‘Line’ Items: January 10, 2011

Shooting Puts Legislative Business on Hold – The shooting of Congresswoman Gabrielle Giffords and 19 others in Tucson, Arizona has resulted in House leaders suspending legislative activity this week. The only vote now expected this week is one on a resolution honoring Giffords and the other victims of the attack. The House was going to vote this week on repealing the health reform law. Also postponed is a vote on eliminating the mandatory printing of bills and resolutions by the Government Printing Office, which is a part of House Republicans’ plan to hold weekly votes on reducing federal spending. The Senate is off until January 25, the day President Obama will give his State of the Union Address.

House Republicans to Talk Strategy – The House GOP will have a retreat in Baltimore, Maryland on Thursday and Friday this week. One of the main topics of conversation will be how to realize their campaign promises on slashing federal spending.

Taking it to the Limit – Treasury Secretary Tim Geithner’s letter last week warning lawmakers that the U.S. could reach the debt ceiling by as early as the end of March has set off a round of debate over whether Congress should raise the limit. It was last raised in February of 2010 to $14.29 trillion. On January 6 Geithner said the Treasury was approximately $335 billion below the limit. He estimated that the limit most likely would be reached in the period from March 31 to May 16 of this year. Several legislators have indicated they are wary of raising the limit without other actions, such as significant spending cuts, promises to balance the budget, or a plan to reduce the debt. Geithner warns that failing to increase the debt ceiling will result in a U.S. default “causing catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009.” Geithner also writes that President Obama “is committed to working with both parties to put the Nation on a fiscally responsible path.” CRFB issued a primer on the debt ceiling last year.

House Takes Action on Fiscal Matters – The House wasted little time last week in taking some key actions related to the budget. In its first action Wednesday after the House officially convened for the 112th Congress and new leaders chosen, the chamber approved new rules, many of which will affect the budget and appropriations process, including eliminating the Gephardt Rule that allowed the debt limit to be increased without a direct vote in the House and a new “CUTGO” rule. CRFB offered a detailed analysis of the new rules affecting fiscal policy in a recent paper. In its next vote on Thursday the House overwhelmingly approved of a modest reduction in its operating budget. While the action is estimated to save only about $35 million, it was an important symbolic gesture that lawmakers are willing to share in the budget cuts they will bring about.

Bernanke Testifies on the Economy and Fiscal Situation – Federal Reserve Chairman Ben Bernanke appeared before the Senate Budget Committee on Friday to discuss fiscal and monetary policy. In his testimony he cautioned that although the economy will pick up this year, “it could take four to five more years for the job market to normalize fully.” He also warned that our current, unsustainable fiscal path could lead to higher interest rates and “broader financial turmoil.” A summary is available here and CRFB live-tweeted the hearing (@BudgetHawks).

Economists Focus on the Deficit – Chairman Bernanke is by no means the only prominent economist worried about the fiscal outlook and how it will affect our economy. The American Economic Association devoted a great deal of time to the subject at its annual meeting that concluded Sunday. International Monetary Fund First Deputy Managing Director John Lipsky said the U.S. must “lay out the basis for credible medium-term fiscal adjustment” soon. He praised the proposal from the Bowles-Simpson Fiscal Commission. CBO Director Douglas Elmendorf discussed the bleak fiscal outlook and pointed out that there are no easy solutions.

Momentum for Tax Reform? – The stars may be aligning for fundamental reform of the tax code. Treasury Secretary Geithner will meet with business executives on Friday to discuss reform of corporate taxes. The new chairman of the House Ways and Means Committee, Dave Camp (R-MI), says he will hold a series of hearings in his committee this year on overhauling provisions for individuals and businesses. And the National Taxpayer Advocate at the IRS said that tax reform is needed now in her annual report to Congress last week.

Bipartisanship Blossoming in Senate?Politico reported Friday that Senate Budget Committee Chairman Kent Conrad (D-ND) and new Ranking Member Jeff Sessions (R-AL) are talking about reforming the budget process and share some similar views on reducing the debt. Meanwhile, a bipartisan group of senators led by Mark Warner (D-VA) and Saxby Chambliss (R-GA) continue to work on a debt reduction plan based on the Fiscal Commission report that they intend to introduce soon.

White House Brings in New Blood, Old Hands – Last week President Obama tapped William Daley to be the new White House chief of staff and Gene Sperling to lead his National Economic Council. Sperling held the same position in the Clinton Administration and played a key role in negotiating deficit reduction agreements with a Republican Congress that helped pave the way for budget surpluses. Daley served as Commerce Secretary for Clinton from 1997-2000. Along with Jack Lew, who recently begun his second stint as OMB director, it is somewhat heartening that old hands who played roles in producing our last budget surplus will be key players in putting the country on a sustainable fiscal course.

Key Upcoming Dates

January 14 – Treasury Secretary Tim Geithner will meet with corporate CFOs on business tax reform.

Week of January 24 – CBO is expected to release its Budget and Economic Outlook with updated budget baseline.

January 25 – President’s State of the Union address where he is expected to focus prominently on fiscal responsibility and may preview his FY 2012 budget.

Week of February 14 – The White House will unveil its FY 2012 budget.

March 4 – The current continuing resolution funding government operations expires. Congress must adopt spending bills funding the federal government for the rest of FY 2011 by then or pass another stopgap measure.

March 31 - May 16 – Period in which Treasury Secretary Geithner says the U.S. will likely reach the debt ceiling.