Budgets and Revenue Committee News
January 28, 2011
Volume 4 Issue 2
CBO Provides Dim Outlook
The Congressional Budget Office (CBO) this week released their annual Budget and Economic Outlook. Included in CBO’s report is a projected deficit for fiscal year 2011 of $1.5 trillion, or 9.8 percent of GDP, an increase from CBO’s projected deficit of $1.1 trillion in August, largely due to December’s legislation extending the tax cuts of 2002 and 2003 and long-term unemployment benefits. This is also an increase from fiscal year 2010’s deficit of $1.3 trillion at 8.9 percent of GDP. From 2012-2021, CBO projects a total deficit increase of $7 trillion and an average deficit of 3.6 percent of GDP. While the debt held by the public at the end of 2010 was only 62 percent, CBO assumes that by 2021 this will rise to almost 77 percent. One should remember, however, that under CBO’s baseline the agency assumes the extended tax cuts will expire at the end of 2012, as current law determines, along with the assumption more taxpayers will be burdened by the alternative minimum tax (AMT). A summary of CBO’s report is available here: http://www.cbo.gov/ftpdocs/120xx/doc12039/SummaryforWeb.pdf.
New Spending Proposal May Target States
Minnesota Rep. Michele Bachmann produced a list of potential spending cuts on January 24 that would total over $400 billion in savings. Included in her proposal are numerous cuts to states, such as eliminating the Community Development Block Grant program, doing away with DHS grants to states, and shifting transportation funding to states. The proposal also suggested abolishing the Department of Education and investing some of the savings back to states through block grants. A complete list of the proposal is available here: http://bachmann.house.gov/UploadedFiles/01_24_11_Potential_Spending_Cuts_and_Estimated_Money_Saved.pdf.
Pension Obligations May Now Effect States’ Ratings
Moody’s Investors Service has announced they have a new mechanism in which to calculate states’ debt, now including unfunded pension obligations. Until now, Moody’s would simply look at a state’s bonded debt, with state pensions excluded. Moody’s did not specify whether this change would have a positive or negative effect on states’ credit ratings. On a related note, while Standard & Poor’s dropped Japan’s long-term debt rating for the first time since 2002, Moody’s Investors Service warned the United States that, albeit unlikely, the possibility of lowering their triple-A rating was rising.
Deficit Reduction Legislation May See Light of Day
U.S. Senators Mark Warner (VA) and Saxby Chambliss (GA) are continuing their efforts to offer legislation to cut the federal deficit. While details of the legislation have yet to be revealed, it appears it may be similar to the Bowles-Simpson proposal that was released in early December. In other deficit news, the President voiced his approval of a five-year ‘non-security’ discretionary spending freeze during his State of the Union speech and Senators Orrin Hatch (UT) and John Cornyn (TX) introduced a federal balanced budget amendment establishing a constitutional cap on federal spending and requiring two-thirds votes for tax increases.
This Weeks Spending Cut: Presidential Elections
The House of Representatives voted this week to terminate financing of presidential elections, with the measure passing by a vote of 239-160. Estimated by CBO to save $617 million through 2021, the proposal would force presidential candidates to raise their own money instead of having the option of receiving public funds. This comes on the heels of legislation last week that would limit printing of congressional legislation.