October 1, 2014

Washington Budget Report: Nov. 13, 2012

« Back to WBR Issue List

Sign Up to receive the Washington Budget Report »


Post-Election Choice: Calamity or Compromise

Advocates of fiscal reform are reiterating their calls for bipartisan cooperation and compromise in the wake of national elections that left Democrats in control of the White House and the Senate, and Republicans in control of the House.

“The status-quo election tells us this: Republicans cannot plausibly argue that the country has rejected President Obama or a Democratic-led Senate. Democrats cannot plausibly argue that House Republican ideas have been rejected,” says Concord Coalition Executive Director Robert L. Bixby.” The American people have sent them back to Washington to work together in the national interest.”

Bixby said Republicans and Democrats must quickly begin to negotiate a responsible alternative to the year-end “fiscal cliff,” a combination of scheduled tax increases and spending cuts that could throw the U.S. economy back into recession. Many officials in both parties say they hope to find such an alternative, something that many business leaders are now strongly urging Washington to do as well – notably through the Campaign to Fix the Debt, a broad coalition effort supported by Concord.

Bixby cautions that elected officials should not simply kick the deficit-reduction can down the road, however.

“The year-end fiscal cliff is bad,” he wrote in a recent blog post, “but eventually we will need the longer-term deficit reduction produced by the policies comprising the fiscal cliff. It just needs to be phased-in in a more rational way, as proposed by the bipartisan Simpson-Bowles and Domenici-Rivlin recommendations.”

Congress is returning to the Capitol this week. Over the past week leaders in both parties have said they are open to cooperation and compromise. Republicans have indicated they might be willing to agree to higher government revenues as part of a compromise package. Critical issues to be decided, however, include tax rates for the wealthiest taxpayers and entitlement reforms that would produce meaningful savings for deficit reduction.  

President Obama is scheduled to meet with congressional leaders later this week at the White House. He is also meeting this week with labor leaders and business executives, including some members of the Fix the Debt coalition.

“Solutions will be impossible,” Bixby warns, “if both parties retreat to their partisan concerns and stubbornly insist that compromise is only something for the other side to do and that any calamity is only the other side’s fault. It’s long past time to stop such unrealistic nonsense.”

CBO Estimates Potential Damage from Fiscal Cliff

This infographic gives a breakdown of the components of the fiscal cliff, along with their economic impacts.

The Congressional Budget Office (CBO) has once again warned lawmakers of the potential economic damage of failing to act on the “fiscal cliff” -- the combination of automatic spending cuts and expiring tax cuts scheduled to begin in January.

If these provisions in current law are all permitted to go into effect, CBO estimated in a report last week, real gross domestic product (GDP) would drop by 0.5 percent in 2013 and the unemployment rate would rise to 9.1 percent in the fourth quarter of that year. CBO estimates that economic growth would later increase, however, and unemployment would decrease to 5.5 percent by 2018.

The new report is called “Economic Effects of Policies Contributing to Fiscal Tightening in 2013.”

If some or all of the fiscal cliff components were removed, economic output and employment could improve over the short term from what they otherwise would be. The report provides two sets of calculations on these economic effects. One emphasizes how avoiding various cliff components would boost GDP. The other calculations offer a “bang per buck” comparison by dividing the GDP effects by the budgetary cost of the policies. Both sets of calculations can help policymakers develop a more thoughtful and effective approach to deficit reduction.

Changing the components of the fiscal cliff could help the economy over the short term. The budget office continues to caution, however, that alternative measures providing a comparable amount of deficit reduction over the coming decade would be necessary to prevent long-term harm to the economy.

The CBO states that “a continued surge in federal debt during the rest of this decade and beyond would raise the risk of a fiscal crisis (in which the government would lose the ability to borrow money at affordable interest rates) and would eventually reduce the nation’s output and income below what would occur if the fiscal tightening was allowed to take place as currently set by law.”

The CBO last week also released another report called “Choices for Deficit Reduction.” It reviews the magnitude and causes of the federal government’s budgetary imbalance and provides an update on possible options for “bringing spending and taxes into closer alignment.”

State, Local Leaders Call for Action in Washington

Alarmed about the impact that federal budget problems could have on other levels of government, state and local officials have become increasingly vocal this year in calling for constructive action in Washington.

While welcoming these calls, Paul Hansen, western states regional director for The Concord Coalition, says state and local leaders could do more.

“State and local leaders can help by taking a pass on wasteful federal projects and by urging more responsible action by recalcitrant or timid federal officials,” Hansen says in a new blog post.

The United States Conference of Mayors and two associations of state legislators issued “compelling resolutions” that urge action by federal officials, he writes.

Earlier this year, for example, the National Conference of State Legislators asked Congress and the President to approve a comprehensive plan modeled after recommendations from the Domenici-Rivlin and Simpson-Bowles panels. And in Hansen’s own state of Wyoming, the legislature overwhelmingly approved a resolution asking Washington for “a comprehensive deficit and debt reduction plan.”

“For too long,” Hansen points out, “a common measure of success for members of Congress has been how much federal money they could siphon off to their home district.” More state and local leaders should reject that standard in favor of more responsible fiscal decisions.

College Students Have Much at Stake in Budget Debates

Young people around the country have voiced growing interest in the debate over the federal budget and fiscal reform. That’s appropriate because they have so much at stake.

College students have an obligation to get involved in the post-election debate over the federal budget and the search for a better alternative to the year-end fiscal cliff, according to a recent guest column in American University’s The Eagle by Jonathan Humma and Ben Ritz, a Concord Coalition staff member.

While avoiding the fiscal cliff is important, they write, college students in both parties should also push elected officials to work together to develop plans for responsible long-term deficit reduction. If that isn’t done, young people will pay a disproportionate price over their lifetimes.

“We are the ones who will have to pay higher taxes,” Ritz and Humma write. “We are the ones who won’t be able to afford to educate our children. We are the ones who won’t be able to pay for a first-world infrastructure. We are the ones who are disproportionately affected by this debt, and so we are the ones who need to be disproportionately involved in getting it under control. It’s up to us to demand action.”