Category Archives: Domestic Policy

Debt Deal Timeline

The debt ceiling deal has been signed into law, after requiring tough concessions from Democrats and Democrats alike (Does 2% count as a concession?). We know what is in the deal – $917 billion in deficit reduction over the next decade, $1.5 trillion of deficit cuts from the Super Congress, and an increase of the debt ceiling through 2012. But, when is this all going to happen? The Sunlight Foundation has broken down the when:

Tuesday, August 2, 2011. Date of Enactment of Budget Control Act

Tuesday, August 16, 2011. Co-Chairs and Committee Members Appointed

Friday, September 9, 2011. Latest possible date of announcement of the first Joint Committee hearing.

Wednesday, September 14, 2011. Latest possible date to release agenda for first meeting to Committee members.

Wednesday, September 14, 2011. Latest possible date for filing of witness statements for first hearing.

Friday, September 16, 2011. Latest possible date for first Joint Committee Meeting.

Saturday, October 1, 2011. Start of FY 2012.

Friday, October 14, 2011. House and Senate Committees transmit recommendations to Joint Committee.

Wednesday, November 23, 2011. Joint Committee vote on report and proposed legislative language.

Saturday, November 26, 2011. Filing of additional views.

Friday, December 2, 2011. Joint Committee submit report and legislative language.

Friday, December 9, 2011. House and Senate Committees must report the bills to the full chamber.

Likely December 13 or 14, 2011. Senate debate may start.

Friday, December 23, 2011. Date by which vote in passage in House or Senate must occur.

If the President vetoes the joint committee bill, debate on a veto message in the Senate shall be 1 hour.

Saturday, December 31, 2011. Latest possible date for vote by House or Senate on Balanced Budget Amendment.

Saturday, December 31, 2011. Latest possible date for President to submit first certification to raise debt limit — automatic raise of $400 billion.

January 31, 2012. Joint Committee terminates.

Sunday, February 19, 2012. Latest possible date for Congress to disapprove of first debt limit increase.

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Policy Basics: Deficits, Debt, and Interest

It’s difficult to have a well reasoned public debate when the public is largely uniformed about public policy. The Pew Research Center conducts regular polls on the public’s knowledge of the political process and public policy issues. In general the public is often uninformed about specifics of public policy (which part of the budget is the largest), but generally well informed about public policy that is common talking points (which country hold the largest percentage of American debt).

In the latest update, the Pew Research Center found that only 29% of Americans knew that the government spends the most on Medicare. Last year only 34% knew that the Troubled Asset Relief Program, otherwise known as the bailout, was enacted during the Bush Administration. That same year only 26% knew that it takes 60 votes in the Senate to break a filibuster. How do you have a more informed public? By participating in the conversation. Each week PolitiGeek will breakdown a different piece of public policy.

Center for Budget and Policy Priorities breaks down the differences between deficits, debt, and interest:

Deficits

For any given year, the federal budget deficit is the amount of money the federal government spends (also known as outlays) minus the amount of money it takes in (also known as revenues). If the government takes in more money than it spends in a given year, the result is a surplus rather than a deficit.

When the economy is weak, people’s incomes decline, so the government collects less in tax revenues. This is one reason why the deficit often grows during recessions. Conversely, when the economy is strong and tax revenues increase, the budget deficit shrinks.

Debt

Unlike the deficit, which drives the amount of money the government has to borrow in any single year, the national debt is the cumulative amount of money the government has had to borrow throughout our nation’s history. Each time the government runs a deficit, it increases the national debt; each time the government runs a surplus, it shrinks the debt.

Interest

Interest, the fee a lender charges a borrower for the use of the lender’s money, is the true cost of government borrowing. This cost is considerable. In 2008 the federal government paid roughly $250 billion in interest payments, or roughly the amount that it spent on education, transportation, and veterans’ programs combined.

Interest costs reflect both the amount of money borrowed (also known as the principal) and the interest rate. When interest rates go up or down, interest costs do too, making the national debt a bigger or smaller drain on the budget.

Every dollar the government spends on interest payments is a dollar that is unavailable for programs that currently benefit taxpayers. Rather, interest is what we pay now for benefits received in the past. Adding to the national debt by running up deficits essentially shifts the costs of current programs on to future generations, who will have to pay the interest costs.

Michael Linden, Director for Tax and Budget Policy at the Center for American Progress, explains why the United States is running such high deficits:


Obama’s Debt Deal

The deal to raise the debt ceiling has been signed, sealed, and delivered – but what is being delivered? The political debate about the winners and the losers, whether or not the Republicans or the Democrats will gain or lose the most politically, will be analyzed and debated for weeks.

In many ways this reminds me of the health care reform debate in 2009. I think we saw a preview then of how President Obama made political deals in order to get a rather moderate and centrist piece of legislation through Democratic majorities in both houses of Congress. What did we think would happen when Obama was face with a divided Congress?

But what about the policy implications? Unlike the political ramifications, the policy ramifications are much more serious. The Economist breaks down the nuts and bolts of the deal:

The result is a mishmash of expedient stop gaps and promises that tilts heavily to Republican priorities while guaranteeing more wrangling and uncertainty in the months ahead. It does nothing to support the near-term economic outlook, and makes less progress on long-term fiscal consolidation than hoped.

Its key provisions are $917 billion in deficit reduction over the next decade (the precise timing is unclear), drawn mostly from domestic discretionary outlays. (Discretionary items must be approved annually by Congress. Entitlements, also called mandatory spending, proceed on autopilot unless the law changes.) In return, the debt ceiling rises immediately by $400 billion, about enough borrowing room for the Treasury to fund current spending until September. Then, it would rise another $500 billion unless both the House and Senate were to vote by super-majorities against doing so, which is highly unlikely.

Then comes the tricky part. The debt ceiling will rise by another $1.2 trillion to $1.5 trillion by December 23rd, enough to tide Treasury over until after next autumn’s presidential election, a priority for Mr Obama. However, that requires one of two things to happen. A committee of 12 legislators composed equally from both parties and both chambers is to agree on $1.5 trillion of deficit cuts. Congress could then accept or reject but not amend the proposals by December 23rd. Approval would result in the debt ceiling rising by $1.5 trillion.

If the committee fails to come up with at least $1.2 trillion in cuts or their proposal is rejected, spending would be automatically cut by enough to bring total cuts to $1.2 trillion, coming equally from defence and domestic outlays. The triggers would take effect in 2013, and result in a debt ceiling increase of $1.2 trillion. Payments to Medicare providers could be trimmed but Medicare, Social Security and Medicaid benefits would all be shielded. The thinking is that these cuts would inflict such pain on both Republican and Democratic pet priorities that they will labour mightily to come up with an alternative.

What do policy experts think? Mohamed El-Erian, CEO of global investment firm PIMCO, said that the deal does nothing to restore household and corporate confidence “so unemployment will be higher than it would have been otherwise, growth will be lower than it would be otherwise, and inequality will be worse than it would be otherwise.” Analysis by the Economic Policy Institute (EPI) found that the deal could lead to roughly 1.8 million fewer jobs in 2012. The EPI analysis says that “not only erodes funding for public investments and safety-net spending, but also misses an important opportunity to address the lack of jobs.” The Center for American Progress notes that the deal “does nothing to help with the biggest problem facing our nation: anemic job growth and a faltering economy. In fact, by putting a noose on public investments and tightening the squeeze on the middle class, the deal goes straight in the wrong direction.”

 


Soaking the Rich

 

During the debt ceiling debate the Congressional Republicans stood firmly against raising revenues of any kind, even defending loop holes and subsidies for corporations. In fact the Republican stance against taxes is so extreme, that even discussion on raising taxes on the wealthy is rebuked. The criticism of raising taxes on the wealthy is often characterized as punishing the successful or engaging in class warfare. Republicans are still clinging to the supply-side theory of trickledown economics, and that taxing the rich will damping job creation.

In 1936, President Franklin Roosevelt said that his principle was that “taxes shall be levied according to ability to pay. That is the only American principle.” Adam Smith wrote in the Wealth of Nations that the “subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.” The idea that taxes should be levied in a progressive manner according to someone’s ability to pay them is no radical idea.

Research from economists Peter Diamond of MIT and Emmanuel Saez of the University of California at Berkeley in a recently published paper, The Case for a Progressive Tax: From Basic Research to Policy Recommendations, shows that not only would raising taxes on the wealthy not will undermine incentives to work and save but that the government should be taxing the wealthy at a much higher rate. In fact, they suggest that optimal tax rate for the top marginal tax bracket could be raised from its current 35% to as much as 76%.

Would taxing the wealthy at a higher rate have any effect on the nation’s revenue problem? According to a report from the Campaign for Americas Future, if just corporations and households making $1 million or more a year were taxed at the same rate they were in 1961 there would be $716 billion more in revenue per year. That would nearly cut our current budget deficit in half. The report, which cites an Institute for Policy Studies paper, that “if the federal government started taxing the wealthy and their corporations at the same rates in effect a half-century ago, the federal debt to investors would almost totally vanish over the next decade.”

Associate Justice of the Supreme Court of the United States Oliver Wendell Holmes said that “taxes are the price we pay for a civilized society.” However, it seems that the wealthy and moneyed interests want to pay less and less for this society – despite the fact that their wealth is due to the strength of this society. Public schools create educated work forces and public roads provide transportation for goods and services. All of the things “job creators” utilize from the public domain to create jobs – while they are instead padding their paychecks. If you don’t soak the rich you shouldn’t expect more than a trickle.


Debt Ceiling Basics

The Basics:
Current Debt Limit: $14.29 trillion
Default Deadlines: August 2nd
Increase Needed Through 2012: $2.4 trillion
Plans: Cuts, Taxes or Both in Exchange for Debt Ceiling Increase
The Plans:
Grand Deal: $4 Trillion in Deficit Reduction Over 10 Years
Reid Plan: $2.7 Trillion in Cuts Over 10 years
Boehner Plan: $2.6 Trillion in Cuts in Two Installments
Gang of Six Plan: $3.7 Trillion Over 10 years and Tax Reforms
Short-Term Plan: $1.5 Trillion to $100 Billion in Offsets
Backup Plan: Shifts the Approval Process

Debt ceiling negotiations fell apart this weekend, and now leaders from both parties are moving forward with alternative solutions and backup plans. Senate Majority Leader Harry Reid is drafting a plan that would include budget cuts meeting or exceeding the additional authorization in federal borrowing, and it would not include new revenues. Speaker of the House John Boehner is circulating a plan that would make spending cuts that are larger than any debt ceiling increase; implement spending caps; and advancing the Balanced Budget Amendment – without raising taxes. The Obama Administration opposes the Republican two-stage short-term proposal to raise the debt ceiling with an increase of about $1 trillion immediately and then again in a year depending on a deficit-reduction commission’s recommendations.


Republican Unbalanced Thinking on Balance Budget Amendment

During the debt ceiling negotiations, Republicans have cited that one of the conditions they have for voting to raisin the debt ceiling is the passage of the so-called balance budget amendment to the Constitution. Freshman Republicans have been pushing for the inclusion of the amendment as part of a deal, and the proposal will apparently be brought to the floor for a vote next week. It is interesting that this fits into the framing of the debate by the Republicans – in order to pay for our current debt obligations we must prevent future expenditures. Politico reported that Speaker John Boehner said that “we have to have real controls in place to make sure this never happens again. Real controls like a balanced budget amendment.”

The proposed balance budget amendment is simply put a piece of radical right wing magical thinking – along the lines of the thinking that cutting taxes increases revenues. Senate Joint Resolution 10 was introduced in the Senate this March with the support of all 47 Republican Senators, and House Joint Resolution 1 was introduced in the House this January with the support of 133 Republicans and one Democrat. The balance budget amendment has typically been introduced during every session of Congress, and generally speaking the wording looks the same.

The Senate version, eleven articles and is approximately 600 words, calls for a constitutionally mandate balanced budget unless the Congress votes to exceed the tax receipts with a two-thirds majority. Then it directs something curious. The amendment states that federal spending cannot exceed 18% of gross domestic product (GDP) – from the previous year. Never mind that GDP is not a legal measurement and that it is revised and updated, but Congress will be writing a budget for the next year with the numbers for the previous year. The federal budget will constantly be two years behind. Then there is the provision that says that taxes cannot be increased without a two-thirds majority vote, but tax cuts can still be passed with a simple majority. Also, the debt limit cannot be increased without a three-fifths majority vote. You think the debt negotiations are tense now.

The most astounding provision is the sixth section that states that the “Congress may waive the provisions of sections 1, 2, 3, and 5 of this article for any fiscal year in which a declaration of war against a nation-state is in effect and in which a majority of the duly chosen and sworn Members of each House of Congress shall provide for a specific excess by a roll call vote.” Sound like a recipe for perpetual war? Just to be safe, the seventh section says that the “United States is engaged in a military conflict that causes an imminent and serious military threat to national security and is so declared by three-fifths of the duly chosen and sworn Members of each House of Congress by a roll call vote.” So, if we don’t happen to be at war, we can always engage in armed conflict somewhere.

The eighth section might be the most radical of all the sections – it states that “No court of the United States or of any State shall order any increase in revenue to enforce this article.” This sets up a scenario were federal judges would literally have the power to mandate budget cuts to whatever federal programs they see fit, which is exactly the type of judicial activism that Republicans always preach against. Also, since GDP fluctuates the budget could go through dramatic swings, and in the case of a recession – like the one we current find ourselves in – it would force Congress to hundreds of billions of dollars from the budget.

A vote next week would not be able actually balancing the budget or providing any clear economic policy that actually addresses the nation’s short term or long term fiscal problems. If there is a vote it will be only political theater – a chance for Republicans to have a balance budget amendment on their voting record. Not to mention that even if a balance budget amendment was passed by the House and the Senate, it would still have to be ratified by three fourths of the states. It is not a serious solution to a very serious problem.


Republicans Proposes Reducing Already Anemic Infrastructure Budget

During the Great Depression one of the most successful ways at getting people back to work was to invest in the nation’s infrastructure. By building roads, bridges, and dams the government was able to employee people in construction, and in turn this stimulated the economy in other sectors. The investment in infrastructure lowered long term cost to the government, and promoted business investment. There has not been the same kind of investment during the Great Recession.

Today Republican Congressman John Mica, Chairman of the Transportation and Infrastructure Committee, issued a press release announcing a six-year $230 billion transportation reauthorization proposal. The press release claims that the proposal “streamlines and reforms federal programs, expedites the project approval process, maximizes leveraging of limited resources, provides flexibility for states, and ensures long-term funding stability for job-creating transportation programs.” The seventeen page proposal calls for cutting the transportation budget by a third, eliminating 70% of programs that are “duplicative or do not serve a federal purpose.” The proposal also delegates more authority to the states, allows the states to toll new lanes of the interstates system, and removes barriers to the privatization of public transportation.

In response, Democratic Senator Barbara Boxer, Chairman of the Environment and Public Works Committee, held a press conference during which she read a statement and answered reporters’ questions. Boxer said in her prepared statement that her committee is working to “develop a bipartisan transportation proposal that will support current funding levels, and create jobs.” According to a report by the Wall Street Journal, the two-year $109 billion Senate proposal calls for finding $12 billion in new tax revenue from an unspecified source to maintain existing funding levels for construction of roads, bridges and mass transit. Boxer cited statistics from the Federal Highway Administration stating that almost 500,000 jobs would be lost if Congress were to act on the House passed budget plan and impose significant cuts to our transportation programs.

In a rare consensus from labor and business, the Hill reported that AFL-CIO and Chamber of Commerce both opposed the proposal from the House Transportation and Infrastructure Committee. AFL-CIO President Richard Trumpka said that it is “astonishing and unconscionable that the House Republican leadership would push a surface transportation re-authorization bill that would gut current infrastructure investment by a third and obliterate over half a million jobs in the next year alone.” U.S. Chamber of Commerce Executive Director of Transportation and Infrastructure Janet Kavinoky said that “cuts will destroy – rather than support — existing jobs and will not enablecreation of the additional jobs needed to put the 16.3% of unemployed workers in the construction industry back to work.”

As the Center for American Progress reported earlier this year, Republican Congressman Paul Ryan, the Budget Committee Chairman, proposed budget claimed to generate savings through consolidation of duplicative programs, but the numbers just didn’t add up. What is clear is that in the current political climate, the Republican leadership is going to be hard pressed to come up with the funding necessary to properly fund transportation and infrastructure spending. This isn’t being fiscally conservative; this is pushing the problem down the road.