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It’s not just New Jersey Governor Jon Corzine who’s finding it hard to balance the budget–at least he’s getting some things passed and is just paying the price with declining public approval ratings.  Virginia Governor Tim Kaine (my governor) is having trouble just getting things passed.

This morning’s Fairfax (Virginia) section of the Washington Post writes that Governor Kaine, in working with a Republican-controlled House and a Democratic-controlled Senate, has had a hard time getting the votes to pass any (transportation-related) tax increase that would help fund Virginia’s badly-needed transportation projects.  The story should sound familiar to anyone who’s followed the debates on the federal budget on the floors of the U.S. Congress:

Senate Democrats want an increase in the gas tax as well as minor increases in the sales tax and new regional taxes in Northern Virginia and Hampton Roads, partially offset by a reduction in the sales tax on food. Kaine, backed by House Democrats, shied away from raising the gas tax and instead sought an increase in the sales tax on vehicle purchases.

The division has made it easier for Republicans in the House and Senate to oppose both proposals. Instead of being on the defensive, GOP legislators say they now have cover to come out against both plans, arguing to their constituents that even Democrats are opposed to raising some taxes and fees to build more roads.

…If the legislature leaves town without doing anything, Democrats remain optimistic that the electorate in vote-rich Northern Virginia and Hampton Roads will punish the GOP in 2009.

But as it stands, the session will be known as one in which House and Senate Democrats — not Republicans — have had to cast tough votes.

With all 19 Senate Republicans unified in opposition to a statewide tax increase — confident they have political cover because of the economic slowdown and the high price of gas — [VA Senate Majority Leader] Saslaw had to struggle to get the support of the Senate Democrats [for his proposal to raise gas taxes].

And that proposed gas tax increase was pretty small–according to the article:  “Saslaw’s plan [would] raise the gas tax by 6 cents over six years, which would cost the average family less than $50 a year.”  But when it seems the alternative might be to actually cut gasoline taxes (when you hear talk of gas tax holidays), any proposal to raise the tax seems relatively outlandish. 

It’s just not easy being fiscally responsible, particularly at a time when the political and economic climate encourages precisely the opposite.

I can’t let some of the federal-budget-related events of the past week, which I missed by being on vacation, go unnoticed here on EconomistMom.com.  So today I’m playing catch up.

First, you gotta hand it to those House Democrats, who keep proposing and passing fiscally-responsible (pay-go compliant) tax cuts.  Last week the Ways and Means Committee reported, and the full House passed, H.R. 6275, a revenue-neutral extension of Alternative Minimum Tax relief for the current (2008) tax year, with more than half of the $61.5 billion cost paid for with the highly controversial “carried interest” provision.  Such a strategy failed last year–multiple times, and ultimately–when the Senate refused to go along with the various revenue offsets in the various versions of AMT bills that came before them, and no one expects it to go any other way this year.  Even with the House Democrats taking a firm stand in insisting that the ”tax extenders” bill (H.R. 6049, which passed the House in May) must be deficit-neutral (see this letter to the Senate), they have not been nearly so strong in their talk about the AMT bill.  (Why the Senate won’t pay for those other extenders, I still don’t understand.)

And in more news portending rising budget deficits, the President yesterday signed a $186.5 billion supplemental spending bill (H.R. 2642), which includes $161.8 billion to fund war operations through next June.  This was the bill that also includes veterans’ educational benefits that the Blue Dog Democrats had hoped to pay for, but again lost out on.  (By the way, once it became clear that no one else would go along with paying for these new veterans’ benefits, the cost of the plan only grew–by more than $10 billion to almost $63 billion over ten years.)

And while I was goofing off on vacation, my boss, Bob Bixby, was really busy.  He testified before a Senate subcommittee, and got ready for a Milwaukee installment of the Fiscal Wake-Up Tour (yesterday).  I’ll highlight some of his testimony later this week in a post that will get just a bit more specific about Social Security (given some pretty intense discussions here in the past week in response to my “young people get it” post), while revisiting some of that basic budget math I talked about in the first few days of this blog.

This week the House Budget Committee held a hearing on the “Securing America’s Future Economy” (SAFE) Commission Act (H.R. 473), as a favor to Jim Cooper, the House sponsor of the bill and a Blue Dog member of the Budget Committee.  Here’s the Peter G. Peterson Foundation press release on the testimony of Peterson and David Walker.  From the Congressional Research Service summary of the legislation:

Securing America’s Future Economy Commission Act, or SAFE Commission Act - Establishes the Securing America’s Future Economy (SAFE) Commission to develop legislation designed to address: (1) the unsustainable imbalance between long-term federal spending commitments and projected revenues; (2) increases in net national savings to provide for domestic investment and economic growth; (3) the implications of foreign ownership of federally issued debt instruments; and (4) revision of the budget process to place greater emphasis on long-term fiscal issues.

Requires the Commission to: (1) develop one or two methods for estimating the cost of legislation as an alternative to the current Congressional Budget Office (CBO) method; and (2) hold at least one town-hall style public hearing within each federal reserve district.

Requires the Commission to submit a legislative proposal to Congress and the President. Authorizes the President to submit to Congress an alternative proposal. Authorizes the Committee on the Budget of either chamber to publish its own alternative proposal in the Congressional Record.

Sets forth procedures for consideration of such legislation.

Requires CBO to prepare a long-term cost estimate and have it published in the Congressional Record as expeditiously as possible whenever requested to do so by the Commission, the President, or the chairman or ranking minority member of the Committee on the Budget of either chamber.

Now, to this economist, that sounds completely reasonable, but I know there are many members of Congress who oppose the formation of such a commission.  There are 95 House cosponsors, including many Blue Dog Democrats, but also some Democrats who aren’t Blue Dogs–probabaly considered more liberal than the Blue Dogs–but also some very conservative Republicans.  It is indeed a rather strange group of bedfellows.  I used to think those who opposed the SAFE commission were doing so on process grounds, but I’m starting to wonder if I’ve been too naive– that maybe the motive for some of that opposition, and maybe for some of the promotion as well, is on ideological grounds.

That feeling was clued into me through the responses here to my “Young People Get It” thread, and through a thread started by Pete Davis on Capital Gains and Games and then continued in threads started by Pete’s co-bloggers, Andrew and Stan (thanks, guys).  I now get the sense (duh?) that many of those who oppose the SAFE commission believe that the commission is intended to destroy Social Security as we know it.

I’m starting to understand the sensitivity of folks to the fiscal hawks’ lumping together of Social Security with the health entitlement programs when we talk about the unsustainability of the overall federal entitlement system.  And we fiscal hawks do certainly already understand that the overall challenge comes mostly (but not entirely) on the health costs side.  I think it’s that some of us are concerned that it’s the overall challenge that really threatens the health of all of the entitlement programs, because it’s the overall challenge that severely threatens the future economic growth that is needed to keep the programs that now don’t look so badly off (i.e., Social Security) on strong footing.

So it’s obvious that this is a conversation we need to get into more.  Thanks to all who have commented here and elsewhere in the blogosphere for making this a priority for me and for Concord. 

Now, back to my vacation!

Last week in DC, a group of young (20-something and 30-something) leaders from all over the country met with fiscal policy experts at the “Youth Entitlement Summit” (YES!) to learn more about our nation’s long-term fiscal challenges, and to coalesce around a strategy they can take, as young leaders, to help turn the situation around. 

Here is the declaration the young leaders read on national (C-SPAN) TV at the dinner hosted by the Concord Coalition, which was the culmination of the YES two-day summit.  If you watch the video, you’ll see that the young people do “get it”–and that the “old people” (no offense, Belle, Stuart, and Bob, as I count myself as one, too) are impressed:

In our democracy, there exist fundamental obligations that bind us together. This intergenerational compact compels us to leave future generations in better condition than we ourselves are in.

Our generation believes that the promise of the American dream must be continually renewed. Yet our ability to address new challenges is severely impaired. The social contract is crumbling and is taking down the rest of government finances with it.

Therefore we make the following findings and assertions:

Whereas short-term thinking has dominated our politics, the democratic process for redress of these grievances has failed . . .

Whereas honest debate has been undermined by political expediency and special interests . . .

Whereas young people are underrepresented in government despite historic levels of civic engagement and future generations cannot speak for themselves . . .

Whereas health care’s runaway cost increases require comprehensive reform to Medicare, Medicaid, and indeed our entire health care system…

Whereas America’s demographic changes, namely an aging of the population and lengthening life spans, requires significant revisions to Social Security…

Whereas Social Security’s mechanism for creating equity across generations, the trust fund, has proved inadequate. . .

Whereas Social Security, Medicare, and Medicaid are all on unsustainable paths. . .

Whereas a failure to correct the paths of said programs will lead to their failure, total budget insolvency, inequity for current and future generations unprecedented in the history of the United States, and inability to address other priorities, and declining economic prosperity…

Therefore, we hereby declare our generational interdependence.  We will work to achieve reforms that are fair for all generations, including those to come.

Pursuant to our study of these issues, we resolve:

1) Fair and effective action MUST be taken up by the next President and next Congress. Delay compounds both the inequity and the difficulty of reform.

2) Changes to the tax and benefit formulas of Social Security, Medicaid and Medicare must be considered together to meaningfully fix the system.

3) For those who can work, a delayed and flexible retirement age will improve generational equity, match the original promises of the program, and strengthen our nation’s economy.

4) Meaningful savings mechanism, in concert with investment in financial education and fiscal literacy for those disproportionately impacted, would help ensure retirement adequacy and fairness and offer young Americans more control and ownership of their future.

5) To address Medicaid and Medicare requires nothing short of a comprehensive overhaul of the larger healthcare system. 

6) Our current budget system – complex, burdensome, and riddled with concessions to special interests – is an impediment to entitlement reform; tax and spending reforms should be part of the solution.

The preceding is the result of our coming together for an intensive, two day summit investing the challenges facing our generation.  We come from various ideological perspectives, but share the common goal of strengthening this country and our future.  No politician who claims to represent young people can in good conscience ignore these issues.  We call on our leaders to act- and act now.

What a huge loss for the DC media-politics community.  He was one of those you’d love to watch because his enthusiasm was so contagious, you’d feel it leap out from the TV screen, and he’d make anyone who works in the crazy world of DC politics feel pumped about what they were doing. 

The passage that caught my attention from today’s Washington Post story by Howard Kurtz:

“He was a junkie,” said Washington Post writer Sally Quinn, a close friend. “He would say, ‘People find stories about the budget boring — that’s crazy.’ And then he would talk about the behind-the-scenes fights, the cast of characters, and it was interesting.” 

I really like Ruth Marcus’ column in today’s Washington Post.  I think she must be a mom.  She is appalled at the unwillingness of our politicians to fund the war in a fiscally-responsible manner, whether that shirking of duty to our children and grandchildren comes from actively pursuing fiscally-irresponsible policies, or passively wimping out on objecting to those fiscally-irresponsible policies.  (I’ve sung that same tune over and over again here on this blog, of course.)

But what really struck and shocked me in Ruth’s column was the Tom Delay quote:

“Nothing is more important in the face of a war than cutting taxes,” then-House Majority Leader Tom DeLay declared in March 2003.

Wow.  Did he really say that?  I mean, I know they’ve been thinking that (or rather believing that) all along (you could do a “Mad Libs” type thing with that sentence and fill in the blank on “in the face of ____”), but to actually say that out loud?

The tax extenders bill (H.R. 6049) is coming up in the Senate this week–maybe even today.  (Here’s the revenue estimate for the House-passed version.)  I’ve commented on the trouble with tax extenders before.  But here’s a scoop:  today’s CQ.com news notes that it’s not just a handful of Blue Dog Democrats that don’t have a problem paying for (offsetting the cost of) the extension of expiring tax cuts (my emphasis added):

The tax bill’s fate will depend on the outcome of a bruising partisan fight over revenue-raising offsets.

The House passed the bill, 263-160 — with 35 Republican “yes” votes — on May 21. The legislation would provide incentives for renewable energy and institute new tax policies intended to help low-income families, homeowners and trial lawyers. But the inclusion of revenue-raising offsets to comply with congressional pay-as-you-go rules leaves the measure facing the same trouble most tax bills have had during the 110th Congress.

Senate Republicans oppose the revenue-raising offsets, arguing that they are not needed to extend existing law.

Last year, Republicans blocked a similar attempt to offset an “extenders” package (HR 3996), and a number of major tax provisions expired at the end of the year.

The new House-passed bill would raise revenue to cover the cost of reviving those tax breaks and extending others that are set to expire at the end of this year by curtailing an offshore deferred-compensation technique and delaying a rule that benefits multinational corporations.

Business Support

Democrats say including offsets is fiscally responsible, and they note the relative lack of corporate objections to the specific offsets.

“A lot of the business community wants it, including the offsets, wants to get this bill done. They want the extenders so badly,” said Senate Finance Chairman Max Baucus, D-Mont. “These offsets do not matter to business very much.”

So these Republicans who are refusing to pay for these tax cuts–including the big AMT extension still to come later this year–are only doing it on principle, not for practicality?  I.e., are they doing this just to be stubborn?  I mean, if Max Baucus is willing to offset a tax cut…

Sure seems that way from this April 23 letter signed by Senate opponents to pay-go-compliant tax extenders.  (Thanks to Chuck Konigsberg for posting on his WashingtonBudgetReport.com website.)  Note whose signature is on page 4. 

When my son strikes out swinging in his Little League games, I say, “Oh!  Nice swing, Johnny!”   It’s the only thing I can come up with to say I’m proud of him for his good try.  Yes, he struck out, but he struck out swinging.

Today, the House passed the conference report on the FY2009 budget resolution, and it felt like the Blue Dog Democrats had struck out (again), but swinging.  It’s that darned Senate that keeps pitching those fiscally irresponsible fast balls right past the Blue Dogs’ paygo-faithful bats.  (See my previous cheer for the Blue Dogs here.)

Here’s an excerpt from a CQ story that highlights that old, big banana peel problem I’ve talked about before:

Much of the debate focused on the 2001 and 2003 tax cuts, most of which expire at the end of 2010.

Congress will not directly address that issue this year. The Democrats’ budget assumes that many of those tax cuts will be allowed to expire or that their cost will be offset with revenue raisers elsewhere, a difficult task. Republicans seized on this point as evidence Democrats want to raise taxes.

“As American families and small businesses face increasing food prices, rising health care costs, and gas prices that are nearly $4 per gallon, the very last thing they need is a higher tax bill,” declared Minority Leader John A. Boehner, R-Ohio. “But that is exactly what this Democratic budget would deliver: a $683 billion tax hike that will impact every taxpayer – from single filers and families to small business owners and seniors. No one is immune from the Democrats’ largest tax hike in American history.”

The budget does, however, carve out room to extend tax cuts geared at the lower and middle income taxpayers, such as the 10 percent tax bracket and enhanced child tax credit, at a cost of $340.6 billion over five years.

Perhaps you will notice a bit of a disconnect between the $683 billion tax hike ($683 billion being the cost of extending the 2001 and 2003 tax cuts beyond 2010, just through fiscal year 2013, which House Democrats, led by the Blue Dogs, have wanted to fully offset), and the $340.6 billion that is “carved out” for certain parts of those tax cuts (that’s the cost of the amendment that Senator Baucus added, for tax cuts that are deficit-financed).  That’s because the conference agreement is completely schizophrenic on this issue, slipped up on that big banana peel.  If you go to this House Budget Committee document, you’ll witness the same schizophrenia; it both criticizes the Bush Administration for their fiscally-irresponsible tax policy (correctly pointing out that tax cuts don’t pay for themselves, future taxpayers do), while at the same time highlights the $340 billion in (deficit-financed) tax cuts included in the conference agreement.

But I’m still proud of them.  I know the House Democrats have been doing their best, trying their hardest.  They could have given up months ago and just forfeited the game, but they kept on and struck out swinging.  The Concord Coalition just issued a more official “nice swing” statement as well.

When earlier this week I posted on the latest CBO analysis on the adverse economic effects of budget deficits, I had no idea that Congressman Ryan had requested this analysis to gather analytical support for his “Roadmap for America’s Future”, which he unveiled on Wednesday.

Mr. Ryan’s plan has been praised by at least one budget watchdog group for its specifics in how it would eliminate budget deficits, which is mainly through a per-beneficiary limit on Medicare spending.  

But CBO did not analyze what the effect of such a rationing of health care would be on the economy.

Here is what Mr. Ryan says about the CBO analysis in his press release:

Here’s what CBO found – Under the Roadmap, GNP per person would be a full 85 percent higher than if we remain on the current course. Hence, this plan maintains the American legacy of leaving the next generation better off.

But here’s how CBO Director, Peter Orszag, explains what their analysis does and doesn’t analyze regarding the benefits of reducing the deficit:

How Would the Slowing the Growth of Deficits Affect the Economy? The minority staff of the House Budget Committee provided CBO with a target path [that] slows the growth of budget deficits. In evaluating the economic effects of the target path, CBO did not examine how specific policies to achieve that path would affect the economy; instead, CBO limited its attention solely to examining how the deficits produced by the target would affect the economy, assuming that such effects would play out as they have in the past. (CBO has not evaluated either the political feasibility or the economic effects of reducing spending sufficiently to accomplish this path for the deficit. Furthermore, the spending and revenue targets provided by the Committee staff are not the only way to achieve a sustainable budget path. Alternative policies will have different effects on the economy, and changes in taxes and spending can exert influences on the economy other than the effects of reducing budget deficits.)

In other words, CBO’s analysis is just as much an analysis of the economic benefits from the Ryan plan as of the economic benefits of reducing the budget deficit entirely by raising revenues.  Which gets back precisely to the point I made earlier about the CBO analysis when I noted that:

Congressman Ryan didn’t ask CBO to show what cuts to the entitlement programs and other government spending would have to be done in order to keep taxes as a share of the economy at its 40-year historical average, now did he?

I obviously meant that mostly as a cute punch line, but that was before I realized that Mr. Ryan would try to say that CBO had actually analyzed exactly that.

This Wednesday the House passed a pay-go compliant ”Energy and Tax Extenders Act of 2008″ (H.R. 6049), despite all the “banana peels” on the House floor.  Avoiding an increase in the deficit is a good thing, but I still don’t like these “tax extenders”, also known as renewal of “expiring tax provisions.”  What’s the problem with renewing these expiring tax provisions?

First, they’re constantly expiring, most over short (1-2 year) periods of time, which means that the cost of the underlying policy is grossly understated in the official, current-law budget baseline.  This  means our baseline grossly overstates the amount of revenue the federal government will collect under current tax policy (as opposed to current tax law), and thus grossly understates the budget deficit.

Second, they’re constantly being renewed (not allowed to expire), which means: (i) for all practical purposes, the “expiring” label is virtually meaningless, and (ii) for all practical purposes, the need to revisit these provisions year after year to renew them (yet again, for yet just another year at a time) is really a pain in the legislative butt.

So if they’re constantly expiring and constantly being renewed, why don’t we just pass them in permanent form and avoid the once-a-year legislative hassle?…

The answer is not as simple as you may think, if you’re thinking this is just like the expiration of the 2001 and 2003 tax cuts–where the expirations were designed to artifically hold down an already gargantuan cost.  Many of these one-year tax provisions–which by the way are tax cuts (or “tax expenditures“), never tax increases–are individually quite small in cost.

I never understood the “why” about expiring tax provisions until one very late night markup of the “extenders bill” several years ago while I was working for the Ways and Means Committee.  Bleary-eyed, one of usually twinkly-eyed members plopped down in a chair next to me in back of the dais–just to take a little rest away from his member’s seat.  I asked him “why do we have to do this every year?…why can’t we just pass these things permanently?” 

His eyes suddenly twinkled again, as he looked at me with a combination of amusement and disbelief.  He said:  “Are you kidding me?… We couldn’t do that!… Why, I’d lose all my friends!…Who would come visit me and say kind things to me and do nice things for me then, if they didn’t have to come back every year to ask for these tax provisions?!!”  And he nodded at me, pleased, when he saw that I was nodding at him.

Since then I’ve never suggested to a politician that they really should make these things permanent.  But the annual ritual still annoys me.  I suppose that lately it annoys me even more because of the “biggest banana peel” problem.  The House members who supported extending these expiring provisions without paying for them argued on the House floor that it “doesn’t make sense to pay for renewing these tax cuts by raising other taxes.”  That sounds so much more compelling than a more accurate description of their position which would say “it’s ok to pay for renewing these government subsidies by raising our children’s taxes” (the federal debt).

While I think the renewal of these temporary provisions ought to be paid for, it does bother me that the offsets used in this bill, when not outright gimmicks, were largely permanent in nature, because it means we can never again go to that revenue source when we over and over again have to revisit these tax cuts and find newer and newer ways to pay for them.

Oh, and by the way, these paid-for tax extenders passed in the House this week did NOT include the most expensive of all the expiring tax provisions, relief from the Alternative Minimum Tax (AMT), which already expired at the end of 2007.  (The cost of a one-year AMT “patch”, estimated at over $60 billion, is greater than the full cost of this week’s bill ($54 billion), which includes the other extenders PLUS all new energy tax incentives PLUS some “stimulus”-type temporary tax provisions.)  Congress will have to pass AMT relief later this year, and of course we’re fully expecting a repeat of last year, when AMT relief was ultimately not paid for (except maybe through our children’s future taxes).  And even without a paid-for AMT patch, the White House has threatened to veto this House-passed bill anyway, because of the offsets (revenue increases) used to pay for the smaller expiring tax provisions.

Aaaaargh!  

That’s some of the trouble with “tax extenders.”