September 30, 2014

Washington Budget Report: November 19, 2013

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Little Progress in Talks on Fiscal 2014 Budget

The congressional conference committee on the budget got off to a leisurely start and now appears to have bogged down after only two public meetings – and less than a month away from a Dec. 13 deadline to complete its work.

Seven weeks into the new fiscal year, there is no federal budget in sight -- just a stop-gap measure that expires Jan. 15. It is hard to imagine a better way to waste tax dollars, with lawmakers failing to set priorities and federal departments forced to guess at what they will be spending in the coming year.

Neither party seems willing to tackle the key entitlement reform and tax reform issues that must be resolved. They would do well to heed Congressional Budget Office (CBO) Director Doug Elmendorf, who last week outlined the fiscal challenges to the committee and encouraged lawmakers to do their best to meet them.

Even if a clear resolution of the long-term budget problems is not feasible right now, Elmendorf said, revising the budget to better fit the nation’s priorities and reduce uncertainty about the coming year would be helpful.

Also last week, the CBO released its latest in-depth report on deficit-reduction possibilities. So there are plenty of well-researched options; lawmakers just need to start making some decisions.

 

'Challenging Every Assumption' at the Pentagon

Defense Secretary Chuck Hagel says the military is “challenging every past assumption, every past formula” in trying to reorganize itself for 21st century challenges in the face of a rapidly tightening budget.

Uncertainties about sequestration and the Fiscal 2014 budget in general are complicating that work.

In January a new round of sequester cuts is scheduled to reduce the military’s budget cap by $21 billion. The Pentagon faces nearly $1 trillion in overall spending cuts over the next decade due to the budget caps and sequestration put in place by the Budget Control Act.

Military health and pension costs continue to grow at an unsustainable pace, consuming half of the Pentagon’s budget. But Congress has been reluctant to make even modest changes requested by the Pentagon and the administration to reduce these costs.

Hagel recently warned that current policy would lead to an “unbalanced” force, one that is “well-compensated, but poorly trained and equipped, with limited readiness and capability.” He urged Congress to “permit meaningful reforms.”

Yellen Offers Advice on Deficit Reduction

Although Janet L. Yellen is expected to win confirmation as the next chairman of the Federal Reserve, lawmakers in both parties took advantage of her recent congressional appearance to express various concerns about slow economic growth and the Fed’s efforts to bolster the recovery.

Yellen, the Fed’s vice chair, reiterated her concerns about high unemployment and her belief that further efforts to stimulate the economy through monetary policy were justified.

Lawmakers who are concerned about slow economic growth should keep in mind that Congress has often made things worse – and the Fed’s job more difficult. Certainly the recent government shut-down didn’t help. Neither have poorly designed sequestration cuts.

As Yellen noted, fiscal policy -- set by Congress and the President -- has caused “a substantial drag” on the economy over the last year and worked at cross purposes to the Fed’s efforts.

She said it is important to put the federal deficit and debt on a sustainable path. But Yellen advised lawmakers to focus deficit-reduction efforts on the “medium term” and avoid measures that could cause immediate harm to an economic recovery she characterized as “fragile.”

Fiscal 2014 Starts With $91.6 Billion Deficit in October

The federal deficit totaled $91.6 billion in the first month of Fiscal 2014, down from $120 billion a year earlier, according to the Treasury Department. This follows a total deficit for Fiscal 2013 of $680 billion -- the first time in four years the annual deficit was below $1 trillion.

But total federal debt continues to climb above $17.1 trillion, which is why Congress will soon need to approve another increase in the debt limit. In addition, government projections show the annual deficit will begin climbing again within a few years.

So although the deficit is currently dropping, fiscal reforms remain essential.