Nov 29, 2010
The budget debate took a holiday for Thanksgiving but is coming back full throttle this week, with liberal groups expected to release new plans for attacking our fiscal problems, a key meeting between President Obama and Republican leaders expected tomorrow, and of course the deficit commission is expected to hold its crucial vote on Wednesday. Brace yourself, and plunge in.
More Plans on the Table, and Maybe Some Consensus
Two different liberal groups will be releasing plans to control the federal deficit this week, in what are the latest efforts to shape the choices as the presidential deficit commission faces its Wednesday deadline to release its final report. According to the New York Times, the co-chairmen of the commission, Erskine Bowles and Alan Simpson, have been revising the plan they put on the table last month, in the hope of crafting something that will get the necessary 14 votes on the panel.
The Times sees a lot of common ground between all of the plans:
“Even if the commission fizzles, its chairmen’s plan and the alternatives — about a half-dozen packages from centrists and conservatives, and now the two from the liberal groups — have demonstrated a rough consensus for all their differences: action is needed once the economy recovers, and the fiscal problem cannot be resolved by spending cuts or tax increases alone. Both military and health care spending should be on the cutting table. So should “tax expenditures,” the scores of popular but costly tax breaks for individuals and corporations, including the mortgage-interest deduction. And Social Security’s finances require a long-term fix.
Nothing of the sort is before the lame-duck session of Congress that resumes this week. Instead, the parties and Mr. Obama are in effect fighting over how much to add to the long-term debt: Democrats want to extend the expiring Bush-era tax cuts except for rates in the highest income brackets, at a projected 10-year cost of about $3 trillion, while Republicans want to make all the tax rates permanent, which would cost more than $4 trillion — roughly the same amount the Bowles-Simpson plan would save in a decade.”
Each of the plans does have its own approach and is worth reading on its own, but there are some common points worth noting. Both of the progressive plans would make deeper cuts in defense, recommend a “public option” for health care, raise taxes on corporations and higher-income people, and include a financial transactions tax and a cap-and-trade plan or a carbon tax. Both would also address Social Security’s problems by raising the cap on taxable income, rather than reducing benefits.
Of the two liberal plans coming out this week, one is from Our Fiscal Security, a collaboration by Demos, the Economic Policy Institute and the Century Foundation. This plan calls for balancing the budget (excluding interest) at 2018, later than the 2015 target given to the presidential commission, and stabilizes the national debt at 90 percent of GDP by 2025. That’s higher than some other plans (the Committee on the Fiscal Future of the United States, for example, suggested 60 percent):
Investing in America’s Future
The other is from the Citizens’ Commission on Jobs, Deficits and America’s Economic Future, and was co-written by prominent progressives like Dean Baker and Robert Kuttner. This plan sets a target within a target, recommending deficits be held to 3 percent of GDP, but also saying that target shouldn’t kick in until unemployment falls back to 5.5 percent (it’s about 9.6 percent now):
You can find their preliminary report here
First We’re Not Greece, Then We’re Not Ireland
Thanksgiving isn’t a holiday in Europe, so the markets were open, giving bond buyers plenty of opportunity to panic over the ongoing European debt crisis. Despite hopes that the EU bailout of Ireland would head off concerns about other countries, bondholders dumped Portugese and Spanish government bonds. That means both countries now face much steeper interest rates to get anyone to buy their bonds and finance their deficits. While Portugal is the next weak link that might go, Spain is really the one to watch. The Spanish economy is twice the size of Greece, Ireland and Portugal combined – which means its debt problems have much bigger implications, and would be much harder to bail out.
Portugal’s parliament passed tax hikes and cuts in pay and welfare benefits Friday to try and control the run on its bonds:
Debt turmoil, contagion fears sweep Europe
The Washington Post examines why Spain could be a much bigger problem, and why so far the impact on the United States is limited (our banks just don’t hold that many European government bonds):
Debt crisis escalates in Europe; fears grow about Spain
The New York Times has a quick (and funny) summary of all the European leaders and experts declaring that their country is nothing like Greece or Ireland:
They Are Not Like Ireland. Really.
After reading that story, it’s hard to resist thinking of this scene from Animal House:
A Word From The FDIC
Sheila C. Blair, the head of the FDIC (the agency that insures bank deposits) has been vocal about the dangers of U.S. fiscal policy, and warns that the European crisis shows that we can’t ignore our own rising debts:
“The quiet confidence of the American public in the FDIC’s deposit insurance guarantee was one of the bulwarks that helped to stem the tide in the recent crisis and avert even greater economic calamity. But we must never take public or investor confidence for granted. In the end, that confidence is only as great as the resolve shown by our government in identifying emerging risks and taking concerted action to head them off. Excessive government borrowing poses a clear danger to our long-term financial stability. All of us must work together now as Americans, look beyond our narrow partisan interests and show the world that we are prepared to act boldly to secure our economic future.”
On a brighter note, Iceland’s financial troubles may result in something positive: a new constitution, drawn up by citizens.
Health Care on the Table?
Health care costs are a crucial part of the long-term budget problem, because they’re driving up the costs of Medicare and Medicaid. That drags the budget debate into the even more furious argument over reforming the health care system overall. The Associated Press notes that several of the bipartisan deficit plans on the table propose reducing the tax break employers get for providing health insurance to their workers, both to raise more revenue and to try and get employers and consumers to take a more active role in cost-cutting. If businesses and employees faced more of the direct costs of their health care, they’d shop around more, the theory goes. As you can imagine, there’s lots of criticism:
Tax break for employer health plans a target again
The fate of the Obama health care plan obviously also has a huge impact here, and if it gets struck down in court, the budget debate would change drastically.
Waiting for the Commission
The presidential deficit commission is supposed to issue its report on Wednesday, and there’s lots of speculation over what it might say – and what the prospects are for getting anything done.
This story from the McClatchy news services points out history shows bipartisan deficit commissions can work.
William Gale at the Tax Policy Center compares the tax provisions in several of the proposals advanced by commission members. His conclusion: “Tax increases are going to have to be part of the solution to the fiscal problem:” Taxes and the Deficit Reduction Plans
The Associated Press sums up the economic consequences of the decisions Congress will have to make on extending the Bush tax cuts: How Congress’ tax-cut decision may affect economy
In the Wall Street Journal, Nicholas Eberstadt and Hans Groth say countries like Germany, Japan and the United States all face long-term fiscal problems driven by demographics. They suggest it’s Time for ‘Demographic Stress Tests’ .
David Leonhardt at the New York Times does a good job (and in very few words) of describing what Social Security’s problems really are: The Social Security deficit
The Congressional Budget Office raised its estimates of both the jobs saved by the stimulus and its impact on the federal deficit: CBO Sees Stimulus Benefits, Raises Cost Estimate
Are the Debt Reduction Stars Aligned?
Is Washington ready to do any of this? The National Academy of Public Administration invites you to a panel discussion Tuesday, Nov. 30, on the findings from Public Agenda’s latest update to its “The Buck Stops Where?” survey, which measures the attitudes of Washington policymakers and “beltway influencers” on the issue of the national debt.
Panelists include Bill Hoagland, vice president of public policy and government affairs at at CIGNA and former staff director of the U.S. Senate Budget Committee; Norm Ornstein, resident scholar at the American Enterprise Institute; Ruth Wooden, president of Public Agenda and a member of the Committee on the Fiscal Future of the United States; and moderator Martha Kumar, professor of the Department of Political Science, Towson University. It’s free and you can RSVP at this link
Chart of the Day
As European nations struggle with their debts, it’s worth looking at one point of comparison: taxes are generally higher in European countries than here. So when European nations talk about raising revenue and cutting services, there’s less room for tax increases in some countries than others.
Join the discussion! Your voice is important. You can comment here on OurFiscalFuture.org, on Facebook, and on Twitter. And to learn more about the numbers that set the stage for some of our choices, check out our slideshow, iPhone and Android apps, and Our Fiscal Future’s Visual Budget Tool.
Fiscal Future Daily is produced by Public Agenda for Choosing Our Fiscal Future, in partnership with the National Academy of Public Administration and with support by the John D. and Catherine T. MacArthur Foundation. The editor in chief is Scott Bittle, with contributors Francie Grace, David White, Jen Vento, Hart Hooton and Tom Watson.