‘Line’ Items: BCS Edition
Loads of BCS – The first edition of this season’s rankings from the much-maligned BCS is now out. The system uses computer algorithms and polls to determine which two teams will ultimately face off for the college football championship. So, we at The Bottom Line fired up our supercomputers to rank some of the recent developments regarding the political football of fiscal policy.
- FY 2010 Deficit Near $1.3 Trillion – On Friday, a joint statement from the Treasury Department and OMB put the official federal budget deficit for fiscal year 2010 at $1.294 trillion (See our short blog on this here). At 8.9 percent of GDP, this is the second largest deficit as a share of the economy (just behind last year’s 10 percent) since World War II. The statement attributed the $122 billion improvement over last year to a combination of higher receipts and lower outlays. While individual and payroll tax receipts actually declined, higher corporate income tax receipts and higher earnings from the Federal Reserve’s investment portfolio boosted receipts. The decline in outlays was mostly attributable to significant decreases in spending related to TARP, aid to Fannie Mae and Freddie Mac, and the deposit insurance activities of FDIC and NCUA. Excluding those three programs, outlays for other government agencies and programs increased 5.5 percent. In the statement, the heads of OMB and Treasury “underscored the Administration's commitment to getting Federal finances back on a sustainable path and ending emergency programs that proved instrumental to reviving growth while beginning the process of bringing down our deficit.”
- This COLA War Won’t be So Refreshing – Also on Friday, the Social Security Trustees announced there would be no cost-of-living adjustment (COLA) for Social Security benefits for the second straight year. The automatic COLA was instituted in 1975 to ensure that inflation does not erode the value of benefits. Since a 5.8 percent adjustment was announced in 2008 for benefit levels in 2009, the economic recession brought consumer prices down significantly and they have yet to return to the previous level. Social Security benefits were not lowered when prices fell. House Speaker Nancy Pelosi and others are calling for a vote on a one-time payment of $250 during the upcoming lame duck session. CRFB is strongly against a one-time payment or an ad-hoc COLA (see here and here), seeing it as a fiscally irresponsible political ploy.
- Concern for Deficit High in Poll; Support for Solutions, Not So Much – According to a Bloomberg poll released last week 55 percent of respondents believe that the federal budget deficit “is dangerously out of control and threatens our economic future.” Yet the poll also found that the public is fairly split over whether several possible solutions should be considered or taken off the table. A separate poll from The Hill newspaper found that 52 percent of independent voters see debt reduction as a priority, compared to 39 percent who prioritize increased federal spending to spur the economy.
- Defensive About Defense Spending – Last week 57 members of Congress sent a letter to the White House fiscal commission asking that the defense budget not be immune from the “rigorous scrutiny” that the rest of the budget will be subject to. At the same time, others are warning that looking to defense for savings would be unwise.
- Feldstein Gets Specific – Martin Feldstein has a new paper out with a three-part plan (subscription required) to reduce the national debt to less than 50 percent of GDP. The strategy includes reducing proposed spending increases and tax reductions over the next decade; augmenting “the tax-financed benefits for Social Security, Medicare and Medicaid with investment based accounts;” and reducing tax expenditures. Feldstein participated in CRFB’s recent “Getting Specific” forum and CRFB has encouraged specific ideas to address fiscal imbalances through its new Lets’ Get Specific series.
- Cranford Gives the ‘Hook’ to Announcement Effect – CQ Weekly columnist John Cranford pans the “announcement effect” in his recent column (subscription required). He contends that trusting lawmakers to come together to enact medium and long-term fiscal rules, and especially to follow through on those rules down the road, is the stuff of fantasy. He concludes that “it might be easier to keep Tinkerbell alive.” CRFB, as Cranford notes, is a big proponent of the announcement effect, believing that announcing a credible plan now to reduce the long-term debt to be implemented as the economy recovers will be economically beneficial. Our “Announcement Effect Club” highlights those who agree with this view. Cranford’s skepticism that policymakers will have the political will to carry out such a plan is well taken. We understand that political will is the biggest obstacle and have no fantasies regarding how difficult that will be to overcome. Yet, after being accused by so many of being gloom and doom, it is nice that someone considers us to be wide-eyed optimists.
- States Debate Taxes – USA Today points out that taxes will be on hundreds of state and local ballots in next month’s election. States like California, Massachusetts, and Washington will vote on revenue measures.