Line Items: State of Flux Edition
Making a Statement – President Obama gave the State of the Union address on Tuesday. While he presented an optimistic message of action to promote growth and opportunity, the speech also made clear the reality that expectations for legislative action were low in this election year. The president highlighted several unilateral actions he would take by executive order. Despite some recent breakthroughs on Capitol Hill, there is little hope for policymakers to accomplish many big things this year, clouding prospects for any breakthroughs. Although the president did mention the need for further deficit reduction, he did not make a forceful case for addressing the long-term debt and linking deficit reduction to economic growth. Meanwhile, lawmakers will be huddling at party retreats to scope out their respective strategies for this year.
Deficit of Specifics – In the speech, the president noted the need for further deficit reduction without offering many specifics on how to do it. An accompanying White House fact sheet provides a little more information, such as continuing the promise he made in last year’s speech to pay for all his new initiatives and calls for tax and entitlement reform. Abiding by PAYGO principles is critical to acting in a fiscally responsible manner. And fundamental tax reform (see areas ripe for reform here) and strengthening entitlements (such as Social Security and Medicare) are essential to addressing the drivers of the long-term debt. While these are important ideas, we had hoped to hear more specifics in the speech. In addition, we point out that deficit reduction and economic growth are not incompatible, which the president should stress more. We offered a summary of what we heard in the speech and also looked at the budgetary effects of the proposals in the address.
A Misleading Statement? – In the speech, the president also repeated a claim he has been making a lot lately, that the deficit has been halved in his term. In fact checking the statement, the Washington Post noted that the deficit is still higher than it was in 2008. While deficits are coming down in the short-term, long-term problems remain. A closer analysis shows that our long-term debt problems are very far from solved. Read our own fact check of the statement here. Despite attempts to declare “Mission Accomplished” on deficits, Americans still see deficit/debt reduction as a priority, with recent polls from NBC News/Wall Street Journal and the Peter G. Peterson Foundation putting the issue near the top of the list. Another poll from the Pew Research Center had support for deficit reduction as a priority falling (mostly due to decreased Democratic support) but still high on the list, especially among Independents and Republicans.
Debt Ceiling Ceasefire? – Signs are that Republicans are divided over how to approach the next statutory debt ceiling fight, which could be around the corner. The debt ceiling is suspended until February 7 and Treasury Secretary Jack Lew has been adamant that “extraordinary measures” won’t buy much more time beyond that before a national default occurs. The Bipartisan Policy Center is backing him up. Lew is imploring Congress to raise the limit by late February. Congressional Republicans don’t have a united front yet on what they want in return for another debt limit increase and House leaders do not want to risk the specter of default in an election year since President Obama has been clear he wants a clean increase. If Republicans do seek concessions, it may be be for non-fiscal items like approval of the Keystone XL Pipeline, although another “No Budget, No Pay” provision could also be attached as in last year, requiring Congress to approve a budget or lawmakers’ pay is withheld. With a likely short window, policymakers cannot afford to play games with the debt limit. Resolving the debt ceiling will take care of the final major fiscal roadblock until the fall, when government funding must be renewed. Learn more about the debt limit here.
Another Late Budget – The White House confirmed that the Fiscal Year 2015 federal budget, officially due the first Monday of February, will be released about a month late on March 4. But budget geeks will still see some action in early February as the Congressional Budget Office (CBO) will release its annual budget update on February 4. As last year’s budget deal includes top-line spending numbers for FY 2015, appropriators may begin the process of writing spending bills ahead of budget proposals.
Farm Bill Finally Sprouts – After months of negotiations, congressional negotiators Monday reached agreement on legislation renewing agricultural programs. The House passed the bill on Wednesday with a bipartisan vote and the Senate is expected to follow suit next week. CBO estimates the bill will save $17 billion over ten years compared to current legislation. Savings were achieved by reforming direct payments to farmers and nutritional programs. It is a positive sign that lawmakers once again reached bipartisan agreement on major legislation, building on recent budget and appropriations deals. It is also encouraging that the bill reduces the deficit, but legislators could have gone further, especially in restructuring farm subsidies. Read our analysis of the bill here.
Highway Trust Fund to Nowhere? – Federal transportation officials are warning that funding for transportation infrastructure will run out this summer. The Highway Trust Fund, which provides financing for most transportation projects, is projected to be depleted. The fund receives its revenue from fuel taxes. President Obama is renewing his call to increase revenue for infrastructure projects by reforming corporate tax loopholes. We previously examined the idea here.
Extending Emergency Unemployment Insurance a Tough Job – There is still no agreement in the Senate on extending expanded Unemployment Insurance benefits until the end of the year. How to pay for the extension remains the main roadblock. Senate leaders plan to put forth a three-month extension that would be offset, but the “pension smoothing” idea they reportedly are eyeing is essentially a gimmick, as we point out. Although it reduces the deficit in the short run, deficits will actually increase down the road by even more.
Crossing a Threshold on Immigration? – President Obama pushed for immigration reform in the State of the Union and that is an area where there is some hope for legislative action as House leaders look to engage on the issue. Last year, CBO projected that comprehensive immigration reform legislation passed by the Senate would reduce the deficit by $197 billion through 2023. Here’s our look at the CBO estimate.
The Doc Fix Not In, Yet – Committees in both the House and Senate have agreed on legislation to permanently repeal the Sustainable Growth Rate (SGR), which currently calls for a nearly 25 percent cut in Medicare physician payments on April 1. The CBO scored the House Ways and Means Committee version as costing $137 billion through 2024 while the Senate Finance Committee proposal has a $168 billion price tag through 2024. Agreement on how to offset the costs has not yet been reached, but rumors are that lawmakers may favor using “war savings” to pay for it. This gimmick is a popular choice for “paying for” many proposals. We show why that’s a bad idea here. Meanwhile, larger efforts to strengthen Medicare’s finances are under way with Sens. Ron Wyden (D-OR) and Johnny Isakson (R-GA) teaming up on a bill to improve the way Medicare manages care for patients with chronic conditions.
Key Upcoming Dates (all times are ET)
- Bureau of Economic Analysis releases advance estimate of 4th quarter GDP growth.
- Statutory deadline for the President to submit the Fiscal Year 2015 budget request.
- Congressional Budget Office (CBO) releases annual Budget and Economic Outlook.
- Senate Budget Committee hearing on the 2014 budget and economic outlook at 10:30 am.
- House Budget Committee hearing on the budget and economic outlook at 10 am.
- The extension of the statutory debt ceiling expires.
- Bureau of Labor Statistics releases January 2014 employment data.
- Bureau of Labor Statistics releases January 2014 Consumer Price Index data.
- Bureau of Economic Analysis releases second estimate of 4th quarter GDP growth.
- White House releases Fiscal Year 2015 budget request.
- Bureau of Labor Statistics releases February 2014 employment data.
- Bureau of Labor Statistics releases February 2014 Consumer Price Index data.
- Bureau of Economic Analysis releases third estimate of 4th quarter GDP growth.
- "Doc fix" expires.