October 1, 2014

Washington Budget Report: November 12, 2013

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Farm Subsidy Cuts Could Help Fix Sequester

As lawmakers continue their work this week on a new five-year farm bill, they should be cutting unnecessary agricultural subsidies -- especially those going to extremely wealthy Americans.

Savings on agricultural subsidies could be put to good use in a broader budget agreement. Reasonable cuts in such “mandatory” programs -- programs that are not subject to annual approval in Congress -- could enable lawmakers to move away from the mindless “sequester” cuts that neither party fully supports.

According to a new report from the Environmental Working Group, the government paid $11.3 million in certain types of farm subsidies to 50 billionaires or businesses in which they had financial stakes between 1995 and last year. Many of the billionaires may also be receiving subsidies for federal crop insurance.

Such subsidies undermine public confidence in government and raise skepticism about the need to make hard choices in fiscal policy. In addition, Washington is reducing food assistance for the poor, including 22 million children. That’s hard to square with continued federal payments to extremely wealthy individuals.

Further discussion of the sequester and the Fiscal 2014 budget is expected Wednesday, when the budget conference committee is scheduled to hold its next meeting.

Partisanship Aside, Two Senators Seek to Improve Budgeting

Senators Jeanne Shaheen (D-N.H.) and Johnny Isakson (R-Ga.) are from different parties and different regions but they share a belief that moving the federal budget to a two-year process would lead to a more strategic and thoughtful result than the current annual chaos.

The bipartisan pair shared the stage to promote biennial budgeting Monday at the University of New Hampshire School of Law’s Warren B. Rudman Center for Justice, Leadership and Public Policy in Concord, N.H. Concord Coalition Executive Director Robert L. Bixby moderated the discussion.

Shaheen and Isakson said Congress would spend the first year of the budget cycle setting priorities and passing appropriations bills. The second year would be devoted to oversight, which the senators said was lacking in the current system.

Shaheen noted that New Hampshire, where she served as governor, has had success with biennial budgeting, as have 19 other states.

Isakson, who ran a company for more than two decades, drew on his private-sector experience in concluding that a two-year budget cycle would provide better planning and more stability.

Both senators noted that tough choices would be required in the years ahead and said a change in the budget process could help policymakers eliminate duplication and waste. It would also allow time for better scrutiny of mandatory programs, which are not subject to annual appropriations and grow on autopilot.

Shaheen and Isakson urged the public to support biennial budgeting and to encourage members of Congress to adopt it.

The Concord Coalition has long supported biennial budgeting. While process reforms alone cannot replace hard policy choices, they can set expectations and reset a system that has clearly failed in recent years.

In closing the forum, Law School Dean John Broderick said it was refreshing to see a Democrat and a Republican working together to improve federal budgeting. Bixby agreed, saying that Shaheen and Isakson were setting an example for other senators to follow.

Super-sized Tax Deductions on Stock Options

Twitter’s IPO last week focused some bipartisan attention on provisions in the tax code that are unfair, costly to the federal Treasury and ripe for reform.

Sen. Carl Levin (D-Mich.) and Sen. John McCain (R-Ariz.), the chairman and ranking member of the Senate’s Permanent Subcommittee on Investigations, said their panel had scrutinized a number of special-interest loopholes that should be eliminated.

One of these allows companies to reap large tax benefits by reporting stock option compensation expenses one way in their financial statements and a different way to the government for tax purposes.

The result: Twitter and other companies can receive tax deductions that are several times larger than the related expenses shown on the corporate books. The Joint Committee on Taxation estimates that ending this tax break would raise $23 billion a year for the Treasury.

“Given the deficit and damaging sequester cuts facing this country,” McCain and Levin said, “this corporate stock option tax deduction is the kind of tax loophole that ought to be closed.”

Meanwhile, Senate Democrats were reported to have put together a list of a dozen tax breaks that they believe could be eliminated, including those for CEO stock benefits. Politico said other tax breaks on the list range from deductions that corporations take for moving operations overseas to deductions for individuals who borrow to buy vacation homes and yachts.

OMB Report Details Shutdown Harm

A halt in small business loans, lost tourism to national parks, and even a delay in the Alaskan crab season were among the costly effects of last month’s government shutdown, according to the Office of Management and Budget (OMB).

An OMB report released last week also states that the government will pay $2.5 billion in back pay and benefits to federal employees, who were furloughed for a total of 6.6 million days.

The report said the shutdown would lower 4th quarter real GDP growth by between .2 and .6 percentage points. Among the stopped government services: The delivery of $4 billion in tax refunds, the processing of disability claims for veterans, and responding to income-verification requests from banks -- which hurt lending to small businesses and individuals.

Last week also brought some good news, however: Despite the shutdown, the October jobs report showed that the economy added 204,000 jobs last month. The job creation figures for August and September were revised upward as well.

Members of the budget conference committee should heed the report and commit themselves to avoiding another harmful shutdown early next year by forging a bipartisan agreement that funds the government for the rest of Fiscal 2014.

Revenue Lower Than Expected in Final Months of FY 2013

The Congressional Budget Office says federal revenues were lower than expected in the last few months of Fiscal 2013, resulting in a deficit that was $38 billion higher than CBO had projected in May.

The Treasury Department’s final number for the 2013 deficit was $680 billion, or 4.1 percent of GDP. Revenues for the year were $2.77 trillion, which was 16.7 percent of GDP and $39 billion less than CBO had projected in May. Spending totaled $3.45 trillion, which was 20.8 percent of GDP and only $1 billion below the May projection.

Last week CBO said all types of revenue were lower than it had projected in the spring. Yet 2013 still had the most revenue since 2007.

Government spending was lower than in any year since 2008. Outlays for Medicare were $4 billion below what CBO had estimated in May and grew more slowly than its 5 percent average growth over the past five years.

Also last week, the General Accounting Office released a short video on the federal debt. Absent policy changes, it warns, the government “faces a rapid and unsustainable growth in debt.”