On Friday of last week (January 4), the Bureau of Labor Statistics released December employment data showing that the unemployment rate had jumped from 4.7 percent to 5.0 percent, causing many economists to predict a higher probability of recession in the coming quarters. Attention is now focused on policy makers in anticipation of an offering of some sort fiscal policy response. This series will lay out the basic mechanics of fiscal policy in response to economic downturns.

The Bush administration has consistently tried to make the war in Iraq seem like a costless effort. But we pay for every dollar spent in Iraq, particularly in terms of opportunity costs. Every dollar spent in Iraq is lost potential spending in domestic programs.

OMB Watch released a statement yesterday afternoon harshly criticizing the Democratically control Congress and the president for abandoning fiscal responsibility in the final hours of 2007 after they entire year was spent adhering to or attempting to adhere to righting our nation's fiscal course. From the statement: Adding insult to a year of fiscal policy injuries, Congress has abandoned fiscal responsibility by waiving pay-as-you-go (PAYGO) rules in order to pass a one-year patch to the alternative minimum tax (AMT) without offsets. This tax cut adds another $50 billion to an already expanding deficit next year, and will give fewer options for our children and grandchildren to seek solutions to the problems of tomorrow. While I expect as much from President Bush, this is a huge disappointment from the new Democratic majority in Congress whose number one promise was to uphold pay-as-you-go (PAYGO) rules. So much for promises: This vote is particularly disappointing as Democrats have gone to great lengths this year to comply with PAYGO rules, particularly on spending. From student loan reforms to expansions of the State Children's Health Insurance Program and Food Stamps, Democrats have negotiated the turbulent fiscal waters of the federal budget responsibly, diligently, even courageously. That is why at this point, after all that work and sacrifice, the compromises and the concessions needed to construct balanced solutions to the AMT problem, it is unacceptable for them to abandon their stated principles of fiscal responsibility because they fear Americans will not accept paying up front for the services and benefits the country demands. As the statement makes clear, there is plenty of blame to go around in Washington for this policy failure. What an awful way to end 2007.

The omnibus appropriations bill passed by the House last night contains 3,500 pages and over $516 billion in spending. Yet with all that space (and money), Congress could not find enough room for even their own priorities from earlier this year for the Internal Revenue Service (IRS). Specifics of the IRS's funding take from the omnibus show the House has included $2.15 billion for taxpayer services, down slightly from the $2.155 proposed earlier this year, $4.78 billion for enforcement (down from $4.93 billion) and $3.68 billion for operations (down from $3.77 billion). What's more, the House has backed away from a requirement for the IRS to develop a strategic plan to address the tax gap. The total IRS budget request ($10.89 billion) is $203 million below even President Bush's request!. What is going on here? So, just to review, despite a year in which congressional hearings revealed that the IRS is underfunded, runs a dangerous and wasteful privatization program, and has no strategic plan for addressing the tax gap, Congress decided to give it less money, allow the privatization program to continue, and let the IRS off the hook for developing a strategic plan. And I wonder why people don't believe in government...