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Anything to Avoid a More Specific Commitment to Fiscal Discipline

December 14th, 2009 . by economistmom

Congress is so unwilling to make a specific commitment to longer-term fiscal responsibility that they’d give up another short-term deficit-financed spending spree to avoid the more permanent commitment to reform itself after the binge. From tonight’s “Capitol Briefing” at washingtonpost.com, Paul Kane reports (emphasis added):

House Democratic leaders, bowing to opposition from their party’s deficit hawks, have decided to move the final must-pass piece of legislation of the year without a long-term increase to the national debt and a large boost in infrastructure funding that was considered a jobs bill.

Majority Leader Steny Hoyer (D-Md.) said Monday evening that the proposal floated last week to increase the debt limit by more than $1.8 trillion had been discarded in favor of a more politically acceptable plan to give the Treasury a two-month extension on its current limit of $12.1 trillion, which it is expected to hit by New Year’s Eve. The plan calls for raising the cap by $300 billion to $12.4 trillion, according to a source familiar with the decision.

“We’re working towards a short-term debt extension,” Hoyer told reporters as he emerged from an hour-plus meeting in Speaker Nancy Pelosi’s office.

Conservative House Democrats had been demanding, in exchange for their votes to support a large debt limit increase, a [statutory PAYGO] law that would force new spending on government programs to be offset by other cuts in federal spending or increases in taxes or fees. Senate Democrats who are concerned about deficits, led by Budget Committee Chairman Kent Conrad (D-S.D.), had been seeking the creation of a powerful new commission that would be able to force reductions in spending [or increases in taxes].

It’s as if Congress is saying to its fiscal hawks:  “Well if you’re going to be that way about the lousy debt limit increase and the (obvious) need for more stimulus, forget it!…  We’ll ask later when you’re in a better mood.”

Hey, whatever works… it’s at least a tiny little “sanity pause.”

And it tells us a lot about how dramatically the near-term budget outlook has changed, when $300 billion buys you only two months time.  (By the way, the average annual budget deficit over the past 7 years–and those have surely been record deficit years (FY2002-08)–has been $304 billion.)

TARP Leftovers?

December 12th, 2009 . by economistmom

leftovers-cartoon

It’s kind of silly, the talk about using unspent TARP money to “fund” anything else outside of TARP.  The TARP funds are borrowed money, and we’ve literally borrowed any of the TARP funds already spent.  Any “remaining” TARP funds that are “tapped into” will just become additional amounts literally borrowed.  Bruce Bartlett pointed this out among other troubling aspects of the talk about possible additional stimulus (emphasis added):

To be sure, the unemployment rate is likely to remain high for some time to come, and Congress may well wish to consider targeted policies to deal specifically with that problem. And, certainly, humanitarian measures such as extending unemployment insurance should be adopted. What should be avoided, however, are large-scale stimulus programs that cannot be justified on their own merits but only as the response to an emergency situation. That is especially true if the administration wants to use unspent funds from the Troubled Asset Relief Program (TARP) to fund additional stimulus without going through the normal appropriations process. It’s wrong to use such funds as “found money” that needs to be spent quickly lest it burn a hole in the government’s pocket.

All of the appropriated TARP “funds” were deficit financed; it’s simply a credit line.  A household analogy would be if one had taken out a credit line specific to purchases from a particular furniture store and then believed that any unused portion of that credit line could finance the purchase of a car.  The sad truth is you’d have to take out a new loan (for a car this time), and your actual indebtedness would (yes, unfortunately) actually rise.

And it’s also silly to think you could magically turn that unused portion of the furniture-store credit line into positive savings that would reduce your overall (and actual) debt, as today’s Washington Post seemed to suggest the Republicans believed they were voting for (emphasis added):

Democrats want to fund a portion of their jobs package with unspent money from the $700 billion Troubled Assets Relief Program. The Obama administration is also considering ways to funnel TARP money to help small businesses.

Before the House voted Friday to approve a bill that will change how financial firms are regulated, the chamber rejected a Republican-backed proposal to use unspent TARP funds to pay down the national debt. The measure failed by a vote of 232 to 190, with the vast majority of Democrats opposing it.

Republicans have signaled they will press this issue as part of a series of efforts to cast Democrats as spending too much. “House Democrats voted to continue TARP and go right on spending taxpayer dollars with reckless abandon,” said House Minority Leader John A. Boehner (R-Ohio).

So the TARP money isn’t a pot of saved money sitting there.  It’s a credit line, and no matter how you label it, efforts to spend “leftover” TARP funds are efforts to actually increase the federal debt.  That means the cost is far from “free” and so the benefits ought to be significantly greater than zero as well.  Leftover TARP funds don’t give us an excuse to spend with reckless abandon.

What Does a Fiscal Steward Look Like?

December 10th, 2009 . by economistmom

Well, they come in lots of varieties and come from all different parts of the country.  Here’s a neat little video CNN-Money produced out of their tagging along with the Concord Coalition’s “fiscal advisory councils”–whose representatives came to DC earlier this week to take their message (and model good behavior) to Congress.

…and A Side Note to Readers:  By the way, this is “Nutcracker week” on the homefront–which means I don’t have much time to think and write because I’m spending most of this week doing things like shopping for false eyelashes, sewing ribbons onto ballet slippers, and attending performances (as well as attending to injuries).  Glad there are so many good things out there to point to in place of doing my own work!…  ;)

Modeling Fiscal Responsibility (vs Protesting It)

December 8th, 2009 . by economistmom

At our national conference on fiscal stewardship on Capitol Hill yesterday, the Concord Coalition released a report containing the recommendations of its nationwide “fiscal advisory councils.”  The report is impressive, not so much for its length and the number and variety of policy recommendations (you can certainly find even more pages and more policies in the CBO’s “budget options” volumes), but rather because it represents the culmination of a “mini political process” of sorts, where diverse groups of people came together to learn, discuss, and debate the various tough choices necessary to achieve fiscal sustainability, and yet ultimately came to consensus about some general principles and some specific policies.

As Concord’s press release explains:

Hoping to protect their children and grandchildren from a dismal economic future, concerned citizens across the country are prepared to make the difficult choices necessary to put government finances on a more responsible path.

This becomes clear in a report released today by The Concord Coalition on the first year of its Fiscal Stewardship Project. Supported by a grant from the Peter G. Peterson Foundation, the project established six advisory councils around the country to study the long-term fiscal and economic challenges facing the United States and to recommend possible solutions.

The fiscal advisory councils were formed in Atlanta, Iowa, Milwaukee, Northern California, Northern Virginia and Philadelphia. In addition, a special student engagement project was conducted in Denver.

“Politicians may be surprised at how emphatic ordinary citizens are about fiscal responsibility and what solutions they are prepared to consider once they have studied the issues,” said Robert L. Bixby, executive director of The Concord Coalition. “The work of the fiscal advisory councils should demonstrate to elected officials that their constituents are ready and willing to help make the hard choices that good fiscal stewardship requires now and for future generations.”

Concord’s report includes an overview followed by individual reports from each of the advisory councils that present their findings and recommendations on everything from new taxes to reductions in entitlement benefits.

While each fiscal advisory council approached its work differently, eight central themes emerged:

  • Disappointment and frustration with Washington
  • A preference for broad, sweeping reforms rather than piecemeal efforts
  • A sense of urgency
  • The essential need for improvements in the health care system
  • A willingness to consider significant changes in Social Security
  • Deep concern for future generations
  • The need to better educate the public
  • Commitments to future action

“Advisory council members across the country are disappointed that Washington has failed to exercise greater responsibility in handling the nation’s finances,” the project overview says. “They decried a long and continuing pattern of elected and appointed federal officials failing to set meaningful budget priorities, borrowing more than was necessary, and refusing to pursue obviously needed reforms in both the public and private sectors.”

In other words, Concord’s fiscal stewardship project and the great work and dedication of its fiscal advisory councils are intended to inspire fiscally responsible behavior by modeling good behavior.  It’s a totally different strategy from, say, participating in tea-party protests or otherwise opposing specific policies that threaten the generosity of one’s own government benefits.

CNN-Money.com’s Jeanne Sahadi covered yesterday’s event and wrote this story, pointing out that:

Unlike politicians, [Concord's fiscal advisory] councils were able to deliberate without worrying about getting re-elected. They were outside the partisan cauldron that contorts the statements of even the most level-headed politician.

The councils were not unanimous in their suggestions. But there were some commonalities. Chief among them: disappointment with Washington, and in particular, politicians’ use of budget tricks to disguise the true cost of legislation. The Milwaukee council didn’t mince words, referring to “an overarching failure in the management of the nation’s business.”

The councils prefer sweeping reform to half-measures.

“We must examine the policy goals of all taxes and expenditures, change entitlement programs, cut all federal expenses that do not meet our goals and, if necessary, raise taxes,” the Northern California council concluded.

And when it comes to facing up to fiscal challenges, they would like lawmakers to make it snappy. “The sooner policymakers get working on solutions, the better,” the Philadelphia council wrote…

The Atlanta council put it this way: “If Americans don’t make the hard decisions now, it will have a devastating impact on the quality of life for our children and grandchildren.”

And Jeanne shot some video interviews of a few of the advisory council members, which I’ll be sure to share with you here once they’re up on CNN.com later this week.  You’ll be impressed.  Our advisory council members meet with their respective members of Congress today (as I write!), and I hope the politicians will be impressed (and impressionable), too.

Keeping In the Teeth and Keeping Up the Faith

December 6th, 2009 . by economistmom

Today’s Washington Post had this story by Lori Montgomery and Shailagh Murray on the evolving Senate health reform bill.  The title of the article was “Deals cut with health groups may be at peril”–subtitled “Top Senate Democrats fight to sustain support in face of amendments.”  But it could have emphasized the flip side with a title like “Cost control elements of health reform bill in jeopardy” and a subtitle “Top Senate Democrats stubborn in their pandering.”  I give Lori and Shailagh a lot of credit for pointing out the less sexy parts of the debate that are nevertheless the most critical to the issue of whether health reform will actually work to bring health costs down–like the issue of the Medicare commission:

Senior White House officials view the board as a critical component of health reform, the enforcement mechanism to guarantee that all the well-intentioned ideas for making hospitals and doctors more efficient translate into savings for the government. But AARP and other groups have fought to weaken or kill the board, arguing that its narrow focus on Medicare could irreparably damage the program. The House has rejected the idea of relinquishing congressional control over Medicare…

The White House and other lawmakers are pushing in the opposite direction. Sen. John D. Rockefeller IV (D-W.Va.), the board’s original author, wants to strip out exemptions in the first decade for hospitals and other providers who have agreed to reductions in Medicare payments. Rockefeller said he is also considering an amendment to undo changes Reid made that could tie the board’s hands after 2019.

Those changes would allow the board to act only if Medicare spending rose faster than overall health spending. An earlier version, written by Senate Budget Committee Chairman Kent Conrad (D-N.D.), would have let Medicare grow just a bit faster than the national economy, a more frugal standard.

Deficit hawks, skeptical of assertions that the health-care bill would not increase deficits, say the changes would gut the board. Reid’s version leaves it “essentially toothless,” said Robert L. Bixby, executive director of the nonprofit Concord Coalition, which promotes balanced budgets. “It basically means that if health-care costs are growing out of control, so can Medicare.”

We at Concord just want to keep some teeth in that commission.  Or maybe it’s already too late for that and it’s more appropriate to say we want to put some good dental “implants” back into the Senate’s version of the commission…

And we at Concord are trying to keep up the faith on fiscal responsibility in the federal budget.  One sign that we haven’t given up:  the very special event we’re holding Monday and Tuesday on Capitol Hill, to report on the first year of our “fiscal stewardship project” which has been the centerpiece of our grassroots effort lately.  As we explain on our website:

The Fiscal Stewardship Project established advisory groups around the country to study the long-term fiscal and economic challenges facing the United States and to recommend possible solutions. They were designed to be models of civic engagement and to demonstrate to policymakers that Americans around the country are serious about fiscal responsibility, greater accountability in Washington, and policies that do not cheat future generations by saddling them with massive government debt. The project involved citizens in Atlanta, Denver, Iowa, Milwaukee, Northern California, Northern Virginia and Philadelphia.

At this event, each council will present its findings and recommendations to cover a broad range of subjects including health care, Social Security, Medicare, federal deficits, tax policies, economic growth, problems with the congressional budget process and proposals for a bi-partisan fiscal stewardship commission.

WHERE: Room 2226 of the Rayburn House Office Building (10 am - 12 noon, Monday 12/7/09)

Individuals representing each of the so-called “fiscal advisory councils” will be meeting with their respective members of Congress on Tuesday, to present their individual reports containing their own perspectives on the nation’s fiscal challenges and their own preferences in terms of policy solutions.

Over the course of the week I’ll be writing (more) about Monday’s public event and the fiscal stewardship reports that will be released, the groups’ meetings with members of Congress, and the groups’ reactions to hearing from Administration and congressional policy leaders in some of the closed-door parts of our two-day conference.

Creating Jobs Is No Excuse for Wasting Money

December 5th, 2009 . by economistmom

This week the White House hosted a “jobs summit” to brainstorm about the best ways to create more jobs in the U.S. economy.  In opening the summit, President Obama touted the job-creating success of the “Recovery Act” passed earlier this year (citing this CBO report just released), but also cautioned that it doesn’t mean we can afford to keep repeating it.  From the transcript (emphasis added):

PRESIDENT OBAMA:  Now, let me be clear.  I am open to every demonstrably good idea, and I want to take every responsible step to accelerate job creation.  We also, though, have to face the fact that our resources are limited. When we walked in, there was an enormous fiscal gap between the money that is going out and the money coming in.  The recession has made that worse because of fewer tax receipts and more demands made on government for things like unemployment insurance.

So we can’t make any ill-considered decisions right now, even with the best of intentions.  We’re going to have to be surgical and we’re going to have to be creative.  We’re going to have to be smart and strategic. We’ll need to look beyond the old standbys and fallbacks and come up with the best ideas that give us the biggest bang for the buck.

In an interview I did with NPR’s Scott Horsley prior to the summit, I said something similar–the basic point being that even if we need more deficit-financed stimulus, it’s still not true that just any old deficit spending will do.  You see, we can’t afford to do stupid deficit-financed spending or tax cuts, because then the short-term (and even longer-term) benefit of the policy can’t possibly outweigh the cost of compounded interest.  Which means we would be better off not doing it.  So just because we may wish we had more jobs in this country, doesn’t mean we have an excuse to just throw more money out the door–certainly not when we seem to need the money for so many other things like expanded health care coverage, more troops in Afghanistan, and, oh yeah, saving for the future.

What Makes Deficit Reduction “Undemocratic”?

December 3rd, 2009 . by economistmom

A group of over 30 national, “progressive” organizations released this statement (and sent to the President, key Administration officials, and every member of Congress) on Wednesday, decrying the idea of a bipartisan deficit-reduction commission as “undemocratic.”  Why?  From the statement (emphasis added):

[T]he current effort to reform the health care sector seeks to achieve reductions in Medicare spending, without cutting benefits.  But the proposed budget commission—which will be viewed as a way to actually cut Medicare benefits, while insulating lawmakers from political fallout—could confuse people and undermine the reform effort. And an American public that only recently rejected privatization of Social Security will undoubtedly be suspicious of a process that shuts them out of all decisions regarding the future of a retirement system that’s served them well in the current financial crisis.

We urge you to act decisively to prevent the creation of such an extraordinary and undemocratic budget commission.

The suggestion from these groups is always that those who claim they want to “fix” the fiscal sustainability of the entitlement programs actually want to undermine and destroy the programs.  But Senators Conrad and Gregg, the chairman and ranking member of the Senate Budget Committee, issued this statement in response to explain that:

“One of the main purposes of our Bipartisan Fiscal Task Force is to protect and preserve Social Security and Medicare for current and future generations. The fact is both Social Security and Medicare are currently cash negative and headed for insolvency. People who care about Social Security and Medicare should be joining us in this effort…

“More broadly, our country’s long-term economic well-being is at stake. If we fail to act, the projected explosion in federal debt will not only threaten the federal government’s ability to continue providing support for Social Security, health care, education, defense, and other critical priorities, it could literally swamp our economy and throw us into an economic tailspin far worse than anything we have seen before. This would especially hurt the most vulnerable in our society – the very people these groups are correctly seeking to protect. We can’t allow that to happen.”

The progressive groups’ statement claims that the commission “could confuse people and undermine the reform effort.”  But to the contrary, a commission focused on deficit reduction would clarify that there’s no such thing as achieving fiscal sustainability by either cutting only “wasteful” spending and not anyone’s “benefits” or raising taxes only on (evil) businesses and not any “real people.”  The groups that signed this statement don’t want to see entitlement benefits cut–not in any way, not even by cutting only those benefits that go to those who don’t need them (such as the very rich).  A deficit-reduction commission is likely to say that yes, some entitlement spending will need to be cut, and yes, that’s likely to involve some persons receiving lower benefits.  And because these groups don’t like that message and don’t like the policy implications of that message, they conclude that the commission idea is unrepresentative of their own preferences (to ignore the need for tough choices and to perpetuate the notion that we just need to cut “waste” in the federal budget) and hence is “undemocratic.”

So now I’m anticipating a conservative equivalent to this statement where a very different bunch attacks the deficit-reduction commission for its “undemocratic” tax increases.

Oh, wait.  They’ve already made such a statement with their tea parties.  (Those conservatives do have a way of out-dramatizing the liberals.)

Game Changers, Curve Benders…and Teeth Pullers

December 2nd, 2009 . by economistmom
One version of a toothless, continuous-feedback loop - “Precious” the dog
precious talking for her soft food @ Yahoo! Video

Continuing on what gives me (and other fiscal hawkish types) “loosey-goosey” anxiety about health reform, OMB director Peter Orszag had explained in the Monday story by Lori Montgomery that (emphasis added):

“The legislation is reflecting all the ideas that have been put forward in health policy circles for years and creating a feedback-and-continuous-improvement loop that will allow us to learn as we go,” Orszag said. “When someone says it’s not guaranteed to work, my response is: Doing nothing is guaranteed to fail.”

The good ideas are what Peter often refers to as “game changers”–health policy changes that actually have promise to “bend the cost curve” in the right direction (downward).  But by Peter and the Administration’s own admission, these “game changers” largely take the form of pilot and demonstration projections in current bills, because we still have to learn about how to play the game intelligently.  So we’re really talking about studying and practicing these game-changing “plays”–and not yet actually playing the game.  That’s why Peter acknowledges that it’s going to take “decades” to see the fruits of the “game changing” policies the Administration seeks in the health reform package–to see those “game changers” turn into true “curve benders.”

One feature of the legislation that Peter and the Administration see as critical to curve-bending success is the establishment of a Medicare commission that would be an essential part of the “feedback-and-continuous-improvement loop” that Peter talks about.  As Peter explained on the OMB blog this summer (emphasis added):

There are a number of steps that can be taken to bend the curve – health IT, investing in research into what works and what doesn’t, and changing incentives so that doctors and hospitals give you better care not just more care. But one of the most potent reforms is a change in the process of health care policymaking: empowering an independent, non-partisan body of doctors and other health experts to make recommendation about Medicare payment rates and other reforms.

But as Concord’s policy director, Josh Gordon, explained this morning on Concord’s “Tabulation” blog:

The Concord Coalition firmly believes that having an independent Medicare commission is one of the most important elements being considered in current health care reform legislation. Without the commission — which would be empowered to continuously evaluate Medicare costs and propose changes to the delivery of care that might be able to help reduce system-wide health care costs — it is doubtful that current legislation will succeed in reducing long-term health care inflation.

Unfortunately, the bill currently being debated in the Senate has effectively neutered the commission’s powers (and the House didn’t even have a commission in their bill). As pointed out by David Leonhardt in the New York Times, the Senate directs that the commission leave doctors and hospitals untouched by its recommendations for the first four years of its existence (2015-2018). Then, in an even more insidious direction, the permanent commission will likely be prohibited from submitting a proposal beyond 2019. These restrictions are layered on top of the initial restrictions Congress placed on the White House’s commission proposal (benefits can’t be “restricted,” cost sharing can’t be increased, eligibility can’t be modified, and health care can’t be “rationed”)…

[The current Senate bill] basically says…that no proposal can be submitted in any year after 2019 if the five-year average of national health care expenditures grows more rapidly than five-year average Medicare expenditures. This makes it unlikely the commission will get many opportunities to submit a proposal. As our Series on Health Care and Medicare points out, expenditures in Medicare tend to rise at slightly lower rates than overall health care expenditures (from 1970-2007 annual per- capita Medicare inflation averaged 9.2% while the private health care average was 10.4%).

An irony of this provision is that almost the entire cost control structure of current health care legislation is predicated on the idea that reforms in Medicare will have to lead the way towards a broader reform of the private health care system because the government can easily experiment and alter Medicare — as opposed to trying to dictate systemic transformation in the private sector. Yet, with this restriction, the government’s ability to change Medicare will instead be stuck waiting for the private sector to magically restrain costs first.

This is Concord’s “loosey-goosey” worry:  not that a Medicare commission along the Administration’s specification won’t work–but that a “toothless” Medicare commission won’t work.  And why do we worry about the “toothlessness” of its congressional specification?  Because Congress is “pulling teeth” on the health care bill as we speak. I mean when “maverick” fiscal conservative John McCain has this to offer and argue:

The second amendment, authored by Sen. John McCain (R-Ariz.), would strip out the bill’s primary revenue source, nearly $500 billion in Medicare cost savings. Although AARP and other seniors groups have said otherwise, Republicans are attacking the cuts as a threat that could eventually shorten lives.

“They’ve paid all their working lives into the Medicare trust fund, and now they’re in danger of having $483 billion cut out of it, which would eventually lead to rationing of health care for seniors in order to fund a new, government-run health-care system in America,” McCain told reporters.

…then I think there’s not much hope of Congress producing a bill with a continuous-feedback loop that will truly “change the game” and truly “bend the curve.”  Unless the President and the few courageous members of Congress who are around insist on getting a Medicare commission with real “teeth” into the bill, the only continuous-feedback loop will be a toothless (and blabbering) one…like “Precious.”

No New Tax Ideas THIS Year

December 1st, 2009 . by economistmom

The President’s Economic Recovery Advisory Board was supposed to release its “Tax Task Force” report this Friday.  Instead, the Board’s Chairman, Paul Volcker, released this statement last Friday (emphasis added):

The tax subcommittee of the PERAB was scheduled to release its report on December 4th. But we have received more than 500 submissions of serious tax reform ideas from the public both in person and on our website and we had to cut them off to meet the original deadline.

I want us to review as many suggestions as possible and to have sufficient time to fully consider the hundreds of suggestions that have come in already. I have asked the Administration to extend our deadline and to reopen the website for submissions so that we can hear the widest possible range of ideas.

We still have the same specific mandate: to discuss the pros and cons of a spectrum of reform ideas relating to tax simplification, enforcement of existing tax laws and reform the corporate tax system without considering policies that would raise taxes on families making less than $250,000.

The PERAB is not tasked with providing its own policy recommendations for the Administration and the final report will be an almanac of options from a broad range of viewpoints.

We will be reopening the web submission form and extending the deadline for any suggestions in keeping with our mandate (suggestions may also be submitted via email) and will be scheduling more public meetings over the coming weeks. We expect to report back to the Administration after the holidays.

I think the problem was not that they had too many ideas to “process” by the deadline, but perhaps too few ideas to comprise a serious “almanac” of good tax reform ideas given the constraint of NOT raising taxes on households with incomes under $250,000–more than 95 percent of households (the Administration’s very generous definition of “middle class”).  Note that such a constraint takes virtually all base-broadening ideas (what most tax economists consider of highest priority in truly “reforming” the tax system) off the table.

So instead of hearing of new ways to improve the tax system, this week Congress is likely to take up the estate tax and whether to temporarily or permanently extend estate tax relief, because under current law (as passed in 2001) the estate tax disappears completely in one month (January 1st, 2010), only to reappear with a vengeance in its pre-2001 form on January 1st of the following year.  If 2009 law is permanently extended, there’s no plan to offset its cost, because this form of estate tax relief has been exempted from the House-passed statutory PAYGO rule as well as from the Obama Administration’s application of PAYGO principles to their own budgetary proposals.  This also deviates from the usual notion of fundamental tax reform by violating “revenue neutrality.”

So it seems we’re too busy dealing with the mess of old tax policy to be able to focus very well on new and better tax policy just yet.

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