July 23, 2014

Washington Budget Report: Nov. 27, 2012

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Conflicting Signals on Budget Talks

Washington officials are sending conflicting signals over talks between the White House and congressional leaders to avoid the fiscal cliff while also moving the country forward on long-term deficit-reduction.

President Obama talked by phone with House Speaker John Boehner and Senate Majority Leader Harry Reid over the weekend, and White House Press Secretary Jay Carney said Monday that administration officials remained “hopeful and optimistic.”

It is clear, however, that substantial differences between the two parties remain over some critical issues. People in both parties continue to point to areas of disagreement, and Senate Minority Leader Mitch McConnell said Monday that the talks were at “an impasse.”

Earlier this month, Obama and congressional leaders held an initial budget meeting at the White House that produced promising signs afterwards, with an apparent consensus that both spending cuts and tax increases need to be part of an agreement. White House and congressional staff members have met since then to consider options for further high-level discussions.

The fiscal cliff is a year-end combination of spending cuts and expiring tax breaks under current law that, if they were allowed to simultaneously take effect, would likely throw the U.S. economy into another recession.

Elected officials and their staffs have discussed a two-step process that would replace the fiscal cliff with a “down payment” on deficit-reduction while establishing a framework for setting a more responsible long-term budget path. Concord Coalition Executive Director Robert L. Bixby says such an approach, together with a credible back-up mechanism in case Congress later fails to act, could work well.

Economists, business executives, state and local leaders, and many others have urged Congress and the White House to act quickly on the fiscal cliff to avoid stoking public fears of another recession. But Concord and other advocates of fiscal reform also warn that this immediate crisis should not be used as an excuse to further postpone dealing with the long-term structural imbalances in the federal budget.

Bipartisan cooperation and compromise remain essential for constructive action. This month’s elections, once again, left neither party with the political strength to simply push through its own agenda.

Some Common Ground on Tax Reform

Democrats and Republicans have long appeared to have an irreconcilable difference on tax policy: Democrats want more revenue, raised entirely from households with annual incomes over $250,000, while Republicans don’t want any new revenue, particularly from higher tax rates on the rich.

But Diane Lim, chief economist for The Concord Coalition, says that beyond the partisan rhetoric, there is “room for optimism” that a deal can be reached.

“Republicans have begun to shed their single-minded devotion to anti-tax advocate Grover Norquist’s ‘no new taxes pledge’,” she writes in a blog post today. “Notable examples are Senators Bob Corker (R-TN), Saxby Chambliss (R-GA) and Lindsey Graham (R-SC) along with Representative Peter King (R-NY).”

These Republicans recognize the economic difference between raising revenue by raising marginal tax rates, and raising revenue by broadening the tax base by reducing subsidies built into the tax code. The first approach increases the size and influence of government; the second reduces it.

“For any Republican who feels the same way that Corker, Chambliss, Graham and King do, the common ground they share with the Obama administration on tax policy and deficit reduction is actually very large,” Lim writes.

Both Republicans and Democrats, she says, “seem to like this general principle of substituting a broader base for lower rates, and even the particular combination of limits on itemized deductions paired with continued, low marginal tax rates for most Americans.”

But it is not helpful, she adds, for Republicans and Democrats “to keep emphasizing the tax policies they would each choose to implement if they were ‘king of the world’ – for example, Democrats insisting that tax rates on the rich must come up to pre-2001 levels or even higher, while Republicans keep arguing for just the opposite.”

Congress Should Do More to Curb Health Care Costs

After the Supreme Court’s summer ruling on the 2-year-old health care reform law and President Obama’s re-election, House Speaker John Boehner says Republicans plan to rely heavily on the congressional oversight process to register their continued opposition to his 2-year-old Affordable Care Act (ACA).

“Over the past couple of years, I have noted there are essentially three major routes to repeal of the president’s law: the courts, the presidential election process and the congressional oversight process,” Boehner wrote last week in an op-ed for The Cincinnati Enquirer.

“With two of those three routes having come up short, the third and final one becomes more important than ever,” he continued. “Vigorous oversight of the health care law by the House can be expected and, in fact, is already under way.”

While oversight can play an important role in holding down wasteful spending and inefficient bureaucracy, it would be helpful for congressional efforts to take larger steps towards curbing the future growth of health care costs. These steps can build on the reforms in the ACA instead of focusing on constantly rehashing old arguments about the law.

A recent report by the National Coalition on Health Care -- a collaborative effort by a wide variety of provider groups, insurance companies and patient advocates -- suggests a number of legislative changes that could produce savings in the short term and and move the debate over long-term savings forward in a more constructive way.