‘Line’ Items: Stopgaps, Limits, Higher Powers and the Moment of Truth

Lots of Stopgaps, Little in Closing the Fiscal Gap – Washington averted a government shutdown last week by agreeing on a two-week continuing resolution (CR) that cuts $4 billion in spending. This is the fifth stopgap measure funding the federal government since the 2011 fiscal year began on October 1, 2010. The posturing and procrastination so far have resulted in little in the way of reducing our mounting national debt. Meanwhile, serious work on areas outside of domestic discretionary spending that represent a large portion of the budget and could significantly improve our fiscal situation – namely defense, tax reform, and mandatory spending – is required, not to mention that the FY 2012 budget needs attention.

Testing the Waters While the Levees Breach – With the new March 18 deadline fast approaching before the latest CR expires, White House negotiators led by Vice President Joe Biden met with Congressional leaders from both parties on Thursday. The two parties remain far apart. Republicans insist upon the approximately $60 billion in cuts approved by the House while Democrats have countered with $10.5 billion (both figures include the $4 billion in spending reductions already approved). So far, all that can be agreed upon is that the Senate will hold two “test” votes on Tuesday, one on the House-passed bill and on one the Democrats’ proposal. Neither is expected to get 60 votes; perhaps this will encourage the more obstinate legislators on both sides to negotiate. Hopefully, the talks over 2011 spending will set the stage for broader negotiations over our longer-term fiscal problems. We predicted last year that the 2011 budget would be a train wreck; it has been an excruciatingly slow one at that. We need to look away and move on. It’s time for budget process reform that not only makes the process more effective and transparent, but also promotes far-sighted and responsible budgeting.

No Sealing off the Debt Ceiling – With all the attention on avoiding a government shutdown, there has been little talk about the debt ceiling. However, the consequences of not raising the debt limit could make a shutdown look quaint – foreign investors could take their money elsewhere and interest rates could rise. A recent Congressional Research Service report says that reaching the debt limit could incur extra costs for the federal government in the form of interest penalties because certain payments would be delayed. Even worse, a U.S. default is quite likely in such a case, which could roil the global economy (see our debt ceiling primer here). An amendment from Sen. Pat Toomey (R-PA) and Sen. David Vitter (R-LA) that was designed to prevent a default on U.S. debt in case the debt limit was reached by prioritizing payments to creditors (as well as to Social Security beneficiaries) was defeated last week. The Treasury Department again moved back the date (now to April 15) in which the debt ceiling may be reached, and House Majority Leader Eric Cantor (R-VA) said that the House won’t vote on raising the limit until around the same time. April 15 is also the statutory deadline for Congress to produce a Budget Resolution for Fiscal Year 2012. It’s possible that the spending bill for FY 2011, the FY 2012 budget and debt limit increase could converge. One way or another, Washington must deal with the debt limit sooner rather than later. In a recent paper, CRFB expressed the view that failing to increase the debt ceiling would be irresponsible, but so is a refusal to address the nation’s fiscal imbalances. The paper offers some responsible approaches to raising the debt limit.

Social Security: Third Rail or off the Rails? – Social Security has been called the “third rail of American politics” because politicians risk political death in touching the subject. However, because of substantial demographic shifts the Social Security train is headed for a derailment if changes aren’t made to the essential program to strengthen its long-term finances. We are seeing the early signs of a brewing debate over how to address the touchy topic. Last week Congresswoman Cynthia Lummis (R-WY) introduced a bill, H.R. 867, that would gradually increase the early and full retirement ages to 65 and 70, respectively. House leaders have promised that their FY 2012 budget proposal due later this month will include entitlement reform and Budget Committee Chairman Paul Ryan (R-OH) has been conducting “budget boot camps” for the large freshman GOP class to educate them on entitlements and other fiscal topics. On the other side of Capitol Hill, a group led by Sen. Lindsey Graham (R-SC) plans to introduce Social Security reform legislation to enhance its long-term solvency. Meanwhile, lawmakers on the opposite side of the issue are digging in. Last week a group of Democratic senators sent a letter looking for co-sponsors of legislation that would create a procedural point of order making it more difficult to enact any changes to Social Security that would reduce benefits.

Lots of Zeal, but Not So Real – A recent NBC/Wall Street Journal poll indicates that while Americans seriously want to tackle the federal budget deficit, there is a lack of consensus on real solutions. Few of the specific choices provided in the survey received majority support, and those that did are not sufficient to put us on a sustainable fiscal course. Trying our “Stabilize the Debt” online budget simulator provides one with a solid understanding of the difficult decisions that will be required.

Senators Intend to “Hold” the Line on Spending – Last week Senators Tom Coburn (R-OK), John McCain (R-AZ), Jim DeMint (R-SC), John Ensign (R-NV), Ron Johnson (R-WI), Rand Paul (R-KY), Mike Lee (R-UT) and Kelly Ayotte (R-NH) sent a Dear Colleague letter announcing their intention to put a “hold” on legislation that fails to meet criteria they lay out: all new spending must be offset with cuts elsewhere; legislation creating or continuing a program must include a “sunset” date at which time it must be reviewed for renewal; the text and cost of bills must be made available at least three days before they are voted on; any bill creating a new program that replicates an existing one must consolidate the initiatives; and every bill must state how it relates to the Constitution. Many of these ideas are similar to rules passed by the House earlier this year.

Summoning a Higher Power – A group of Evangelicals are seeking a higher authority for deciding how to reduce deficits and debt, and no, we aren’t referring to the CBO. The group last week launched a “What would Jesus cut?” campaign with newspaper ads and wristbands (we want the wristband).

No Labels Seeks No Obstruction – Another group isn’t quite looking to the heavens for answers, but still has lofty ambitions for the fiscal debate. The group, No Labels, held a press conference on Capitol Hill last week to call for bipartisan cooperation to address our fiscal challenges. Using the mantra “everything on the table, everyone at the table” No Labels called on leaders from MoveOn and the Tea Party movement to meet together to talk out their differences.

“Moment of Truth” Gets Its Moment – On Tuesday, the co-chairs of the National Commission on Fiscal Responsibility and Reform, Erskine Bowles and Alan Simpson, will come to Washington, DC to launch a new initiative to promote bipartisan action and a comprehensive fiscal approach. The Moment of Truth Project is named after the Fiscal Commission’s report. The deficit fighting duo will testify before the Senate Budget Committee in the morning and then appear at a forum launching the endeavor later in the day. 

Key Upcoming Dates

March 7-8

  • National Association of Business Economics policy conference: "Balancing Austerity and Growth: Delivering Policies that Work"
  • International Monetary Fund conference: "Macro and Growth Policies in the Wake of the Crisis" - webcast.

March 8

  • Senate Budget Committee hearing on the report of the National Commission on Fiscal Responsibility and Reform with commission co-chairs Erskine Bowles and Senator Alan Simpson, 10 am.
  • Event launching the Moment of Truth Project – to continue the momentum created by the White House Fiscal Commission and promote bipartisan fiscal solutions, 2 pm.
  • Senate scheduled to hold votes on competing continuing resolutions – one that will cut spending by around $60 billion for the rest of the fiscal year and one that will reduce spending by $6.5 billion.

March 9

March 10

  • House Budget Committee hearing on "Lifting the Crushing Burden of Debt" at 10 am.
  • CRFB event - "The Human Side of the Fiscal Crisis"
  • Weekly unemployment claims data released by the Department of Labor.
  • Monthly Treasury statement on the U.S. budget - Department of the Treasury.

March 11

  • Retail sales figures for February from the Department of Commerce.
  • March Consumer Sentiment Index - University of Michigan.

March 17

  • House Budget Committee hearing on “Fulfilling the Mission of Health and Retirement Security” at 10 am.

March 18

  • The current continuing resolution (CR) 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.

April 15

  • Statutory deadline for Congress to enact a Fiscal Year 2012 Budget Resolution.

April 15 - May 31

  • Period in which Treasury Secretary Geithner says the U.S. will likely reach the debt ceiling (revised).