Fiscal Policy: The Best and Worst of 2011
Welcome to OMB Watch's year-end fiscal policy review, where we give you a retrospective of the good, the bad, and the ugly of fiscal policy in 2011. Some acts, such as increased contracting transparency, made for enjoyable viewing, while others, like the congressional budgeting process, left us crying for a new script. Read on for our take on the year's highlights in revenue, budgeting, and spending.
In this tense nail-biter, we watched helplessly as congressional Republicans held various parts of the federal government hostage not once, not twice, but three times in an effort to swing policy negotiations their way. The plot drove us to the point of exhaustion with its maddening highs and lows and soon became a repetitive, political cliché. The villains became tiresomely predictable, using the same tactics over and over again. In March, they floated H.R. 1, the continuing resolution that would keep the government operating for the remainder of the fiscal year. Ideologues threatened to shut down the government if they didn't get the policy riders and spending cuts they wanted.
A few months later, they took the economy hostage by refusing to increase the debt ceiling without a ransom in program cuts from Democrats. The tactic proved successful again as they walked away with $2 trillion in deficit reduction: about $900 billion in spending caps over the next 10 years and a so-called Super Committee that would have to come up with an additional $1.2 trillion in deficit reductions. In seeking changes to federal labor rules, conservatives tried one more hostage act, holding up the reauthorization of the Federal Aviation Administration (FAA), costing the government millions in foregone tax revenue and forcing some FAA employees to do their jobs without pay.
A romantic comedy that begins predictably, as Republican lawmakers fall in love again with lower tax rates on the rich, this piece managed to surprise us all with an unexpected plot twist and a surprisingly strong performance from the Occupy movement. In an inspirational narrative, the protagonists object to ever-expanding inequality and Wall Street influence and capture the hearts of American voters, making it impossible for Washington politicos to ignore. We’re expecting No Taxes II to be released at the end of 2012 when the Bush tax cuts expire.
Corporate profits are at record highs and federal revenue collection at historic lows, so it's no wonder inequality is growing. At the same time, families continue to struggle through the Great Recession, as unemployment remains stuck at just under nine percent. Although many of Congress' 250 millionaires refuse to consider increasing tax rates on capital gains and other wealth, 73 percent of the public – including 66 percent of Republicans – strongly back raising high-income tax rates.
In fact, such taxes are wildly popular with audiences. Congress could institute a surtax on millionaires, tax capital gains – which overwhelmingly benefit the very wealthy – at the same rate as wage income, or put in place a tax on financial transactions to reduce speculative trading. All of those taxes would also help to alleviate the crushing growth of inequality over the last thirty years.
This is a dreary film noir where grifters – played by deficit hawks – brainwash decent, everyday folks with a siren song that government overspending has caused deficits and spells imminent doom for the country. Their obsession with deficits ignores the fact that deficit spending during economic depressions is the fiscally responsible course of action, and huge, immediate cuts put the nation at risk. As pundits and public officials endlessly repeat the mantra, the spell strengthens.
But that talented newcomer, the Occupy movement, wakes some of the townspeople and the 99% begin to rise up. However, the inability of a significant portion of policymakers to recover from the deficit obsession spell means any chance for further investments in the economy disappears, and the fade-out leaves the viewer unclear about who will prevail.
Even solid performances from a star-studded cast couldn't save this train wreck. Every year, Congress dreams up new ways to alter and delay the budget process, but the results don’t improve. In FY 2011 and FY 2012, Republicans tried to stuff the annual budget full of policy riders – pieces of legislation hidden in funding bills that restrict the government's role in everything from environmental protection to gun control. While riders have been used by both parties for years, this year the GOP slapped on riders to advance the party's ideology. Fortunately, most were pruned out of the FY 2011 bills, but Congress is still clipping away at the FY 2012 budget.
In an attempt to shake up the production, congressional Republicans tried to change the Constitution itself by passing a balanced budget amendment. The House failed to get the two-thirds majority required to pass the amendment, and the Senate has yet to weigh in on this seriously flawed instrument.
The debt ceiling deal introduced a new team of fantasy writers to the budget process who created an entirely new, one-shot process to circumvent the usual order of things. The Super Committee was given both super powers and a cloak of invisibility to enact long-term budget cuts. Charged with proposing $1.2 trillion in deficit reduction, which would have been fast-tracked through Congress, the 12 Super Committee stars could have overhauled federal spending priorities for a decade. Compromise, however, was the Super Committee's kryptonite. The failure to construct an agreement left Medicare, Social Security, and a host of other vital federal programs and public protections untouched – until the sequel.
A heart-warming, coming-of-age tale that mixes plucky anecdotes about overcoming the odds with disheartening letdowns, this proves to be a genuine story of struggle and progress in the end. The last few years have seen a dramatic shift in the federal government's contracting openness, with much of the change coming from a transparency-friendly Obama administration and a handful of congressional advocates. Pressure from good government groups netted the public release of the Federal Awardee Performance and Integrity Information System (FAPIIS), but much of the performance data it contains remains hidden, and the failure of unique identifiers disappoints.
The Obama administration teased advocates with the promise of an executive order that would require federal contractors to disclose their political contributions – a move that would shed light on the byzantine federal contracting process and help to prevent a pay-to-play environment – but never delivered. Nevertheless, important reports from the Project On Government Oversight (POGO) and the Commission on Wartime Contracting inspire hope for a future system that is more open and accountable to the public.
Image in teaser by flickr user A.D.Wheeler, used under a Creative Commons license.