Blog: The Fine Print / Revenue & Spending

Bush Commissions May Usurp Congressional Authority

Jul 1, 2005 by Adam Hughes*

Yesterday, the Office of Management and Budget sent a legislative proposal to the House and Senate seeking to establish results and sunset commissions to review the effectiveness of government programs then institutionalize procedures to fast-track their recommendations through Congress. This proposal would imperil the balance between the executive and legislative branches by concentrating power in the White House free of democratic accountability and would expose long-standing public protections to powerful special interests and industry insiders. It also has serious implications for the budget process as well as the authorizing and appropriating role of Congress over the long-term. OMB Watch has released the following statement critical of the president's proposal: White House Power Grab Puts Public at Risk More information about the proposed commissions: Results Commissions Sunset Commissions Rolling Stone article: Bush's Most Radical Plan Yet

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Minnesota State Government Shuts Down

Jul 1, 2005 by Guest Blogger

Today, parts of the Minnesota state government shut down for the first time in history, leaving 9,000 state employees without jobs, pay, or benefits. The shut down occured at midnight last night because lawmakers failed to to pass a stpgap plan to keep the government up and running while budget negotiators continue to work on funding details. Senate Majority Leader Dean Johnson, a Democrat, said ''We need to fix it today. As far as I'm concerned, a one-day partial government shutdown is enough.'' While many states often miss their budget deadlines, their governments continue to run because of laws that automatically extend spending past the end of its fiscal year if a new budget is not approved. The major services affected in Minnesota Services were the highway rest areas, which closed, and the issuing of new driver's licenses. Also significantly affected were the 9,000 employees who were locked out of their jobs. Hopefully this shut down will be temporary, and state legislators will consider passing budget process laws to avoid this in the future. New York Times article: Minnesota Government Shuts Down; 9,000 Jobless

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Senate Moves Ahead On SS Legislation

Jul 1, 2005 by Guest Blogger

Along with work happening in the House, the Senate Finance Committee also plans to move ahead with work to draft a Social Security bill. The Finance Committee staff plans to meet next week during the July 4 recess with the goal of having a draft ready to present to senators when they return. The focus during staff sessions leading up to this work has been mainly on how to work payroll tax funded "carve-out" accounts into a solvency bill. Apparently, tax increases are off the table, and Senate Finance Committee Chairman Grassley is continuing to push for larger carve-out accounts than proposed last week by Sen. Jim DeMint, (R-SC), sources said. It is not clear yet if the legislation will end up including carve-out accounts or "add on" accounts that are funded outside the Social Security system. Apparently, Grassley will insist on legislation that includes accounts as well as provisions for making the system solvent, even if the House does only a limited DeMint-style proposal without addressing solvency.

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House Ways and Means Keeps Talking Private Accounts

Jun 30, 2005 by Guest Blogger

Yesterday the House Republican Conference met to discuss a Social Security proposal to create private accounts by using the "Social Security surplus." The House Republicans, who could move a bill as early as July, have called the creation of private accounts one of three parts they would hope would be included in reform legislation; the other two parts would address solvency and private pension security issues. House Subcommittee on Social Security Chair Jim McCrery (R-LA) said the legislation would "stop the raid on Social Security.... Every penny of payroll taxes will be paid on Social Security benefits." However, the plans discussed so far do not address solvency and will drain money from other government programs. Ways and Means Ranking Member Charles Rangel (D-NY) called the GOP plan "a scam that doesn't stop their raid on Social Security and starts privatization." House Republicans are also arguing that the GOP bill will increase transparency by exposing the true size of the deficit, since the government won't be able to "borrow" from the surplus anymore to pay down the deficit. In 2004, $155.2 billion of the Social Security surplus was loaned to the government in return for Treasury bonds. Had the government not been able to borrow that money, the deficit would have been $567 billion as opposed to $412 billion (which was a record high as it is). However, if Social Security were simply "on-budget" instead of "off budget," the surplus would not help mask the true size of deficits, because the government wouldn't be able to borrow it in order to pay down the deficit. Therefore, there are other ways of increasing transparency besides the creation of these surplus-funded private accounts.

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Tax Panel May Reveal Some Details in July

Jun 30, 2005 by Adam Hughes*

The president's advisory commission on tax reform could hold a hearing in mid-July that may offer a more detailed glimpse at the changes the panel will recommend in September, a senior Treasury Department official said June 29 at a tax roundtable sponsored by the District of Columbia Bar Association Tax Section. Also speaking at the roundtable event was the Commissioner of the Internal Revenue Service Mark Everson, who reiterated five points that he believes are significant as the panel works to produce its recommendations. The five points the panel's proposals should reflect include:
  • the increasinly global nature of many tax transactions
  • retaining "adequate progressivity"
  • being administrable
  • being simple for taxpayers to comply with, and
  • providing for a smooth transition
For more information on the tax panel's work to date, see OMB Watch's Tax Panel Webpage

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Smaller Deficit Could Lessen Pressure For Fiscal Discipline

Jun 29, 2005 by Adam Hughes*

Congressional observers and Wall Street analysts have once again projected down the U.S. fiscal deficit for 2005, with some believing the deficit could be almost $100 billion smaller than the White House's initial projection from January of $427 billion. Increased tax receipts and stronger than projected economic growth have contributed to the smaller deficit projection. Through May, receipts have increased 15.5 percent as compared to the same period in 2003, outpacing a 7.1 percent increase on the spending side, and the economy grew at a rate of 3.8 percent in the first quarter of 2005. Yet the lower deficit projection is hardly news for celebrating. Even $325 billion - the low mark for projections - would be the third largest deficit in history (the two others, incidentally, were in 2003 and 2004). And despite the better economic numbers, deficits are projected to remain for decades. The Bush administration has hailed the smaller projections as good news and says it is part of the plan to cut the deficit in half by 2009. What the administration does not say, however, is that after 2009, if current policies stay in place, the deficit will start to rise again. The government is currently running a structural deficit, meaning that no matter how larger our economic growth becomes, the current tax code will not be able to bring in enough revenue to pay for current programs, policies, and priorities. This is due to a lack of a long-term outlook for fiscal planning in the government and lack of discipline among the GOP in Congress to resist yet another round of unpaid-for tax cuts. This trend continues to be troubling.

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Bank of International Settlements Issues Warnings in Report

Jun 28, 2005 by Guest Blogger

The Bank for International Settlements released their annual report yesterday. In the report (see also a summary), they issued warnings on economic imbalances, the U.S. budget deficit, and dollar depreciation. The report found that the world economy is marked by increasing internal and external economic imbalances. These imbalances raise serious questions about future global growth and financial stability. The report said, "One simply cannot ignore the number of indicators that are now simultaneously exhibiting marked deviations from historical norms," and went on to warn that the U.S. budget deficit was an increasing concern of global importance. The report basically stated that without any sort of budgetary discipline, the continued decline of the U.S. dollar against other currencies appeared "inevitable." The report also stated that the U.S. deficit "expanded to a record high as a proportion of GDP [almost 6%], and this in spite of a reduction in the effective real value of the dollar of more than 20% from its peak in early 2002.... It is unprecedented for a reserve currency country to have a current account deficit of such magnitude." The high deficit has resulted in the global financial system seemingly becoming increasingly prone to various sorts of financial turbulence. The Bank of International Settlements is warning Bush and Congress that if deficits continue to rise, there could be serious consequences. Given the current fiscal health of the U.S. economy, now is not the time for Congress and the President to be considering any extremely expensive legislation, without figuring out a way to pay for it.

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Watcher: June 28, 2005

Jun 28, 2005 by Guest Blogger

Federal Budget
  • Rhetoric Heats up on Estate Tax as Political Reality Pushes Compromise
  • Senate Investigates the Program Assessment Rating Tool
  • DeMint Social Security Plan Gets Attention But Does Nothing to Address Solvency
  • Senate Needs to Follow House's Lead On Appropriations in Order to Avoid Omnibus
  • President's Tax Reform Panel Gets Two Additional Months

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Where is the Party of Fiscal Responsibility?

Jun 27, 2005 by Guest Blogger

This is an excellent op-ed in today's New York Times by Nicholas Kristof, focused on the debt and the lack of fiscal responsibility which has permeated White House economic policy for the last five years. As Kristof points out, "More than two centuries of American government produced a cumulative national debt of $5.7 trillion when Mr. Bush was elected in 2000. And now that is expected to almost double by 2010, to $10.8 trillion." There are reasons why we are now so far into debt that three-fourths of the debt have to be purchased by foreigners -- many of them are related to the economic policies passed by the administration and Congress over the last five years. Bush was able to pass his tax cuts of 2001 based on projections of future levels of revenue that proved to be false; yet the tax cuts are still in place, and Congress is calling for more (i.e., repeal of the Alternative Minimum Tax and the Estate Tax). As the article points out, in a speech Bush gave after presenting his first budget in 2001, he said, "I hope you will join me to pay down $2 trillion in debt during the next 10 years. That is more debt, repaid more quickly, than has ever been repaid by any nation at any time in history." He stated that the U.S. would be "on a glide path toward zero debt." This has turned out to be almost ludicrously false. The debt held by the public is $4.5 trillion today. And each time Bush and Congress pass expensive legislation without figuring out how they are going to pay for it (as they are trying to do with Social Security right now), it only increases this amount. In one of the richest countries in the world, every baby is born tens of thousands of dollars in debt. There is a reason why GAO Comptroller David Walker calls our fiscal irresponsibility "the greatest threat to our future." We are currently on an unsustainable path.

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More on DeMint's Social Security Plan

Jun 24, 2005 by Adam Hughes*

While the legislation proposed by Sen. DeMint has the support of the Ways and Means Committee, it varies slightly from what the House intends to propose in a bill sometime in the future. Both however, will call for the creation of private accounts. The DeMint legislation, according to aides, would end the prevailing practice of reducing the deficit by the size of the Social Security surplus, since the obligations to the accounts would be treated as regular outlays. The government, however, could continue to spend the surplus on other needs, since the money would be invested in treasury bonds (just as payroll taxes are today). His plan also calls for the creation of an independent board which could offer individuals the opportunity to diversify the accounts into stocks or other investments. Chairman of the Finance Committee, Sen. Grassley (R-IA), has not yet specifically endorse the DeMint proposal, and it is unclear as of right now how the Finance and Ways and Means Committees will work together to reach a consensus on these ideas. In a statement, Grassley said, "I want to pass legislation that makes Social Security solvent along with personal accounts if possible, and that obviously goes further than this legislation does." Finance Committee ranking member Max Baucus (D-MT) characterized the DeMint plan as being part of a "bait-and-switch" strategy that will likely see the House approve a private account plan and wrap it in a non-amendable conference report to try to force enactment. House Minority Whip Steny Hoyer (D-MD) released a statement saying the proposal would do nothing to address solvency issues, and "would actually weaken Social Security's solvency by diverting the surpluses that are expected over the next several years and depleting the Social Security Trust Fund even sooner." Baucus' point has been supported by evidence elsewhere, most notably by Jason Furman of the Center on Budget and Policy Priorities. Furman has stated that the DeMint proposal would drain $600 billion from the Social Security trust fund in the first ten years it is in effect. He stated it will also increase the deficit to nearly $500 billion in 2007. Much of the cost would be administrative, with Furman noting that thousands of new federal employees would be needed to administer the accounts. Furman presented many of these points and more in his recent testimony before the Ways and Means subcommittee on Social Security.

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