Crunch Time – The playoffs are well underway in the NBA and NHL. A playoff atmosphere is also brewing in Washington even though the home teams are not in the picture. A debt limit deadline and several teams competing for debt reduction glory are creating an air of anticipation and trepidation. Who will go home and who will go all the way?
Caps Are Contenders – The Washington Caps may have had another playoff meltdown, but budget caps are catching fire in Washington. Senate Minority Leader Mitch McConnell (R-KY) is the latest high-profile lawmaker to say that some form of budget cap will likely be a part of a deal that increases the statutory debt limit while reducing the debt in the longer term. New York Times columnist David Brooks cheered on these caps as well. However, as Brooks points out, there is still substantial disagreement over whether the cap should apply to federal spending or more broadly to the national debt. On Friday, several conservative House Republicans introduced legislation to cap federal spending at 18 percent of GDP by 2016. The bill goes even further than Senate legislation seeking a 20.6 percent spending cap. On the other hand, the Peterson-Pew Commission on Budget Reform, which has been studying fiscal targets and triggers for over two years, recommends a debt target as a percentage of GDP enforced by triggers that automatically kick in if lawmakers cannot agree on the policies sufficient to meet the target. The Commission recently offered ideas for how to make a debt target and triggers work.
Medicare and Social Security Face Adversity – While it is too early to say that Medicare and Social Security are on the brink of elimination, the latest Annual Report from the trustees overseeing the two programs makes it clear that they continue to fall behind in their respective battles against insolvency. Medicare’s Hospital Insurance Trust Fund is projected to be depleted by 2024, five years earlier than predicted last year. The Social Security Trust Fund is now forecast to be exhausted in 2036. The trustees also said that, without changes, Social Security will now run cash-flow deficits from here on out. This is the latest in a long line of reports detailing the deteriorating finances of the two critical programs. Though they are down, they are not out; they can still make thrilling comebacks if policymakers take action, and the sooner they do so the better so that changes are phased in and spread out and those affected will have more time to adjust accordingly. Read CRFB’s analysis of the report and see some ideas from CRFB on reforming Social Security and health care, including Medicare.
Debt Limit Going into Overtime. Will it be Sudden Death? – The U.S. is expected to hit the $14.294 trillion statutory debt limit today. The Treasury Department says it can hold off a U.S. default until early August. Today, Third Way will release a paper highlighting the grave consequences of a default to the U.S. economy. Additionally, over 60 business groups last week signed a letter to lawmakers asking them to raise the debt limit in a timely manner, arguing that failure to do so “could have a significant and long-lasting negative impact on the U.S. economy.” The bipartisan, bicameral group of lawmakers being convened by Vice President Biden is looking to negotiate a debt limit deal that could set the stage for more comprehensive action. Read the CRFB paper on responsible approaches to increasing the debt ceiling.
Polls Show Taxes Can’t Be Dismissed – Unlike the L.A. Lakers, the issue of increased revenue as part of a comprehensive fiscal plan cannot be swept away, as two recent polls find. A Reuters survey last week said that 52 percent of respondents think a combination of spending cuts and tax increases is the best route for reducing the national debt. Meanwhile, a Bloomberg News poll of investors indicates that by a large margin they believe that tax increases will be required to substantially reduce deficits.
Key Upcoming Dates
• Treasury Secretary Tim Geithner says the statutory debt limit will be reached no later than May 16.
• House Budget Committee Chair Paul Ryan (R-WI) addresses the Economic Club of Chicago.
• Senate Finance Committee hearing on “Financing 21st Century Infrastructure” at 10 am.
• The Conference Board releases leading economic indicators for April.
• Treasury Secretary Geithner says that the U.S. will default on its obligations by around August 2 if the statutory debt ceiling is not increased before then.