July 24, 2014

Washington Budget Report: December 17, 2013

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Senate Advances Budget That Still Leaves Much To Do

The Senate today cleared the way for the expected passage of a two-year budget plan that could avoid a government shut-down next month but reduces the deficit only slightly over the next decade and fails to deal with many critical issues, from the inefficient tax code to the unsustainable entitlement programs.

The Congressional Budget Office (CBO) estimates that the agreement -- while raising spending caps for the next two years -- would reduce deficits by a total of $23 billion from 2014 through 2023. That’s a tiny fraction of the $6.3 trillion in deficit spending in the CBO’s current baseline for the next decade.

The House passed the plan on a bipartisan 332-94 vote shortly before adjourning for the year. Although some prominent GOP senators took shots at the plan in recent days, today the Senate voted 67-33 to end debate and move forward to a final vote, which is expected to take place soon.

Elected officials must follow up this budget deal with much larger efforts to put the nation’s finances on sounder long-term footing, according to Robert L. Bixby, executive director of The Concord Coalition. 

“The budget deal does not relieve the worsening fiscal strains caused by an aging population, rising health care costs and an inefficient tax code,” he wrote in a recent blog post. “Fiscal policy was on an unsustainable path before the deal and it will remain so after the deal.”

No Extension for 'Tax Extenders' This Year

In a change of pace from its usual practice, Congress is allowing a group of temporary tax provisions known as “extenders” to expire at the end of the year.

The extenders, like other tax expenditures, are federal subsidies that encourage certain behaviors, complicate the tax code and favor some taxpayers over others. Congress has generally extended them for at least another year, although this has sometimes been done retroactively.

Federal budget projections, based on current law, assume the extenders will expire. Renewing the 55 provisions that are slated to expire at year’s end would reduce revenues, and thus increase the deficit, by an estimated $54.2 billion in the coming year.

If Congress were to also renew the expiring provisions over the next decade, it would increase the deficit by $931 billion.

Last week Senate Finance Committee Chair Max Baucus (D-Mont.) and House Ways and Means Committee Chair Dave Camp (R-Mich.) both came out against renewing the extenders for another year. This could get the business community more invested in fixing the entire tax code rather than just focusing on the renewal of tax provisions that benefit individual industries.

“If they’re going to do tax reform, this is a great way to start,” Robert L. Bixby, executive director of The Concord Coalition, said in a recent Washington Times story. “In tax reform, the classic idea is to broaden the base and lower rates. This is a great way to help broaden the base. It may be the only tax reform that we’re going to get in the next few years, and I think it would be a good thing to do.”

Aging Population, Health Care Squeeze Rest of Budget

The federal debt held by investors and foreign countries amounts to 72 percent of the country’s Gross Domestic Product. Except for a short period around the end of World War II, that's the highest level in U.S. history.

And although the federal deficit has dropped sharply in the past year, it is expected to start rising again in a few years. Sara Imhof, Midwest regional director for The Concord Coalition, points out in a recent op-ed that demographic forces, health care spending and interest payments are putting more and more pressure on the rest of the budget.

As a result, current-law projections indicate that by 2020 federal spending apart from Social Security and major health care programs will fall to its smallest percentage of GDP in more than 70 years. Yet the debt would continue to climb.

Imhof ‘s article appeared in Quad-Cities Online in advance of two interactive budget exercises today in the 17th Congressional District of Illinois. The programs, presented by Concord and Rep. Cheri Bustos, invite participants to work together to develop comprehensive fiscal reform packages.