Budget & Taxes

The 'Grand Bargain' is Dead

Ezra Klein and Evan Soltas announce that the upcoming budget deal “is a signal that the age of grand bargains is over.”

“It doesn’t put the nation’s finances on a vastly different path (or even any different path). It doesn’t reform the tax code or overhaul Medicare. It doesn’t include infrastructure spending or chained-CPI. It doesn’t even replace all of sequestration.”

On the positive side, the deal incorporates small changes and “is the work of human hands rather than automatic cuts … And it would be a small but real boost to the economy.”

“What we don’t know is if the age of mini-deals has yet begun.”

Congressional Budget Deal Little More Than a Cease-Fire

The Washington Post reports that “the first successful budget accord since 2011 … amounts to little more than a cease-fire.”

“Senior aides familiar with the talks say the emerging agreement aims to partially repeal the sequester and raise agency spending to roughly $1.015 trillion in fiscal 2014 and 2015. That would bring agency budgets up to the target already in place for fiscal 2016.”

“Despite his own ambitious blueprint for shrinking spending, [House Budget Committee Chairman Paul Ryan (R-Wis)] said he would not attempt a big deal, because it would require a ‘grand bargain’ in which Democrats agree to cut safety-net spending in exchange for Republican concessions on taxes.”

“But the deal would do nothing to trim the debt, which is now larger, as a percentage of the economy, than at any point in U.S. history except during World War II.”

“Where would that leave the nation’s financial outlook? Not in a particularly good place, budget analysts say … Annual deficits would start growing again in 2016 as the baby-boom generation moves inexorably into retirement. And the debt would again soar.”

House and Senate Near Budget Deal

The New York Times reports that the House and Senate is close to sealing a budget deal despite “last-minute resistance from House Democratic leaders who said any deal should be accompanied by an extension of expiring unemployment benefits for 1.3 million workers.”

“The deal would increase revenue by raising some fees and would shift some cuts away from domestic and defense programs, partly alleviating the squeeze of across-the-board spending cuts imposed last year, which are set to worsen in 2014. Spending on defense and domestic programs would rise to about $1 trillion … Absent a deal, further cuts would go into effect in January, and discretionary spending would be cut to $967 billion for fiscal 2014.”

“But the agreement would leave to future negotiations the big issues of curbing future spending increases in the fast-growing entitlement programs and the proper level of tax revenues. It also would not extend unemployment benefits set to expire Dec. 28, or deal with impending cuts to Medicare health care providers.”

But Roll Call notes Speaker John Boehner tempered expectations for a deal on the budget, “saying neither issue appears to be poised for conclusion.”

National Journal: “The details of a potential budget deal are trickling out, and nobody seems thrilled with what they’re hearing.”

Illinois Unions Poised to Battle New Pension Legislation

The Wall Street Journal reports that “[Illinois] state legislators passed an overhaul of the public-employee retirement system Tuesday, cutting benefits for workers and retirees in a move that sets up a likely court battle with organized labor.”

“Illinois has seen its credit rating fall in recent years to the lowest among U.S. states as it has struggled to address a gap in its pension funds that is nearing $100 billion.”

“Now, union leaders are gearing up to fight. Labor leaders expect to sue the state, arguing benefits promised to employees and retirees are protected under the state constitution.”

“To date, unions have successfully argued that government workers shouldn’t be punished for decades of mismanagement by the state, which underfunded the retirement system. But union leaders have seen support erode as concern over the state’s finances grows and their sway in a statehouse dominated by Democrats ebbs.”

113th Congress is Least Productive Ever

The New York Times reports that “the 113th Congress has passed all of 55 laws so far this year, seven fewer at this point than the 112th Congress — the least productive Congress ever.”

The reason: “Many Republicans believe they are getting such good traction from their attacks on President Obama’s stumbling health care law that they feel less compelled to produce results. Any public fight over legislative compromises could take away from the focus Republicans have kept on the health care law.”

“Major bills passed by the Senate with bipartisan majorities to overhaul the nation’s immigration laws, update farm programs, allow states to collect sales taxes from online retailers and protect lesbian, gay, bisexual and transgender people from workplace discrimination have been blocked from votes in the House — where members of both parties say they could pass.”

“Lawmakers and aides from both parties say a modest budget deal is possible [but] the farm bill is a more difficult lift.”

Rep. Jim McGovern (D-Mass.): “If they want my vote, they ought to stop beating up on poor people … I don’t think it’s too much to ask to have a farm bill that doesn’t increase hunger in America.”

Health Care's Biggest Test Still to Come

“While failures in launching the federal insurance Web site and online exchanges have thrust the Department of Health and Human Services to the center of public attention,” the Washington Post notes that “the IRS also has a huge role in carrying out the law, including helping to distribute trillions of dollars in insurance subsidies and penalizing people who do not comply.”

“None is more crucial than enforcing the requirement that all citizens secure health insurance or pay a penalty. But those efforts have been hampered by a one-year delay in applying new insurance regulations to large employers. Those employers had been expected to provide insurance coverage information that the IRS would use to help identify who has insurance and who does not.”

“The lawmakers who drafted the health-care law intentionally barred the IRS from using its customary tools for collecting penalties — liens, foreclosures and criminal prosecution. The only means of collecting the fine is to essentially garnish tax refunds for people who overpaid their taxes.”

The good news: “IRS officials say that they are on track to meet the law’s requirements and that their computer systems are performing as hoped.”

Sequestration Will Be Worse in 2014

Government Executive highlights a new report by the Center for American Progress finding that “the tactics federal agencies used to reduce furloughs in fiscal 2013 are, in many cases, no longer available” for 2014.

From the Introduction: “There are four factors making next year’s sequester even more damaging than this year’s. First, and most simply, the sequester makes larger cuts in 2014 than it did in 2013. Second, many of the cuts that were legally made this year have not actually been implemented yet. Third, one-time fixes that mitigated sequestration’s worst impacts in 2013 cannot be used again next year. Fourth, sequestration made cuts to little-noticed but critical functions of government—cuts that will be particularly devastating if they are not reversed soon.”

A New Way to View Social Security

For years, Social Security has been an ‘entitlement reform’ punching bag for those intent on displaying fiscal responsibility.

Paul Krugman asserts there is an emerging shift taking place. Arguing that Social Security is, in fact, one part of the retirement system that is “working well”, Krugman makes the case for expansion by dispelling two “bad” arguments for cuts:

“One is that we should raise the retirement age … because people are living longer. This sounds plausible until you look at exactly who is living longer. The rise in life expectancy, it turns out, is overwhelmingly a story about affluent, well-educated Americans. Those with lower incomes and less education … have seen their life expectancy decline.”
“So this common argument amounts, in effect, to the notion that we can’t let janitors retire because lawyers are living longer. And lower-income Americans, in case you haven’t noticed, are the people who need Social Security most.”

Two “is that seniors are doing just fine. Hey, their poverty rate is only 9 percent. [However,] there are well-known flaws with the official poverty measure … [and] the elderly poverty rate is highly likely to rise sharply in the future, as the failure of America’s private pension system takes its toll.”

Krugman concludes: “We’re looking at a looming retirement crisis, with tens of millions of Americans facing a sharp decline in living standards at the end of their working lives. For many, the only thing protecting them from abject penury will be Social Security.”

Nuclear Option Increased Odds of Government Shutdown

Stan Collender: “By changing it’s rules yesterday to prevent filibusters on executive branch and judicial nominees (other than the Supreme Court) — the so-called nuclear option — the Senate further complicated a federal budget debate that was already overly complicated and had little chance of success.”

“Although it’s still less likely than likely, the prospects for a government shutdown in January increased significantly. Based on yesterday’s action, I have increased the possibility that funding for the federal government will not be adopted by the time the current continuing resolution expires to 40 percent.”

“And the likelihood for sequestration to occur as scheduled in mid-January also jumped significantly.”

Senate Republicans Hold Up Defense Bill

Time is running short for the Senate to pass the National Defense Authorization Act, but The Hill reports that Senate Republicans are holding up debate without guarantees of additional votes on amendments.

“Reid said he offered Republicans a deal to have 13 amendment votes, but Coburn wanted guarantees that there would be more. Reid has been trying to complete work on the National Defense Authorization Act (NDAA) before the Senate adjourns Friday for a Thanksgiving recess.”

“Senate Armed Services Committee Chairman Carl Levin (D-Mich.) said if the Senate doesn’t pass the defense bill by Friday, a conference committee might not have time to finish the legislation by the end of the year.”

Possible Breakthrough in Budget Talks

According to the Financial Times, the budget conference committee currently working to avoid another government shutdown in mid-January “experienced a breakthrough in recent days.”

“According to people close to the talks, the contours of a deal are coming together to replace some sequestration cuts with a mix of spending cuts and new revenues derived from higher government fees. The deal would set spending levels for one or two years.”

“On the chopping block are items such as farm subsidies and federal employee pensions on the spending side, and increases in transportation security fees, which would anger airlines, and money from wireless spectrum auctions.”

Treasury Borrowing Authority Exhausted by March

Should the White House and Congress not reach a deal to raise the debt ceiling, “the federal government will exhaust its authority to borrow money as early as March according to projections from the nonpartisan Congressional Budget Office, ” reports the Washington Post.

Suspension of the nation’s debt limit was extended through February 7 as part of an agreement among lawmakers to end the October government shutdown.

According to The Washington Post, “the Treasury can resort to what it describes as ‘extraordinary measures’ to continue borrowing after Feb. 7 if lawmakers do not extend the suspension or raise the debt limit by then [but] the CBO said those moves would ‘probably be exhausted in March.'”