‘Line’ Items: Back from the Brink Edition
Deal on FY 2011 Spending Reached – A government shutdown was averted on Friday by an 11th hour agreement on federal spending for the rest of the fiscal year. The deal will cap 2011 appropriations at just under $1.050 trillion, reducing spending by about $38 billion from current levels. Congress passed a one week extension shortly after the deal was announced to allow time for the agreement to be drafted into legislation and enacted. The House is scheduled vote on the legislation enacting the budget agreement on Wednesday, with the Senate likely voting afterwards. With the often-tense negotiations resulting in an accord which prevents an embarrassing shutdown of federal government operations, the question is: did the process improve the prospects for more bipartisan consensus down the road by establishing trust and good will between the leaders who conducted the negotiations, or will the bases of both parties that are unhappy with the deal entrench deeper for the next battle, making agreement more difficult?
On to the Next Budget – The day after voting on the budget for the remainder of this year, the House is set to begin consideration of next year’s budget on Thursday and a vote on the floor is scheduled for Friday. The GOP-controlled House is expected to pass the budget resolution unveiled by House Budget Committee Chairman Paul Ryan (R-WI) last week, which would reduce the deficit by more than $4.4 trillion over the next decade as compared to President Obama’s FY 2012 budget proposal issued last month. The Ryan budget would reduce the national debt to 67.5 percent of GDP by 2021, largely through deep cuts to domestic discretionary spending and major restructuring of Medicaid and Medicare. Ryan’s plan will have some company in the budget debate; last week the Republican Study Committee (RSC) released a budget with even more ambitious spending cuts, reducing debt to just over 55 percent of GDP in 2021. The RSC’s polar opposite, the Congressional Progressive Caucus (CPC), also plans to produce a budget plan. According to the CPC outline, it will reduce national debt to 64.4 percent of GDP by 2021. The CPC relies heavily on increased revenues, wheareas the Ryan and RSC proposals do not raise taxes. The CPC plan would result in spending and revenues both balanced at 22.3 percent of GDP by 2021, while the RSC plan would freeze both levels at 18 percent of GDP. The House Democratic leadership and the Congressional Black Caucus are also expected to produce budget plans. While all these ideas are welcome and the shared goals of reducing the debt are a very encouraging sign, it is time for both sides to put everything on the table and get to work on developing a plan that can achieve bipartisan support and that deals with all parts of the budget. Senate Budget Committee Chair Kent Conrad (D-ND) is holding off on his budget resolution while the “Gang of Six” senators continue their talks on a comprehensive fiscal plan that is based on the recommendations of the White House Fiscal Commission. According to the New York Times, the group is close to announcing an agreement.
Debt Ceiling Debate Reaching a Peak – With the concerns over a government shutdown addressed, eyes are turning to the next big battle, over increasing the statutory debt limit. The debt ceiling fight could make the just concluded shutdown showdown look mild in comparison, with the stakes much higher. Treasury Secretary Tim Geithner warned last week that the limit will be reached no later than May 16 and that the Treasury can only take action to avoid a U.S. default until around July 8 if the ceiling is not raised before then. Economists warn that allowing the U.S. to default on its obligations would have catastrophic implications for the economy. Many lawmakers want to pair an increase with deficit reduction measures such as a balanced budget amendment, while the White House prfers a clean debt limit increase. See CRFB’s ideas for responsibly raising the debt limit here.
As Pressure Mounts, President Steps Up – The White House became more and more involved as the budget negotiations reached a climax. Now it looks as though President Obama will maintain a high profile in the ongoing fiscal debate. On Wednesday the President will outline his ideas for reducing the national debt in a speech. President Obama was criticized by CRFB and many others for not adequately addressing the debt in his recent budget. His entry into the debt discussion is welcome and could advance the search for solutions, depending on how specific he is willing to get. We will be watching.
Don’t Forget About Taxes – All the discussion over spending cuts and shutdowns has drawn attention from the fact that Tax Day (April 18) is fast approaching. Fortunately (unless you’re still scurrying to file your taxes) several events this week will call attention to the issue of tax reform. On Tuesday, the Moment of Truth Project and the Progressive Policy Institute will co-host a forum on the urgent need for comprehensive tax reform. Speakers include Senators Michael Bennet (D-CO), Ron Wyden (D-OR) and Dan Coats (R-IN) as well as Fiscal Commission member and Honeywell CEO Dave Cote. Wyden and Coats no doubt will discuss their recently-introduced legislation to fundamentally revamp the tax code. On Wednesday both the Senate Finance and House Ways and Means Committees will hold hearings respectively examining how tax reform can help reduce the deficit and how the burdens imposed by the complexity of the tax code illustrate the need for reform.
Coburn-ing Budget Calories – Sen. Tom Coburn (R-OK) took advantage of the open-amendment process on popular legislation (S. 493) to renew the Small Business Innovation Research and Small Business Technology Transfer programs to advance several deficit-reduction measures last week. One of the approved amendments (SA 273) requires the federal government to eliminate, consolidate or streamline programs identified in a recent Government Accountability Office report as duplicative or overlapping. It includes review of tax expenditures. It is supposed to save at least $5 billion. Sen. Mark Warner (D-VA) was a co-sponsor. It passed 64-36. Another amendment (SA 223) ends federal jobless benefits to people who earned $1 million or more the previous year. Coburn says it will save $20 million a year. It passed 100-0. And two other amendments accepted eliminate funding for the National Historic Covered Bridge Preservation Program, saving $8.5 million, and require that every year the federal government identify and list publicly every federal program, including their mission, goals, purpose and budget.
What Panetta Could Mean for the Pentagon – CIA Director Leon Panetta is reportedly one of the names being considered to replace Defense Secretary Robert Gates, who will be stepping down. Panetta is a former House Budget Committee chair, OMB director and White House chief of staff, as well as a former CRFB chair. One of his initiatives at the CIA has been to prepare the agency for budget changes due to rising federal budget deficits. An appointment as Secretary of Defense could bring such planning to the Pentagon.
Key Upcoming Dates
- March federal budget deficit figures from the Department of Treasury.
- February international trade deficit figures from the Department of Commerce.
- Moment of Truth Project/Progressive Policy Institute forum on “Tax Reform Now: Cutting Rates and Deficits” from 10 am to 1:30 pm.
- Federal Reserve releases its “Beige Book” economic outlook survey based on anecdotal information gathered by each Federal Reserve Bank by district and sector.
- House Ways and Means Committee hearing on “How the Tax Code’s Burdens on Individuals and Families Demonstrate the Need for Comprehensive Tax Reform” at 10 am.
- Senate Finance Committee hearing on tax reform and perspectives on deficit reduction at 10 am.
- Weekly unemployment claims data released by the Department of Labor BLS.
- House Oversight and Government Reform Committee hearing on “State and Municipal Debt: Tough Choices Ahead” at 9:30 am.
- • IMF/World Bank Spring Meetings in Washington, DC.
- The current “bridge” continuing resolution (CR) funding government operations expires. Congress must adopt legislation reflecting the spending agreement for the rest of Fiscal Year 2011 by then.
- Statutory deadline for Congress to enact a Fiscal Year 2012 Budget Resolution.
- Inflation figures for March released.
- Deadline to file federal tax return.
- Treasury Secretary Tim Geithner says that the statutory debt limit will be reached no later than May 16.
- Treasury Secretary Tim Geithner says that U.S. will default on its obligations by around July 8 if the statutory debt limit is not increased before then.