Dec 20, 2010
Now that the bipartisan compromise on the Bush tax cuts is passed, Congress is faced with the basic task of approving a spending bill to keep the government running. The current plan is for Congress to pass a bill that only keeps the government’s doors open until March, when it’s likely that a combination spending bill-and-increase in the government’s debt ceiling will lead to at least another showdown, if not a shutdown. At this point, however, while the lame-duck Congress may flap around for a few more days, it isn’t likely we’ll see any more major fiscal policy decisions until the New Year.
This year, more and more people, in and out of government, seemed to realize that the federal budget is on an unsustainable path. There’s a reason why Merriam-Webster found “austerity” to be the most-searched word on its online dictionary this year. A very positive step in 2010 was the sheer number of ideas put on the table for solving the problem, from the Choosing Our Fiscal Future report or the president’s fiscal commission and on through a whole range of proposals from across the political spectrum.
If nothing else, these plans prove a major point: there are plenty of ways of getting the budget on track, and that’s true whether you’re a conservative, a progressive, or anything in between. We just need to make some choices – and of course, that’s the challenge waiting for us in the New Year.
The Tax Bill, and What Next
President Obama signed the tax compromise on Friday, a bill that gives something to almost everybody and may help the economy, but also runs up the deficit by $858 billion. There’s an enormous amount of commentary out there; we think the Atlantic Wire’s summary of pieces looking at winners and losers sums it up nicely.
“For starters, it’s important to point out that the rise in rates might not be caused by investors fearing U.S. deficits. They didn’t appear to mind big deficits so much throughout 2010, so it’s a little surprising that they would suddenly be so concerned after the Bush tax cuts were extended. While it certainly made the deficit larger, it also provided more certainty that the U.S. would avoid a double dip recession. But since the tax cut compromise was announced, interest rates have definitely risen. If the vigilantes are driving the increase, then there are a couple ways to calm their fears.”
Economist Mom Diane Lim Rogers isn’t a fan of the tax plan, and isn’t impressed by the bipartisanship. On the other hand, “at least my dog didn’t die this weekend,” she says, summing up her thoughts on other bills in this category and the one that now has the president’s signature:
“That’s not exactly the “barter” – or “give and take” – kind of “compromise.” It’s the easier “take and take” kind that policymakers have mastered over the past decade that has resulted in such fiscally irresponsible policymaking, where seemingly-free deficit financing becomes the easiest “bipartisan” way out of gridlock. As I’ve said before, it’s not mutual sacrifice; it’s mutual grabbing.”
“Should today’s tax deal be compared to room service or to murder? I leave it up to you, dear reader, to decide.”
It Isn’t Even Christmas, But It’s Not Too Early to Worry About March
A lot will happen over the next couple of months, and budget issues will feature prominently. But the next real budget battle will probably be in March. The latest temporary spending bill is expected to expire then, and Congress will also have to raise the debt limit to allow the government to borrow more money and keep operating.:
“Under the Senate deal set on Sunday, funding for most federal agencies and departments would continue at levels authorized for fiscal year 2010, though some programs would see slight increases. Overall, funding would be about $1.2 billion above the levels authorized in last year’s budget. The House would also have to approve the spending measure.”
“House and Senate Republican leaders say they want to reduce non-security discretionary spending back to 2008 levels, which would mean a cut of about 22 percent overnight — the deepest in decades. What Republicans haven’t said is which programs should get the ax, and by how much. Only about $16 billion can come from rescinding unspent stimulus money. And while many conservatives might love to cut energy, education, and safety-net programs, they would have no choice but to hack away at more basic programs: law enforcement, tax collection, immigration enforcement, scientific research, space exploration. It should make for a lively intraparty debate.”
At Capital Gains and Games, Stan Collender says “2011 Budget Debate Will Make ‘The Perils Of Pauline’ Look Like A Romantic Comedy”:
“Does anyone really think that there won’t be a continuing series of cliff hanger-like episodes when any issue having anything even remotely to do with revenue, spending, deficit, and debt is considered? The only question is who will be tied to the track and who will be saying the federal budget equivalent of ‘Curses, foiled again.’”
Benjamin Sarlin at The Daily Beast points out that Tea Party activists played a key role in convincing Republicans to block the omnibus spending bill this weekend, and they’re likely to push for tougher measures next year:
“That surprise success means the new Congress will have to work out its budget quickly upon arrival, setting up immediate fights with a White House ready to go to war to protect health-care funding and head off any spending cuts that could undermine the economic stimulus package it negotiated as part of this month’s tax compromise. Expectations will be sky high for the new majority to slash the budget, and Republicans’ relatively modest proposals in their Pledge to America may not be enough to cut it with the activist base, many of whom were critical of its limited scope.”
You Can’t Tell the Players Without a Scorecard
As a nation, we’ve actually got plenty of options for dealing with our long-term budget problems. When this debate returns in the New Year – and believe us, it will – this side-by-side comparison of the different proposals out there may come in handy., put together by the Committee for a Responsible Federal Budget.
Rethinking the Charitable Deduction
The holiday season is prime time for giving to good causes – both because it’s the season of giving, where nearly everyone gives some thought to helping others, and because it’s the end of the tax year. University of Chicago economist Richard H. Thayler raises some holiday hackles today with an op-ed in The New York Times calling for rethinking how we handle the tax deduction for charity:
“In the current system, strictly speaking, your eligibility to deduct a charitable contribution doesn’t depend on whether you have a big mortgage. But it might as well. You can deduct charitable contributions only if you itemize rather than take the standard deduction, and the most common way a household collects enough deductions to make itemizing worthwhile is to have a big mortgage. (Living in a high-tax city like New York can also help a taxpayer cross that threshold, because state and local taxes are deductible, at least for now.)”
“But I challenge anyone to justify a system in which we essentially subsidize contributions made by people with big mortgages.”
“Some may argue that giving to charity is itself a form of consumption. After all, the person who gives is doing so voluntarily, so there must be some utility to the giver. Perhaps, but there seems something fundmentally different about consumption in the form of charitable giving and consumption in the form of large homes and fast cars. But maybe that is the puritan, rather than the economist, inside me speaking.”
“But I do oppose the charitable deduction for a different reason; it’s existence means the government must define what constitutes a charity. I do not want the government having that kind of power; it will use it badly, such as by dictating what constitutes religion, education, and so on.”
So if the economists won’t do it, we will – - that is, point out that charitable giving is not just about economics. In this discussion, for example, the tax advantages hardly come up at all:
And the Word of the Year is: “Austerity”
“John Morse, president and publisher of the Springfield, Mass.-based dictionary, said “austerity” saw more than 250,000 searches on the dictionary’s free online tool and came with more coverage of the debt crisis.”
“What we look for … what are the words that have had spikes that strike us very much as an anomaly for their regular behavior,” Morse said. “The word that really qualifies this year for that is ‘austerity’.”
Chart of the Day
This is what the road ahead looks like right now, and why we need to do something about the long-term budget problem.:
Join the discussion! Your voice is important. You can comment here at 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.