December 19, 2014

Washington Budget Report: Dec. 4, 2012

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Obama, Republicans Debate Budget Proposals

Democrats and Republicans have exchanged formal budget proposals in recent days as they continue to joust over tax increases, spending cuts and how to avoid the year-end “fiscal cliff” that could throw the country into another recession.

The fiscal cliff is a combination of automatic spending cuts and expiring tax breaks that, under current law, will all take effect at the end of the year. Elected officials in both parties say they want to avoid the cliff, and some parts of it were never intended to actually take effect.

Congress and the President need to move quickly to replace the cliff with a more responsible “down payment” on deficit reduction while establishing a framework for a more comprehensive, long-term deficit-reduction effort. The Concord Coalition also urges officials in both parties to pursue bipartisan cooperation and compromise.

Last week the administration presented a budget plan to Republicans that included spending cuts, some additional stimulus spending and roughly $1.6 trillion in additional tax revenue over 10 years. Republicans dismissed the plan as unreasonable and too dependent on more tax revenue.

On Monday House Republican Leaders released their own budget plan, describing it as a “stark contrast” to what the President had suggested. Republicans said their plan would raise $800 billion in new tax revenue -- although not through higher rates -- while making more extensive spending cuts than Obama had proposed.

The White House quickly rejected the Republican plan, saying that it includes “nothing new” and “fails to meet the test of balance.”

House Republicans said their proposal “centered around a middle-ground approach” that was suggested last year by Erskine Bowles, a co-chair of the National Commission on Fiscal Responsibility and Reform. Bowles said Monday, however, that “it will be necessary for both sides to move beyond their opening positions” to reach a deal.

Washington Tribute Honors Warren Rudman

The late Warren B. Rudman, a fierce champion of fiscal responsibility who served two distinguished terms in the U.S. Senate and was a founding co-chairman of The Concord Coalition, was honored last week on Capitol Hill.

“He was forthright, he was frugal and he was fair,” said Vice President Joe Biden, who also praised Rudman’s respect for ordinary Americans and his faith in their judgment.

More than a dozen other current and former government officials from both parties remembered the New Hampshire Republican for his honesty, integrity, courage and commitment to the nation’s best interests.

Peter G. Peterson, a former U.S. commerce secretary and another co-founder of Concord, recalled why he asked Rudman to join him and Paul Tsongas, a former Democratic senator from Massachusetts, in starting the organization 20 years ago: “He knew the facts of our budget reality and spoke of them  with a clarity and a passion. But what struck me was how much he cared. He wasn’t just saying the  words; he meant them.”

CBO Warns of Approaching Debt Limit

As the President and Congress attempt to reach an agreement on the “fiscal cliff,” a new Congressional Budget Office (CBO) report reminds policymakers that another deadline is approaching -- the statutory limit on federal debt.

This is the maximum amount of debt the federal government can issue. The current limit of $16.394 trillion was set using procedures established in last year’s Budget Control Act. Based on estimates by the Department of the Treasury, CBO projects that borrowing will reach the debt limit near the end of this month.  

In the past, Treasury has used measures to make continued borrowing possible, such as suspending some investments in the Thrift Savings Plan for federal employees or delaying the issuing of new bonds for several programs. CBO estimates that these measures could permit Treasury to continue funding the government without increasing the debt limit through mid-February or early March.   

If the debt limit is not increased before these measures are exhausted, CBO warned in its report issued last week, restrictions on the issuance of new debt “would severely strain the Treasury’s ability to manage its cash and could lead to delays of payments for government activities and possibly a default on the government’s debt obligations.”

Given the risk of default, Congress should act on an increase without delay or political gamesmanship. Ideally, the increase should be accompanied by a comprehensive proposal that would place our nation on a fiscally sustainable path that makes future debt limit increases less frequent.

Domenici-Rivlin Task Force Updates Its Plan

The Bipartisan Policy Center (BPC) on Monday released an update of the broad plan for fiscal reform that its Debt Reduction Task Force recommended in late 2010. The update, like the original version,  takes what the task force describes as a “balanced and workable approach” that would make significant changes throughout the federal budget.

In addition, the BPC released a “Framework for a Grand Bargain and Potential Down-Payment Package” to show how such a comprehensive fiscal plan could be adopted “in light of the rapidly approaching fiscal cliff and the still-hesitant recovery.”

The original recommendations of the task force, headed by former Sen. Pete Domenici and former Congressional Budget Office Director Alice Rivlin, overlapped in many ways with the work of the National Commission on Fiscal Responsibility and Reform (Simpson-Bowles). The plans of both groups can serve as useful models for bipartisan action by elected officials. (Robert L. Bixby, executive director of The Concord Coalition, has served on the Domenici-Rivlin task force.)

The BPC dubbed the new update “Domenici-Rivlin 2.0” and said it shared several major themes with the original version: multi-year freezes in defense and non-defense discretionary spending, fundamental reform of federal entitlement programs to achieve “substantial savings” in coming decades, reform of the tax code that would produce additional revenue, and short-term policies to “accelerate national economic growth.”

The report says that many of the provisions of a broad debt reduction plan “ought to be phased in over time as employment and economic growth return to more typical levels.”

GAO: Health Costs, Aging Population Are Key Long-Term Factors

The Government Accountability Office (GAO) on Monday issued the fall update of its long-term fiscal outlook, underscoring the need for a more sustainable fiscal path in Washington.

As in the past, the GAO presents two different simulations: the Baseline Extended, which generally reflects current law, and the Alternative Simulation, which assumes some changes in current law. Under either scenario, GAO says, federal debt held by the public would grow as a share of the gross domestic product (GDP).

“While the timing and pace of growth varies depending on the assumptions used,” the report says, “neither set of assumptions achieves a sustainable path.”

The GAO also cautions against excessive reliance on cuts in discretionary spending, the part of the budget that many members of Congress focus on in discussing deficit reduction: “Discretionary spending limits alone do not address the fundamental imbalance between estimated revenue and spending, which is driven largely by the aging of the population and rising health care costs.”

In both of its simulations, GAO says, “spending for the major health and retirement programs will increase in coming decades, putting greater pressure on the rest of the federal budget.” It notes that the number of baby boomers turning 65 is projected to increase to 11,000 per day in 2029, up from 7,600 a day last year.