“A Solid Template”: President Obama’s Opening Bid To Avert The Fiscal Cliff Is Familiar And Sound
President Obama’s opening bid for negotiations resolving the “fiscal cliff” has surfaced, and the contours are both familiar and sound. The Washington Postand an unofficial outline drafted by Republican aides both suggest that the administration has essentially proposed its budget request for fiscal 2013. And the president’s latest budget offers a solid framework for navigating the fiscal obstacle course, as it would substantially moderate the pace of deficit reduction while making a responsible down payment on longer-term deficit reduction. Relative to current policy, the contours are shaping up roughly as follows:
- Allow the upper-income Bush tax cuts to expire (+$850 billion)
- Restore the estate and gift taxes to 2009 parameters (+$120 billion)
- Curb tax expenditures (+600 billion)
- Stimulus spending (-$50 billion)
- Extend emergency unemployment benefits (-$30 billion)
- Extend or replace the payroll tax cut (-$110 billion)
- Continue AMT patch, “doc fix,” and tax extenders (-$240 billion)
- Defer sequestration (?)
Most critically, the Obama framework includes a variation of his American Jobs Act, proposing increased near-term government spending on infrastructure and state fiscal relief while maintaining the ad hoc stimulus set to expire at year’s end—the emergency unemployment compensation (EUC) program, the payroll tax cut, and recent expansion of refundable tax credits—which is the single largest economic headwind threatening recovery among the major components of the scheduled fiscal restraint. (See our à la carte deconstruction of these major components’ budgetary versus economic impacts) The Republican aides’ draft suggests the administration would dedicate $50 billion for infrastructure and stimulus spending, $30 billion for EUC, and $110 billion for an extension of the payroll tax cut or a targeted tax credit, all relative to current policy. And if the administration is looking for a replacement for the payroll tax cut, they could adopt our proposed targeted refundable tax rebate, which would provide a bigger and better economic boost.
Beyond these job creation measures, the president’s proposal for dealing with the economic challenge at hand of overly rapid deficit reduction would largely adhere to current policy—the alternative minimum tax would be indexed for inflation, scheduled Medicare physician reimbursement cuts would be prevented (i.e., the “doc fix” would be continued), expiring business tax provisions would be continued, the sequester would not be implemented in 2013, and the Bush-era tax cuts would be extended for all but upper-income households (those earning more than $250,000 a year). Again, this is all consistent with the president’s budget, with the exception that the budget repealed the sequester instead of deferring it to an unspecified date.
Overall, this proposal would substantially moderate the pace of deficit reduction relative to the current policy, which is critical because this baseline includes sizable fiscal contraction (the payroll tax cut and emergency unemployment benefits are assumed to expire and discretionary spending caps ratchet down). Indeed, the entire challenge posed by the fiscal obstacle course is that budget deficits closing too quickly will push the economy into an austerity-induced recession, and the president’s opening bid actually addresses this very real economic challenge, prioritizing job creation and economic recovery over the (not imminent) problem of longer-term deficit reduction.
But the proposal would make substantial long-run deficit reduction as well. It would allow the upper-income Bush tax cuts to expire, raise roughly another $600 billion from upper-income households and business (presumably by capping the value of tax expenditures), return the estate and gift tax to 2009 parameters, reduce Medicare and Medicaid spending by nearly $400 billion (largely without cost-shifting to states or households, with most savings from providers and pharmaceutical companies). Again, these are all proposals from the president’s budget request. As I calculated a few months back, the president’s budget—as scored by the Congressional Budget Office and adjusted for subsequent baseline revisions—would reduce public debt by $3.0 trillion relative to current policy, lowering the debt-to-GDP ratio to a sustainable 73.4 percent. (Add in the nearly $1 trillion from ending the war in Afghanistan, already built into current policy, and you hit the $4 trillion mark that has become the arbitrary but symbolic threshold for fiscal seriousness.)
A back of the envelope calculation suggests that the combination of continuing EUC, continuing the payroll tax cut, increased infrastructure spending, and expiration of the upper-income tax cuts would boost real GDP growth by 1.5 percentage points and increase nonfarm payroll employment by 1.8 million jobs by the end of 2013, relative to current policy. Details on timing of other deficit reduction are lacking, and would likely somewhat reduce the net economic boost, but the proposal nevertheless offers substantial net fiscal support for our depressed economy. My colleague Josh Bivens and I estimated in another recent paper that the president’s 2013 budget would boost employment by about 1.1 million jobs in 2013, largely because of AJA spending and targeted tax cuts (which we delayed one year from the now-ended 2012 fiscal year to allow for feasible implementation).
This framework also closely resembles the proposals in our recent EPI and Century Foundation report Navigating the fiscal obstacle course: Supporting job creation with savings from ending the upper-income Bush-era tax cuts. We proposed diverting half of the savings from ending the upper-income Bush tax cuts and recent estate tax cuts—roughly $600 billion—to job creation measures heavily weighted toward the next three years, which would boost real GDP growth by 1.7 percentage points and increase employment by 2.0 million jobs in 2013. The upper-income Bush tax cuts are the least economically supportive component of the fiscal obstacle course and have a huge opportunity cost; as far as down payments on deficit reduction go, this is the most sound starting point—as the president has proposed in all four budget requests.
The one major departure from the president’s budget is the new and excellent proposal to eliminate the statutory debt ceiling. The statutory debt ceiling has proved an unacceptable economic liability, particularly since Speaker of the House John Boehner (R-Ohio) irresponsibly pledged in May that he would again hijack the nation’s debt ceiling to be used as a bargaining chip. This duplicative, ill-conceived law should be repealed, or at the very least ruled inoperative.
The president’s budget offered a sound template for moderating the pace of deficit reduction, coupled with a down payment on longer-term deficit reduction that would impose little near-term economic drag—substantially less than the economic boost from the AJA. By adding repeal of the debt ceiling to this balanced package, the president’s opening bid makes for an even more responsible economic and budgetary policy.
By: Andrew Fieldhouse, Economic Policy Institute, November 30, 2012
“The GOP’s Favorite Government Jobs”: Republicans Didn’t Realize Government Budget Cuts Result In Layoffs
Politico’s Austin Wright has a crazy little story about a spat between congressional Republicans and the Labor Department that hinges on the possibility of mass defense contractor layoffs.
The fight is over whether defense contractors are required to send out notices warning their workers of layoffs that would kick in as a result of the large defense spending cuts due Jan. 1 — aka”sequestration.”
Republicans say yes, citing the WARN Act, which requires large employers to give 60 days’ notice of possible layoffs. The GOP has been chortling in glee at the prospect of such notices going out to every single employee of the largest defense contractors, because the 60-day countdown just happens to arrive four days before Election Day. Because, you know, layoffs are bad, even if they mean Big Government is shrinking.
But the Labor Department says no! Labor’s main argument is based on the reasoning that sequestration is not inevitable — Democrats and Republicans still have time to come to a budget deal that would avoid sharp defense cuts. (Indeed the whole point of sequestration was that the prospect of such cuts was supposedly so drastic that it would force a compromise.)
According to Politico’s Wright, congressional Republicans consider the Labor Department’s decision a “political stunt.” That accusation has a high likelihood of being true, but it seems just a little bit hypocritical coming from Republicans who are hoping that layoff notices timed to be delivered just before Election Day will help their own electoral chances.
And that’s hardly the tip of the hypocrisy iceberg. Buried beneath the surface of this latest example of Washington dysfunction is a basic truth: Government budget cuts result in layoffs. That’s not good during a period of very slow economic growth. And yet, Republicans seem to have little problem when the newly unemployed are teachers or firefighters. But when defense’s ox is getting gored, then it becomes a big deal, and then the layoffs are presumed to be Obama’s fault and thus embarrassing to the White House.
By: Andrew Leonard, Salon, August 6, 2012
“What Was Our Republican Leadership Thinking?”: Pretending To Care, The GOP Has A Decision To Make
Republicans Sens. John McCain, Kelly Ayotte, and Lindsey Graham kicked off the first in a series of public events yesterday, intended to highlight the apparent dangers of deep, automatic defense cuts due at the end of the year. The first event was in Ayotte’s home state of New Hampshire, where the lawmakers spoke at BAE Systems, which stands to lose thousands of jobs from reduced government spending.
At the event, McCain said:
“This was generated by Congress, and the president has a legitimate point when he says, ‘Well, Congress is the one that came up with this cockamamie idea, and so,’ as he said the other day, ‘let them wiggle out of it.’ Well, I understand that logic and there’s something to it.”
Yes, actually, there is. In fact, Graham told reporters yesterday, “What was our Republican leadership thinking when they agreed to the concept of sequestration?”
I’ve been wondering the same thing. McCain, Ayotte, and Graham are traveling from swing state to swing state, railing against the proposed defense cuts, which many Republicans blame on President Obama. But as the tour continues, is it too much to ask that the political world remember that these cuts were the GOP’s idea?
As we’ve discussed, as part of last year’s debt-ceiling deal, policymakers accepted over $1 trillion in cuts that would be implemented if the so-called supercommittee failed. Democrats weren’t completely willing to roll over — they wanted to create an incentive for Republicans to work in good faith.
Republicans agreed: if the committee failed, the GOP would accept defense cuts and Dems would accept non-defense domestic cuts. The committee, of course, flopped when GOP members refused to compromise, which put us on the clock for the automatic reductions that Republicans contributed to the very process they insisted upon.
So why blame Obama? He’s not the one who came up with the debt-ceiling crisis; he’s not the one who recommended the defense cuts; and he’s not the one who refused to compromise during the supercommittee talks.
Indeed, the larger question now is what Republicans prioritize more: defense spending or tax breaks.
Greg Sargent had a good item on this yesterday.
Republicans such as John McCain and Lindsey Graham have been touring swing states to highlight the looming sequester cuts to defense spending that are set to be triggered by the deficit supercommittee’s failure. They have said such cuts will be devastating to our national security, and have blamed Obama and Dems for the imminent threat.
At the same time, House Republicans will vote this week against the Democratic plan to extend tax cuts on all income over $250,000, because it doesn’t extend the cuts on all levels, including income higher than that.
So here’s the question: If the looming sequester cuts are such a threat to national security, why doesn’t that undermine Republican leverage in the discussions over what to do about the tax cuts?
Right. The looming, automatic cuts are inching closer to reality because Republicans refuse to consider some tax increases as a solution to the debt problem they sometimes pretend to care about. If GOP officials accepted new tax revenue, a deal could come together and these large defense cuts would simply be taken off the table.
But Republicans, at least for now, won’t budge — they want a larger agreement that would eliminate the need for deep Pentagon cuts and they want a deal that doesn’t require any increases on any one at any time.
McCain, among others, pushed the argument yesterday that it’s up to Obama to “lead” by bringing policymakers together and working out a solution. That sounds nice, but it’s foolish — the president has tried this repeatedly, but Republicans won’t compromise. Indeed, even now, McCain is urging Obama to work towards a compromise while McCain’s party simultaneously says it won’t compromise.
And so it’s the GOP that has a decision to make. While they decide, if they could stop blaming the White House for the Republicans’ own idea, it’d make the conversation a lot less ridiculous.
By: Steve Benen, The Maddow Blog, August 1, 2012
“A Not So Distant Nightmare”: Women Will Get Pushed Off The Fiscal Cliff
Remember that time when Congress almost defaulted on our debt? It may seem like a distant nightmare, but we’re still living with repercussions from the debt ceiling showdown. In order to get Congress to lift the ceiling a year ago, President Obama struck a deal that will cut $2.4 trillion in spending over ten years and formed a Congressional committee that was supposed to recommend ways to cut another $1.5 trillion from the deficit. If the committee failed to come up with the cuts, sequestration would kick into gear, with $1 trillion in cuts evenly split between defense and non-defense spending come January 2. The latter never came to fruition, so we’re now on a collision course with the former.
These automatic cuts, known as sequestration, have (unsurprisingly) become a political hot potato. They’ve even trickled into the campaign trail. But if the cuts move forward, the pain won’t just be political. They’ll hurt everyday Americans—but not across the board. Women are going to shoulder a disproportionate amount of the burden. While the defense lobby has been loudly pushing back on the $500 million to be slashed from its budgets, the $500 million cuts from domestic programs could be devastating, especially for women.
Education will take a big hit, which impacts women in more ways than one. Immediately of concern will be the fact that 100,000 children could get bumped from Head Start’s rolls, out of a total of 962,000. That’s because the automatic cuts will take a $590 million chunk out of federal spending on the program. That comes on top of a huge decline in state financing for the program over the past decade or so—it fell 45 percent, or $122 million. While there have been concerns raised about whether Head Start’s effects actually stay with enrollees, working mothers need more childcare options when they head to their jobs, not fewer. Less than 60 percent of 3-to-5-year-olds are enrolled in an organized childcare or early education program, and just about half of low-income children are. Those numbers can only go down after these cuts take effect.
Speaking of childcare, working mothers who rely on options other than Head Start will also suffer. Assistance for 80,000 kids will dry up after the cuts take effect. The recession has already hammered this spending at the state level. While federal funds had flowed in to support these programs through the stimulus, by the end of 2010 the money had dried up. That meant that thirty-seven states pulled back on assistance in one form or another last year, making families worse off than a decade ago, according to analysis by the National Women’s Law Center.
Women will also, of course, share some of the pain from cuts to other programs like AIDS drug assistance and substance abuse treatment programs. And while these cuts sound bad now, they could actually get worse down the road. While there’s now a “firewall” between defense and non-defense spending to make sure both are equally cut, that disappears after two years. NWLC has warned that this could mean a bigger share of the cuts fall on the non-security programs at that point.
The spending cuts will trickle down in other ways. It’s not just mothers who will find their struggles increasing. Women are the majority of the public sector workforce—and they’ve lost more than their share of those jobs as federal and state spending has been slashed during the recovery. These cuts will only push that trend along. Cuts to Head Start alone will eliminate 30,000 teacher, aide and administrative positions.
Other public sector workers could be hit. If (and when) federal spending is cut from state and local budgets, many may have to eye even more government layoffs. Just after the debt ceiling deal was announced, mayors and governors were already bracing for the cuts to impact their budgets. Budget restrictions at the federal level also mean many agencies will likely have to turn to furloughs, hiring freezes and layoffs.
The sequestration cuts may have morphed into an election-year football, but they have real consequences for Americans who are already struggling to get by. And women, who have really suffered from the sluggish recovery, are going to be hit fastest and hardest. While figures in the millions and billions are hurled like insults from side of the aisle to the other, it’s worth keeping in mind how drastic the real-life consequences will be and who will feel them.
By: Bryce Covert, The Nation, July 30, 2012
How The Budget Deal Affects The Affordable Care Act
So how does this mammoth budget-cutting deal, with its congressional “supercommittee” affect health reform?
Good question, because lots of people in Washington are asking it too.
More specific answers will become clearer in the next few weeks, but here’s a first version of the road map to both the policy and the politics.
First, understand there are two different processes – and each, separately, aims at cutting more than $1 trillion over the next decade.
The one that you’ve probably heard most about is the “supercommittee” of 12 members of Congress. They are supposed to identify savings by Thanksgiving. Entitlements – Medicare, Medicaid, Social Security and aspects of the Affordable Care Act – are part of their turf. So are taxes and revenue – at least in theory. It’s not so clear that the Republicans see it that way given the public statements of Congressional leaders.
If they agree on some kind of grand deal by Thanksgiving, Congress has to take it or leave it by the end of December, eliminating the usual congressional dilly-dallying. (It looks like dilly-dallying to the casual observer or much of the public, but remember that all that arcane, tedious process IS policy in Congress. If you slow something down, make it go through hoops, amend it, hold it up, etc., it doesn’t become law. That may be good or, depending on your point of view, bad politics.)
If Congress takes any recommendations that the supercommittee agrees on, that’s the law. If the committee fails, or Congress rejects it, then the “trigger” gets pulled. The official name is “sequestration.” That’s a fancy name for automatic cuts – 2 percent across-the-board cuts in Medicare, for instance, affecting all health care providers, doctors, hospitals, etc. It won’t affect beneficiaries – at least not directly.
Medicaid is not subject to the trigger. Neither, according to the preliminary interpretations I’ve received from analysts and congressional staff, are the big, key subsidies in the health care reform law – the Medicaid expansion and the subsidies that will help low-income and middle-income people afford health care in the new state exchanges.
Other parts of the health reform law are, however, subject to automatic cuts. Among them: Cost-sharing subsidies for low-income people. This isn’t the help paying the premium; this is the help with the co-pays when people do get care. But the payments are made to health plans, not directly to beneficiaries so it won’t have the direct impact of discouraging care. It may affect how health plans make decisions about what markets to participate in. Gary Claxton and Larry Levitt at Kaiser Family Foundation explain here.
Also, the supercommittee could have a partial deal – meaning there’s still a trigger, but a smaller one. Maybe they won’t reach agreement on $1.2 trillion to $1.5 trillion in savings, which would avoid the trigger. But maybe they could agree on, say, $500 billion. That means a trigger wouldn’t have to go as deep because some of the savings would already be identified.
To recap – before we go on to the second stage of this process: The “super-committee” can do whatever it wants to health care, Medicare, Medicaid, Social Security, etc. – if it can agree, if it can get the rest of Congress to agree and if the president doesn’t veto it.
Will the Democratic Senate and the Obama White House agree to cuts that eviscerate health reform? Not likely. In fact, the Democrats “won” on very few aspects of the budget/debt deal. Walling off Medicaid and key parts of the health coverage expansion were two of the “wins.” That’s a bright line worth paying attention to as this moves forward.
Does that mean other health-reform related spending will be untouched? Given how many moving parts there are to any spending deal, and the fact that defense and tax policy are also part of the mix, chances are it will be affected. But expect to see that bright line remain visible – maybe not quite as bright, but visible. (The CLASS Act, the voluntary long-term care program created under health reform, is a different story; it’s quite vulnerable.)
The second part is the annual appropriations process. The budget deal provides for cuts – real cuts in spending, not just slowing the rate of growth. Health programs (aspects of the health reform legislation touching on exchange creation, prevention, community clinics, etc., and just about everything else at the Department of Health and Human Services – the FDA, NIH, CDC, etc. – will be subject to these cuts. But this isn’t an across the board process, it’s a line-by-line, or at least category/agency-by-category/agency, process. And there is some horse trading.
It’s safe to say that the Republicans will try to cut discretionary portions of the new health law. That’s not a new political dynamic, it doesn’t arise out of the debt ceiling or the Wall Street woes. It’s what we’ve seen since last fall’s elections and the repeal/defund fights of the past few months. And House Budget Chairman Paul Ryan has publicly tried to insert health care into any potential deal. So expect to see more Republican push to cut, and continued Democratic push back. Will health spending emerge unscathed? It’s too soon to know but, given the amount of savings Congress needs to find –both in this budget deal and in the perennial quest to fund the “doc fix” payments – some cuts are clearly possible. Some of it may affect aspects of exchange establishment, regulation, prevention, public health, etc. But it’s hard to see the Democrats allowing cuts so deep that they basically constitute a side door to repeal.
One further twist – some Republicans are calling for a delay in health reform implementation to save money.”Delay” may sound better to an ambivalent public worried about spending than “repeal.” What’s delayed (if anything), how it’s delayed, how long it’s delayed, and what stopgaps are created in the meantime could have an impact on how many people get covered in 2014.
Assorted committees and government agencies are still examining the new budget law and how it will affect … everything. So the perspective I’ve outlined here – and I’m writing amid all the market turbulence – may change as the economic and political climates change. But the lines in the sand around the trigger – health reform, Medicaid and Social Security – tell us something about where the White House will come down.
By: Joanne Kenen, Association of Health Care Journalists, August 10, 2011
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