good place to start aligns squarely with the common-sense experience that Concord Coalition staff members see in their everyday contact with people across the nation,” Hansen says.

In addition, organizations of state and local leaders have released statements this year calling on Washington to approve comprehensive plans to deal with the national debt.

“The candidates and Congress would be wise to listen to the Strengthening of America leaders, the states, the mayors and average citizens,” Hansen says. “They all understand what needs to be done – done together and done now.”

Fiscal 2012 Deficit: Nearly $1.09 Trillion

The federal deficit for the fiscal year that ended Sept. 30 totaled $1.089 trillion, about $207 billion smaller than in the previous year but the fourth consecutive deficit of more than a trillion dollars. The government took in $2.449 trillion (15.7 percent of GDP) in Fiscal 2012 and spent $3.538 trillion (22.7 percent of GDP).

The deficit fell to 7 percent of GDP, down from 8.7 percent in Fiscal 2011. The final 2012 figures were released this month by Timothy Geithner, secretary of the Treasury, and Jeffrey Zients, deputy director in the Office of Management and Budget.

They said the deficit declined because of higher government receipts and lower spending, with a strengthening economy partly responsible in both cases. Another factor in the higher receipts was the expiration of certain tax provisions. Other factors in the reduced spending were the expiration or phase-down of stimulus provisions, the end of military operations in Iraq and the continuing drawdown in Afghanistan.

While The Concord Coalition and a number of other nonpartisan groups concerned with the country’s fiscal path say that high deficits are to be expected in the wake of a severe recession, they have urged Washington to develop credible long-term fiscal reforms now that can be phased in as the economy strengthens.

Executives Warn of Fiscal Cliff and Growing Debt

Executives at 15 of the nation’s largest financial companies are urging Washington to act quickly to avoid the year-end “fiscal cliff” while also taking “concrete steps to restore the United States’ long-term fiscal footing.”

“The consequences of inaction – for stability in global financial markets, for economic growth, for millions of Americans still without work, and for the financial circumstances of American businesses and households – would be very grave,” the executives said in a letter last week to the President and members of Congress.

The letter cited Fed Chairman Ben Bernanke’s warning that the fiscal cliff --  a simultaneous combination of “automatic” spending cuts and the scheduled expiration of tax cuts -- would put the U.S. economy back into recession. But the executives said simply avoiding the cliff was not enough and called for more responsible long-term budget policies as well.

They noted Moody’s threat last month to downgrade the United States’ AAA credit rating if upcoming fiscal negotiations do not “lead to specific policies that produce a stabilization and then downward trend” in the ratio of federal debt to GDP “over the medium term.”

The financial executives said such a downgrade -- coming after Standard & Poor’s lowered its rating for the U.S. government last year -- could lead to “significantly higher interest rates” that would worsen the country’s financial situation and increase instability in global financial markets.

Also last week, the Bipartisan Policy Center released a proposed “Framework for a Grand Bargain” that would allow Congress in its lame duck session this year to avoid the fiscal cliff as well as “set the stage for the 113th Congress to undertake spending cuts and revenue increases in order to stabilize the nation’s debt trajectory.”