Tag Archives: Deficit Reduction

There is muddling through, and there is kicking the can down the road.  Although neither is conclusive, the former is more purposeful.  The budget deal announced yesterday – the “Bipartisan Budget Act” – challenges judgment with respect to its classification between these two pigeonholes.

There is some good news here.  The press has reported that the deal eliminates the risk of a government shutdown either this year or next.  That is not correct, at least not literally.  The government will shut down on January 15, 2014, and then again on October 1, 2014, if the Congress does not pass, and the President does not sign, appropriations bills (in addition to this deal) to keep the government funded and open.  However, unless and until this deal becomes law, the two Appropriations Committees of the Congress do not have the agreed-upon targets such that they can even try to pass those bills.  There are indications that the Appropriations Chairs have had significant input to the numbers in the deal, and that those Chairs are therefore now prepared to write those bills.  If so, then we are at least positioned to avoid government shutdowns, even though we have not yet done so.

The economy is shaky enough that it really does not need another shutdown shock.  Making a real step toward avoiding a shutdown crisis (although not fully accomplishing that goal, which this piece of legislation could not possibly do) for the next 22 months is clearly a positive.  Chalk one up for the Bipartisan Budget Act.

Also give the negotiators credit for standing close enough together to fit in one television shot.  Very little has been accomplished or even attempted on a bipartisan basis in Washington in recent months and years.  Budget chairs Ryan and Murray will catch a fair amount of flak within their own parties for even appearing to work together, so kudos on this front too.

Furthermore, the deal provides some relief from the budget “sequester” in this fiscal year and next, which are arguably the worst-affected years in the next eight that are covered by that irrational budget mechanism.  There is plenty more pain and irrationality to come in succeeding years – and even with the sequester fix these two years are not great either – but still, this relief is unquestionably welcome.  The deal “pays for” that sequester relief with savings that will arrive later, and this timing makes sense from the point of view of managing the nation’s macroeconomic policy.  So that is another positive.

That said, do not forget that the potential January 15 shutdown was not the only pending early-2014 crisis.  We go on debt-limit watch again on February 7 – and the debt limit is a more malignant issue by far than a government shutdown.  As an Act of Congress, this deal, at least in theory, could have increased the debt limit and taken that risk off the table.  It did not.  This is not to lay personal responsibility on the budget-deal negotiators; they may not have been given a green light on the debt limit by their leaderships.  But failing action in the budget deal leaves the larger dark cloud hanging over the economy, even while it dissipates the smaller.  You certainly should enjoy your holidays, but please do not put your guard down just yet.

Read More

Well, not quite that many, but the Congressional Budget Office (CBO) has released its latest in what has evolved into a once-every-two-years series, Options For Reducing The Deficit. This genre was created back in the 1970s and evolved toward its current form in the 1980s, when concern over the federal government’s booming deficit rose to a fever pitch.  The idea was to give the Congress an unbiased, on-the-one-hand-on-the-other-hand evaluation of something approaching the deficit-reduction waterfront.  There were ideas for cutting spending and raising taxes, and the legitimate pros and cons of each idea were presented in a dispassionate fashion, with all of those options organized by parts of the budget – entitlement programs, by purpose; appropriated programs, by purpose; and revenues, by type of tax.  An interested Member of Congress or staff member could use the volume like an encyclopedia to see how his or her target area of the budget might be accessed for savings.

(I worked at CBO from 1981 into 1984, and was involved in the preparation of the reports of that period.  My clearest memories of the process are the careful and unbiased work of the organization’s entire staff that went into the reports, and my first self-taught lesson in tactical forensic editing.  For my second edition, I was told that my chapter, on revenue options, was quite satisfactory but much too long, and I was given what my supervisors clearly believed to be a draconian number for reduction of the page count.  I analyzed the chapter and found that the typical discussion of an individual policy option was one page plus a small number of lines long, with the formatting of the volume dictating that the remainder of that second page be left blank.  I carefully combined a few paragraphs, with each combination saving on average one and one half lines [counting the blank line between paragraphs], and thereby pulled the few lines from the second pages back onto the first pages, quickly hitting my page-reduction target without deleting a word.  I trust that my supervisors of that time, who expressed great admiration that I could do the job so quickly and effectively, are not reading this blog.)

The CBO volume has become an essential building block of all discussions about reducing the deficit.  Many deficit-reduction plans have been constructed merely by figuratively checking the boxes of a list of the CBO options.  Computer games BlogQuote20131115have been designed to allow individuals in effect simply to choose from among the CBO options in a spreadsheet until they reach a target amount of deficit reduction or (to say the same thing in different words) a target lower level of debt.  Such games have been made available on the Internet, or even taken to town-hall meetings so that people can debate their own deficit-reduction choices with their neighbors around a conference table.

These games have performed important functions.  At the most fundamental substantive level, they have forced people to face up to the size of the budget problem.  The more Americans who become aware that eliminating foreign aid and cutting congressional salaries to zero will not begin to trim our mounting debt, the better.  And with that reality on the table, getting people together to debate the necessary and far more difficult choices is obviously a good thing.  Getting folks with strong preferences for tax increases and against spending cuts, and vice versa, to debate the best combination of both is an important public service.

Read More

If all goes well – a frightening thought – Washington is about to kick the can down the road yet another time.  This would be a good outcome because Washington seems just as likely to miss a mighty swing at the can and fall on its bum in the mud.

There is no realistic alternative to another can kick, after all.  This is October.  The fiscal year has already begun.  The federal government has been shut down for two weeks.  The Treasury is just about out of borrowing ability, and on the brink of default (to use the stark term).  This is a drain-the-swamp-versus-fend-off-the-alligators moment.  The Congress is not going to reform the nation’s tax code, Medicare and Social Security before the end-of-the-year holidays, as anyone who has watched our legislators work even at their finest knows all too well.  Think of 1981-1982 on Social Security, and in 1981-1986 on the income tax – and note that these were separate, multi-year efforts.  It is time for damage avoidance; that is the best we can hope for.

So if we are going to kick the can, we might as well kick it strategically.  Let’s think about our situation – what we must accomplish, and when.

What do we need to accomplish?

Read More

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:

Read More