Between the ‘Line’s: Meetings, Plans, Halfsies and One Cent
No Deficit of Talk – At least there no longer is a deficit of discussion when it comes to our fiscal situation. House Speaker John Boehner (R-OH) gave a major address Monday night to the Economic Club of New York where he said that increasing the statutory debt limit should be accompanied by spending cuts greater than the amount of the debt limit increase. Also, the group of debt reduction negotiators led by Vice President Biden continued their talks Tuesday with their second meeting and scheduled a third for Thursday. And President Obama met with Democratic senators on the topic Wednesday and will meet with their Republican counterparts Thursday. Meanwhile the Gang of Six senators continues its work on a comprehensive fiscal plan and a bipartisan group of nine former members of Congress organized by the Concord Coalition issued a statement supporting their work, saying: “No other group of current lawmakers has taken it upon themselves to break the dynamic of gridlock and set the nation on a more hopeful and sustainable fiscal path.”
Ideas Proliferate – The Heritage Foundation on Tuesday unveiled a debt reduction plan that seeks to balance the budget in ten years and significantly reduce the national debt by substantially cutting spending. Entitlements and farm subsidies would see fundamental changes and reductions and defense spending would be cut as well. The tax code would be reformed without increasing revenue by eliminating most tax expenditures and switching to a flat tax. Sen. Pat Toomey also released a budget plan that seeks to balance the budget by 2020.
Mack Puts in His One Cent Worth – On Wednesday Rep. Connie Mack (R-FL) jumped into the debt reduction debate when he introduced the One Percent Spending Reduction Act, which seeks to balance the budget by 2019 with a one percent reduction in total spending (discretionary and mandatory) each year through 2017, with a cap limiting annual spending to 18 percent of GDP starting in 2018. If Congress and the White House cannot agree on spending reductions to reach the target in any given year, across-the-board cuts would be triggered. The bill is based on the One Cent Solution, a grassroots campaign that is building support across the country.
Deficit of Consensus Persists – The left (Social Security) and the right (taxes) continue to insist that major pieces of the budget remain off the table. The intensified talk and surge in plans are important, but it is time for policymakers to start making the tough decisions and negotiate with everything on the table in order to achieve an effective solution that can be adopted.
Many on Wall Street Say Spending Cuts Alone Won’t Cut It – Reuters reports that many of the Wall Street fund managers and economists it surveyed said that relying on spending cuts alone to reduce the debt would not be enough, calling for a middle path that includes revenue. Any plan addressing the debt will need to be credible in the eyes of investors and markets.
Conrad Goes Halfsies with Budget – Senate Budget Committee Chair Kent Conrad (D-ND) is circulating a draft FY 2012 budget resolution among his caucus that seeks to reduce the deficit by $4 trillion over ten years by relying on an even mix of spending cuts and tax increases. One of the revenue measures reportedly is a 3 percent surtax on millionaires. The proposal contrasts sharply with the budget blueprint crafted by House Budget Committee Chair Paul Ryan (R-WI) and passed by that chamber, which does not call for any tax increases. The plan that the Gang of Six is working on, which is based on the White House Fiscal Commission proposal of a 3-to-1 ratio of spending reductions (including interest payments) and revenue increases, would land firmly in the middle of the House and Senate plans. You can compare plans that have been released so far using CRFB's chart.
House Moves Forward with Appropriations – The House is moving forward with the FY 2012 appropriations process. On Wednesday the House Appropriations Committee released its 302(b) allocations, which are the limits for each subcommittee in drafting their spending bills. The numbers are based on the total of $1.019 trillion approved by the House in its FY 2012 budget resolution. The committee also released the schedule for each subcommittee and the full committee to approve of each of the 12 spending bills, with the goal of concluding the process by early August.
Pataki Courts Budget Lackeys – Former New York Governor George Pataki (R) is leading a new group, No American Debt, that “seeks to advance the national dialogue about America’s debt crisis.” It promises a 50 state campaign to raise awareness about the long-term consequences of our national debt and promote solutions from policymakers.
Link Between Social Security and Deficit Explored – A Senate Finance Committee hearing on Tuesday examined the role of Social Security reform in addressing the federal budget deficit. Though all agreed that changes must be made to strengthen its long-term finances, the witnesses were split over whether Social Security reform should be undertaken in conjunction with deficit reduction. CRFB addressed the topic in a recent paper, essentially saying that both views of Social Security – as independent from the budget and as part of the budget – are correct. The paper goes on to argue that either way you look at it, Social Security needs reform and the sooner the better.
Senators Duplicate Effort to Curb Government Duplication – Senators Mark Warner (D-VA) and Tom Coburn (R-OK) today introduced legislation to eliminate, consolidate or streamline duplicative federal programs. The bill is in response to a recent GAO study that indentified widespread overlap of programs in the federal government. The bill will save at least $5 billion. The Senate approved the proposal last month as an amendment to a small business bill, but because the underlying measure has been pulled from consideration, the senators are putting forth the bill as stand-alone legislation.
Apple of My CPI – A new paper from the Moment of Truth Project examines a technical change to the way inflation is measured that can reduce the deficit by some $300 billion over ten years. The paper proposes switching from the traditional consumer price index (CPI) that is used to index provisions of the budget and tax code to a chained CPI that accounts for “upper level substitution bias” and, thus, does not overstate inflation like the current index does. The paper explains it this way:
For example, if consumers respond to the price increase for Granny Smith apples by buying more Red Delicious apples instead (lower level substitution bias – changes within categories), this is accounted for in the current CPI. But if consumers respond to the price of Granny Smith apples increasing by buying less apples altogether and purchasing more oranges instead (upper level substitution bias – changes between categories), this is not accounted for.