Following the release of the Congressional Budget Office (CBO) annual Budget and Economic Outlook report on January 31, the House and Senate Committees on the Budget each held hearings on the report with CBO Director Douglas Elmendorf testifying.
Committee Chair Paul Ryan (R-WI) began the February 1 hearing of the House Committee on the Budget by criticizing the Administration for delaying the release of its budget by a week, and the Senate for not passing a budget resolution in recent years. Referencing the CBO report, Chair Ryan said that the projected level of the deficit is an indication of failed fiscal policies.
Ranking member Christopher Van Hollen (D-MD) presented a different perspective on the CBO report, noting that the deficit would decline significantly over a ten-year period if Congress did not lose revenue by extending tax breaks that are currently in place. Mr. Van Hollen cited the American Recovery and Reinvestment Act (ARRA) as a successful Administration effort to combat the recession. ARRA created three million jobs in 2010 and kept the unemployment rate 1.8% lower than it would have been without ARRA in 2010 and 1.4% lower than it would have been without ARRA in 2011.
Mr. Elmendorf testified about two budget scenarios included in the CBO report. The first scenario, reflecting the end of recovery funding, expiration of current tax cuts, and the constraints of the Budget Control Act (BCA), projects slow growth for the next two years. Gross domestic product (GDP) would grow only 2% in 2012 and only 1% in 2013. Under this scenario, discretionary spending would drop to the lowest level in 50 years, 5.6% of GDP, due to the limitations and cuts included in the Budget Control Act of 2011.
Mr. Elmendorf presented the alternative scenario, which would lead to higher deficits and stagnating growth. The alternative scenario assumes that all expiring tax cuts would be extended, that Medicare payments would remain the same and that the cuts mandated by the Budget Control Act would not take effect. Mr. Elmendorf testified that these conditions would lead to far higher deficits than CBO’s baseline projection and far higher outlays for health care costs. In its report, CBO suggests that policymakers would have to increase revenue significantly or address the anticipated rising costs of health care.
Chair Ryan asked Mr. Elmendorf to confirm that the cost of Medicare benefits would be unsustainable in the coming decade, but Mr. Elmendorf said that it is the combination of spending and lack of revenues that is unsustainable, not simply the anticipated rising cost of Medicare benefits.
On February 2, Mr. Elmendorf provided similar testimony to the Senate Committee on the Budget. Committee Chair Kent Conrad (D-ND) opened the hearing by stating that the committee should avoid austerity policies that would cause a drag on the economy and inadvertently push the nation towards a recession. Chair Conrad voiced his support for extending the payroll tax holiday and emergency unemployment benefits through the end of 2012, policy decisions he believes will support both individual households and the economy.
Senator Pat Toomey (R-PA) thanked Mr. Elmendorf for the valuable information CBO provided to the Joint Select Committee on Deficit Reduction, of which the Senator was a member. He stated his hope that the Senate Committee on the Budget would pass a budget resolution for FY13, a responsibility that he claimed the Senate has not accepted in years. The Senate last passed a budget resolution for FY10 in April 2009 (see Memo, 4/3/09). Senator Toomey urged the committee to take action that would lead to creating jobs, maximizing growth and changing the architecture of programs, such as entitlements, that drive the nation’s deficit.
Chair Conrad cited agreements in the Senate Republican and Democratic approaches around ensuring that growth is cornerstone of any budget plan the committee puts forward. However, he disagreed that the solution relied solely upon addressing spending. The nation is reaching a record high for spending, Chair Conrad said, but has reached a 60 year low for revenue. Chair Conrad said that tax expenditures (tax breaks for specific purposes) represent a larger portion of government spending than does discretionary spending, and yet they receive far less scrutiny.
Though Chair Conrad stated his intention to mark up a budget resolution in committee during the February 2 hearing, Senate Majority Leader Harry Reid stated on February 3 that he will not bring an FY13 budget resolution to the Senate floor. The Budget Control Act of 2011, which was signed into law by the President, established a discretionary spending cap for FY13 which Senate Majority Leader Reid says serves the function of a deeming resolution for the Senate’s FY13 appropriations work. Chairs of the Committee and Subcommittees on Appropriations have begun their FY13 at the instruction of Senate Majority Leader Reid.
The House voted on two of the three budget-related bills passed by the Committee on the Budget during the week of January 23 (see Memo, 1/27). The House passed H.R. 3582, the Pro-Growth Budgeting Act of 2011, on February 2. The bill would require that CBO provide a macroeconomic impact analysis, known as dynamic scoring, for budget-related legislation. On February 3, the House also passed the Baseline Reform Act, H.R. 3578, by a vote of 235 to 177. The bill would prohibit CBO from calculating inflation as part of spending projections, which opponents say would distort those projections.
The House Committee on the Rules is expected to take up additional budget-related bills the week of February 6. H.R. 3521, the Expedited Line-Item Veto and Rescissions Act of 2011 introduced by Chair Ryan in November, would provide the President with the authority to rescind specific funding provisions in bills or resolutions passed by Congress.
The second bill, the Budget and Accounting Transparency Act of 2011, H.R. 3581, would alter the accounting processes used in assessing the cost of federal credit programs and could inflate the cost of those programs. The bill would require that a “fair value basis” be used to estimate costs, rather than the actual, potentially lower, costs the government incurs in administering the credits. The House is scheduled to then bring H.R. 3581 to the floor on February 7.
View the CBO report: http://www.cbo.gov/doc.cfm?index=12699
View the House hearing: http://budget.house.gov/HearingSchedule/hearing212012.htm