Senator Bob Corker (R-TN) presented his own budget plan in an opinion column in the November 26 Washington Post.
Three cheers (gross) for Senator Corker. His plan is balanced, in that it includes both spending reduction and revenue increases, and therefore takes on the most recalcitrant members of the two political extremes in Washington. Two boos (gross) for the specific content of his plan, and for how he proposes to make it happen. So one cheer (net), and a hope that others follow along and, in the fullness of time, achieve three cheers (net) and make a solution happen.
Here is the scorecard:
So as you have read as a prediction earlier on this site, and then seen and heard as news in the media, the economic-policy debate in this country has fully migrated from the halls of Congress to the campaign stump. Nothing will be decided about the rapidly mounting debt despite the fast approaching collision with the “fiscal cliff” – a collision that was explicitly scheduled to be an action-forcing event. We are left to consider what will happen after the election to head off the train wreck.
The expected “lame duck” session of the Congress will not be the Promised Land. It will not bring a religious conversion on the part of Senators and Representatives newly freed from the unholy demands of their constituents. However, in the most hopeful scenario, it will have to produce a change of course to avoid the scheduled collision with the fiscal cliff. Here is a brief description of what will be required.
Let’s Make a Deal:
A New Series
There were a couple of developments on the budget this week, coming out of the House Republican camp (pardon the pun – as will be explained in a moment). First, House Speaker John Boehner (R-OH) announced that when the nation’s debt subject to limit (that’s the technical term) reaches its limit late this year or early next, he will again demand that any legislation to raise the limit be accompanied by spending cuts of at least the same amount as the increase. Democrats, including Treasury Secretary Timothy Geithner, the unfortunate keeper of the debt, decried this as the scheduling of Train Wreck II, following on the long-running debacle of last year. Though there is no particular technical connection between the amount of a debt limit increase and the amount of spending reduction going forward – the debt is history, and future spending is, well, the future – this line in the sand has caught on with some observers. Democrats question whether round after round of spending cuts with no revenue increases is sufficiently “balanced,” and question why Republicans demand more spending cuts at the same time as they argue to repeal the most recent round of spending cuts that they demanded for the last increase in the debt limit. With the nation’s financial standing on the line in a game of chicken over default, the next encounter with the debt limit could be at least as consequential as the last.
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This is a rather long post. It tries to put into a clearer perspective the highly publicized impending end-of-year budget and tax events – called “taxmageddon” by some in the press. It takes the position that as imposing as these legal developments are on paper, a short-sighted Congress and White House could work their way around the consequences – but only in the near term. The budget time bomb continues ticking. What are the fundamental elements needed for a new President and Congress to take this problem on? We close with a few observations.
You surely have heard of the extraordinary budgetary events that lurk in the nation’s tax and spending law, just waiting to spring out upon us at the end of this year. The list is long, and frankly frightening.
In the previous decade, temporary laws involving hundreds of billions, even trillions of dollars became highly fashionable. Then with the financial paroxysm at the turn of the decade, the Congress and the President enacted more temporary legislation to provide near-term stimulus to the economy. The former actions were based on the assumption that robust economic growth would continue forever; the latter assumed that after the recession, the economy would bounce back vigorously. Both of these assumptions have proved wrong. So now, what were once presumed to be routine extensions or expirations of temporary laws have become major policy dilemmas.
Some see the “perfect storm” or “taxmageddon” at the end of this year as a likely occasion to take on the budget problem. This optimistic view holds that when confronted with all of these issues, elected policymakers finally will get religion and solve the problem once and for all.
I am highly skeptical – not that a change of heart should happen, but that it will, given recent patterns of behavior. But there is so much at stake that we need a clear view of the next year or so. Let’s start with an inventory of the dangling issues.
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In an op-ed in the Wall Street Journal, Fiscal Commission co-chair Erskine Bowles expresses optimism about reaching a bipartisan consensus and cutting the deficit:
While letting all $3.9 trillion in the Bush tax cuts expire and implementing mindless across-the-board cuts is surely not the smart way to solve our long-term fiscal problems, that threat should be enough to force across the finish line a grand bargain similar to the one our commission proposed.
In addition to an improving economy, he points out that “the terms of the fiscal debate have fundamentally changed in ways that make lasting progress on the debt far more likely.”
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Wednesday afternoon, the House began consideration of the fiscal year 2013 budget resolution (the basic congressional budget plan, which sets the limit for appropriations). Late in the evening, the House defeated a proposed amendment that would have implemented a substantial deficit-reduction plan, modeled after the report of the President’s Commission for Fiscal Responsibility and Reform, commonly called the Bowles-Simpson Commission (after its co-chairs, Erskine Bowles and former Senator Alan Simpson). The language of the amendment mirrored the Bowles-Simpson report fairly closely (a budget resolution is rather sketchy on details), with the major departure being to allow the continuation of a capital gains tax preference, which Bowles-Simpson would have repealed.
The vote was 38 in favor, 382 against the amendment. Democrats voted against the amendment 22-159; Republicans voted 16-226. So it was a bipartisan amendment, even in defeat.
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The good news is that we still have time to deal with the deficit problem, but the longer we put it off, the bigger it will become. This problem is not one that can be solved either simply or quickly. It is too large to solve solely with economic growth, or only with tax increases or spending cuts alone. It will take some of all three. Anyone who says with a straight face that we are going to deal with our deficit in a serious way without touching revenue, defense spending, Medicaid and Medicare and addressing the solvency of Social Security is not telling you the truth.
All of us have to make some sacrifices today so that our nation can remain strong in the future. As my friend and partner Al Simpson says, we all have to be prepared to give up something we like to protect the country we love.
That is the approach we took in the Fiscal Commission. Our plan asked for sacrifice from all but the most vulnerable in society. We subjected all parts of the budget to scrutiny and cut wasteful and low-priority spending wherever we could find it. Liberal and conservative Commission members were willing to accept tough choices in areas important to them as long as they saw everyone else willing to do the same with their priorities. Everyone had to swallow hard and nearly choked on one item or another. None of us thought our plan was perfect. But perfection was not the goal. Getting an agreement on a plan big enough to be equal to the challenge was the goal. In the end we were able to get a bipartisan supermajority of the Commission on a plan with $4 trillion in deficit reduction, three quarters from spending cuts and one quarter from increased revenue, which would stabilize our debt and put it on a downward path as a percentage of GDP.
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