Line Items: Summer Heat Edition
Heat Is On – The heart of the summer is upon us and Washington is feeling the heat in more than one way. In addition to record temperatures, policymakers are also feeling the heat of impending deadlines. Lawmakers have less than two weeks until their month-long August recess. Some believe that recent bipartisan deals on student loans and presidential nominations may pave the way for more breakthroughs, such as a comprehensive fiscal deal. Will they turn up the temperature to get things done or throw cold water on everything?
Budget Back on the Front Burner – On Wednesday, President Obama will begin setting the stage for the upcoming fiscal discussions by kicking off a series of economic speeches in Illinois. This comes as the White House and Senate Republicans continue their talks to achieve a comprehensive debt deal. Last week, the Campaign to Fix the Debt (a project of CRFB) hosted a national fly-in with supporters from 19 states to urge lawmakers to work together and address the national debt. The Washington Post editorial board also urges action now. Meanwhile, the Peterson Foundation made the case for “Why Long-Term Debt Matters.” Read our recent reports “Our Debt Problems Are Still Far from Solved,” and “What We Expect From the Upcoming Fiscal Discussions.”
Burning the Appropriations Candle At Both Ends...To What End? – The House and Senate are both working on appropriations bills for the next fiscal year, but it isn’t clear that they will be able to meet in the middle. The Senate is pushing a topline spending number of $1.058 trillion while the House plans on spending a total of $967 billion. The difference between the two chambers for Transportation-HUD funding alone is $10 billion. As we point out, differences in how to deal with sequestration are the root of the split. CQ Roll Call reports (subscription required) that impasse could well result in yet another continuing resolution when the current fiscal year ends September 30, meaning that many agencies may be operating at FY 2013 levels. The full House recently approved the Energy & Water Development spending bill and the Financial Services, Transportation-HUD and Agriculture bills are likely next up for floor consideration. The Defense spending bill has been slowed by threatened amendments. Meanwhile, the Senate Appropriations Committee marked up spending bills for the Legislative Branch; Labor, Health and Human Services and Education; Homeland Security and Commerce, Justice and Science in recent weeks. The Transportation-Housing and Urban Development appropriations bill is expected to be the first taken up on the Senate floor.
Immigration Reform Debate Continues to Be a Scorcher – While the Senate overwhelmingly passed legislation to overhaul the immigration system, its fate is still uncertain in the House. CBO produced a new estimate based on amendments to the bill projecting that it would reduce deficits by about $158 billion over ten years. The savings were reduced from a previous estimate because an amendment was approved increasing border security costs. CBO points out that all of the deficit savings produced by the legislation results from increased payroll tax revenues that are dedicated to funding Social Security. Excluding Social Security, the bill slightly increases deficits and violates PAYGO rules. We have argued for offsetting the non-Social security deficit increase and warned against using the Social Security savings as a reason to add more spending.
Entitlement Reform a Hot Topic – In light of the recent reports from the Trustees overseeing Social Security and Medicare warning of the long-term financing problems facing the vital programs (see charts illustrating the problems here), there is a renewed push to strengthen their finances so that they will be there for future generations. The House Ways and Means Committee jumped into the issue and released a discussion draft on switching to the chained CPI to calculate Social Security benefit increases that also mentions ideas for bumping up old-age benefits to mitigate the effect of the chained CPI for older, more vulnerable beneficiaries. CRFB’s Marc Goldwein explains that economists across the spectrum support this change. In addition, the U.S. Chamber of Commerce launched an effort to promote reform that includes busting some myths. The Moment of Truth Project released a paper on reforming Medicare’s inefficient and complicated cost-sharing rules and bipartisan legislation was introduced in the Senate to increase Medicare premiums for some higher-income participants. The Medicare Advisory Payment Commission (MedPAC) offered some ideas for Medicare reform and Fred Hiatt of the Washington Post made the progressive case for entitlement reform. Go ahead and devise your own Social Security reform plan with our interactive “Reformer” tool.
Tax Reform Continues to Sizzle – The two chairmen of the congressional tax-writing committees, Max Baucus (D-MT) and Dave Camp (R-MI) believe that tax reform has a better than 50 percent chance of passing and they continue to push for an overhaul both inside and outside the Beltway. They recently hosted a bipartisan get-together at a Washington pub and kicked off their national roadshow with a stop in Minnesota highlighting the need for tax reform. Camp is also seeking Democratic support in the House and Baucus and Sen. Orrin Hatch (R-UT) are pursuing a “blank slate” approach in the Senate where the deductions, exemptions and other tax breaks known as tax expenditures will be eliminated and lawmakers have until July 26 to justify saving certain tax expenditures. This is essentially the “Zero Plan” proposed in the Simpson-Bowles deficit reduction plan. Simpson & Bowles praised the idea in an op-ed. The Business Roundtable also supports tax reform and lays out its priorities in a letter to Baucus and Hatch. There will be pressure to exclude popular tax breaks like the employer-based health insurance exclusion, which we argued against taking off the table and we offered some options for reforming it and two other popular tax expenditures. Relatedly, the Tax Policy Center looked at other ideas for limiting tax expenditures. Meanwhile, former Treasury Secretary Larry Summers is calling for corporate tax reform. This comes as recent polling shows support for reforming corporate taxation as a part of comprehensive tax reform and a Government Accountability Office (GAO) study found that the current corporate tax system has a lot to be desired. Try your hand at reforming the corporate tax system with our simulator.
Senators Finally Felt the Heat Over Student Loans – The interest on student loan rates doubled on July 1 because lawmakers could not agree on how to fix the situation. On Thursday a bipartisan group of senators reached an agreement that would tie student loan rates to Treasury bond rates. The deal reduces deficits by $715 million over the decade, which is an encouraging sign that lawmakers can deal with problems in a fiscally responsible way. Hopefully lawmakers will keep this in mind as they deal with the other upcoming fiscal speed bumps.
Both Sides Warming Up for Debt Ceiling Fight – It is estimated that the “extraordinary measures” being undertaken by the Treasury Department and an improving economy will delay reaching the statutory debt ceiling until this fall. But both sides are starting to gear up for the debate. House Republicans are drafting a menu of spending cuts, mainly on the mandatory spending side, that would be acceptable in exchange for raising the debt limit. Democrats are holding to the position that the debt ceiling increase should not be held hostage because a default could lead to economic catastrophe. Follow debt ceiling developments here.
Still No Fire Over Going to Budget Conference – Although both the House and Senate passed fiscal year 2014 budget resolutions months ago, no effort has been made to reconcile differences and put a budget in place for the first time in four years. Democrats are trying to push for repealing sequestration to be a focal point of the talks. House Minority Leader Nancy Pelosi (D-CA) tried to force action on a budget conference by appointing members to take part. Senate Budget Committee chair Patty Murray (D-WA) wrote an op-ed on the need for a budget deal to avoid the next fiscal speed bump when the fiscal year ends on September 30. House Majority Leader Eric Cantor (R-VA) said he’s not sure there ever will be a conference. Budget talks could be an avenue for negotiating a larger debt deal. Both sides need to come together and start talking.
Roasting Congressional Inaction – Last week the nonpartisan No Labels movement unveiled its Make Government Work agenda, which prominently features many budget reform ideas. Proposals include “No Budget, No Pay” legislation withholding lawmaker’s pay if they don’t pass a budget and spending bills; moving to biennial budgeting; and getting rid of duplicative and overlapping programs as identified by GAO.
Interest Rates Rising – Markets heated up when Federal Reserve chair Ben Bernanke announced that the Fed would dial back its stimulus as the economy improves, slowing the pace of quantitative easing. Although markets eventually stabilized and Bernanke has since clarified his statement, rates are already beginning to naturally rise as the economy recovers. Rising interest on the national debt will crowd out important investments in areas such as education, infrastructure and research unless action is taken to address our fiscal challenges.
Budget Process Reform Still a Hot Potato – The House Budget Committee approved two bills to change how federal budgeting is done on party-line votes. One bill would require the Congressional Budget Office (CBO) to use dynamic scoring in assessing the budgetary impact of major legislation. The other would eliminate automatic inflation adjustments in CBO baseline budget projections. The dysfunctional federal budget process needs serious reform and it must be done on a bipartisan basis. See more ideas at budgetreform.org.
Key Upcoming Dates (all times are ET)
- House Appropriations Committee mark-up of spending bill for State Departmant and Foreign Operations at 10 am.
- House Appropriations subcommittee mark-up of spending bill for Labor, Health and Human Services and Education at 9 am.
- Senate Appropriations Committee mark-up of spending bill for State Departmant and Foreign Operations at 10 am.
- Bureau of Labor Statistics releases July 2013 employment data.
- Dept. of Labor's Bureau of Labor Statistics releases June 2013 Consumer Price Index data.
- Bureau of Economic Analysis releases advance estimate of 2013 2nd quarter GDP.