Budget News Nov 29 - Dec 3

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News
FRIDAY
California Democrats may ignore Schwarzenegger's special-session budget
...Schwarzenegger will offer a last-ditch budget proposal Monday to close a $6 billion deficit over six months, but don't expect his ideas to go very far.
Painful projection: $6.2 billion deficit
State's short-term and one-time budget fixes didn't address underlying problems.
Congress passes 15-day funding bill
On Thursday, the day before a temporary federal budget was set to expire, the Senate passed another Band-Aid measure that will fund federal operations for another 15 days.

THURSDAY
States Lift Spending After Spell of Cuts
State government spending is growing again amid higher taxes and a slowly improving economy, although budgets continue to face severe pressure.
State budget stress to grow, governor group says
In order to help close state budget gaps, 39 states made $18.3 billion in mid-year budget cuts to their fiscal 2010 budgets while 14 states have already made $4.0 billion in cuts to their fiscal 2011 enacted budget.
John Boehner set to slice up spending bills
House Republicans are devising a plan to simplify spending decisions by considering government funding bills on a department-by-department basis in the new Congress, according to Republican insiders.
Commission's final deficit report preserves controversial spending cuts
...fiscal commission released a final report Wednesday that is full of political dynamite, recommending sharp cuts in military spending, a higher retirement age and reforms that could cost the average taxpayer an extra $1,700 a year
Scooping up Uncle Sam's loose change
The report singles out a few potential targets. One of them is job training. Nine separate federal agencies fund a total of 44 such programs, according to the report. How about the 20 programs at 12 agencies devoted to the "study of invasive species"? Or the 105 programs charged with promoting "participation in science, technology, education and math."
Big Hurdles to Jump to Keep Plan from Being DOA
Deficit reduction is about more than accounting. It's about the size, shape and nature of government.
Congress moves on continuing resolution
On Wednesday, the House approved the measure to give the government another 15-day extension of the continuing resolution under which it is currently operating by a vote of 239 to 178.
Deficit Plan Wins Backers
Bipartisan Support Adds Momentum Despite Sharp Criticism From Left and Right.
As Final Debt Plan Is Released, Signs That the Fight Is Just Beginning
...with opposition from four House members on the panel — three Republicans and one Democrat — and with several other commission members indicating that they were leaning in that direction, the panel seems all but certain to fall short of Mr. Obama’s 14-vote threshold for sending a package to Congress for a vote.
Deficit panel leaders upbeat
Critics on right and left assail tax, budget proposals.

WEDNESDAY
States face $41 billion in budget gaps
The start of the 2012 fiscal year is still seven months away for most states, but the gaps are already appearing.
After Meeting, Obama and Republicans Hopeful About a Deal on Bush Tax Cuts
On Tuesday, according to people in the room, both sides engaged in the kind of cross-party dealmaking that seems to have faded away in today's Washington.
Debt panel's plan would cut $4 trillion
Called "The Moment of Truth," the report is an amended version of a plan put out three weeks ago by the panel's co-chairmen, Erskine Bowles and Alan Simpson.
Commission's final deficit report preserves controversial spending cuts; panel to vote Friday on whether to endorse plan
The leaders of President Obama's fiscal commission released a final report Wednesday that is full of political dynamite, recommending sharp cuts in military spending, a higher retirement age and reforms that could cost the average taxpayer an extra $1,700 a year.
Europe Debt Fears Pile Pressure on Spain, Others
The yields on Spain's 10-year bonds jumped as high as 5.7 percent — a euro-era record difference of 3.05 percentage points against the benchmark German 10-year bond — before easing to 5.5 percent on the close.
New CR Ready, But Earmarks Handicap Endgame
The current CR expires Friday, and Congress must pass an extension before then to provide additional time for lawmakers to decide how to wrap up fiscal year 2011 spending; extend the 2001 and 2003 tax cuts, which expire at the end of the year; and extend unemployment insurance benefits, which begin to expire today.
It's spending cuts vs. tax increases
That 14-vote supermajority is crucial, according to commission staff director Bruce Reed, because of a commitment from Senate Majority Harry Reid (D-Nev.) to hold a vote on the recommendations if such a consensus is reached.
Can They Push Their Deficit Plan Across the Goal Line?
The co-chairmen of the presidential fiscal commission are finding it hard to line up a majority of members behind their plan for reducing projected budget deficits by $3.8 trillion over the next decade.
Delaying Vote, Debt Panel Splits on Taxes and Spending
They said the delay was to provide more time to look at the final package, but it also gave them further opportunity to woo some of the 12 members of Congress on the commission, six from each party, whose support will be critical if the plan is to be taken seriously as a blueprint for eventual legislation.
Debt Infection Continues to Spread
Italy's Borrowing Costs Jump; Rise in Interbank-Lending Rates Rattles Investors.
Europe Examines Ways to Quell Its Debt Crisis
No one thinks that the financial problems of Italy and Belgium, much less Germany, are nearly as serious as those of Greece, Ireland and Portugal, which also suffered a blow on Tuesday when Standard & Poor’s warned of an impending downgrade of its credit rating.
U.S. Senate Rejects Proposed Three-Year Ban on Lawmakers' Budget Earmarks
The chamber voted 56-39 to reject a proposal that would have gone beyond a non-binding moratorium Republicans adopted for their party earlier this month. Today’s proposal would have allowed any lawmaker, for three years, to halt legislation determined to include spending or tax earmarks.
Public Favors Spending Cuts to Reduce Deficit, but the Question Is What to Trim
...most Americans believe both spending cuts and tax increases are in store. Seventy-nine percent say some services will have to be cut to get the budget under control while 65 percent predict that some taxes will have to be increased.

TUESDAY
Irish bailout terms provoke risk of revolt over next week's budget
Fine Gael denounces 'high' interest rate on loan and threatens to reject €6bn cuts tabled by coalition government.
Obama's debt commission to vote on controversial spending
That report will be an amended version of a plan put out three weeks ago by the panel's co-chairmen, Erskine Bowles and Alan Simpson.
TARP expected to cost U.S. only $25 billion, CBO says
The Troubled Assets Relief Program, which was widely reviled as a $700 billion bailout for Wall Street titans, is now expected to cost the federal government a mere $25 billion - the equivalent of less than six months of emergency jobless benefits.

MONDAY
Alarm over U.S. debt creates 'window' for tough choices
If Americans aren't prepared for the hard choices needed to control the national debt, most voters here must have missed the memo.
Obama debt commission: It's almost a wrap
After working for eight months, the 18 members of President Obama's bipartisan deficit commission will finish their deliberations this week over how to reduce the nation's long-term debt.
Portugal, Spain hit by investor fears over debt
Portuguese and Spanish borrowing costs rose sharply Wednesday as investors worried that the governments' debt loads will prove unsustainable, putting them next in line for a European bailout, and as a major public sector strike hit Portugal.

Economist Comments
FRIDAY
Norquist and Barton: Control Spending to Balance the Budget
Memo to the 112th Congress: Want to fix what’s wrong? It’s really simple and really difficult: Spend less, balance the budget, grow more.
How to Shrink the Deficit
President Obama's deficit commission lands with a predictable political thud.
Judd Gregg: Why the fiscal commission's plan is the way forward
It should not be viewed as the ultimate solution. But it is a template for governance, something that has been sorely lacking as the country sinks deeper and deeper into debt.

THURSDAY
The Income Gap and Deficit Reduction
The most important inequality is inequality of happiness or well-being, not inequality of income.
Not a Government Policy
Income inequality is the wrong focus for government policy.
Our view on defense spending: Don't spare the Pentagon from the budgetary ax
No one wants to look weak on defense, or unsupportive of the troops.
Simpson-Bowles: $4 Trillion of Beltway Mumbo Jumbo
In the here and now, where it counts, the plan amounts to an earnest pinprick and little more.
The Politics and Economics Of a U.S. Debt Default
At this point U.S. politicians have shown no spending discipline no matter the party in power. In that case, if market discipline proves the only cure for the spending disease, then we should embrace a U.S. debt default without reservation.
A fiscal mess our leaders won't face
The truth is that there is deep denial on all sides on what it will take to put our fiscal house in order.
A Spanish Inquisition
With Ireland's financial woes exposed, Spain's similarities warrant inspection.
More Than Money at Stake in Europe
As Ireland's bailout fails to stop contagion, risks spread and potentially deepen.

WEDNESDAY
Trivial Tweaks to the Growing Deficit Don’t Count
What looks like a budget concession on the surface – freezing Federal civilian pay – is a trivial tweak to the trillion dollar federal deficit.

TUESDAY
Europe's Single Debt Zone
The permanent crisis-management fund will only make permanent crisis more likely.
Appropriators Prepare for Low-Pork Diet
Power to un-spend could overshadow power to spend.
Markets Remain Focused on Debt Crisis
Several European countries — in particular Italy, Portugal, Spain and Belguim — saw spreads increase against the benchmark 10-year German bond as investors sold off government bonds.
New Deficit Plan Calls for Stimulus Spending
The Economic Policy Institute, the Century Foundation, and Demos released a debt-reduction plan today, calling for short-term stimulus spending followed by a stabilization of debt levels at about 90 percent of the gross domestic product in 2025.
A route to cutting the deficit
[Simpson and Bowles'] most extreme suggestion is to eliminate all tax expenditures, raising $1 trillion a year in additional tax revenue, and then use all but $80 billion of that to cut tax rates.

MONDAY
For Tottering States, Bankruptcy Could Be the Answer
A state bankruptcy law would not let creditors thrust a state into bankruptcy--that would violate state sovereignty. But it would allow a state government going into bankruptcy to force a "cramdown," imposing a haircut on bondholders, and to rewrite its union contracts.
A look back at past presidential fiscal commissions
As we look forward to the December 1 report from the Administration’s National Commission on Fiscal Responsibility and Reform, we thought it might be useful to take a look back at the successes – and the failures – of past presidential commissions.
EDITORIAL: Pork for perks
In addition to being expensive and corrupting, earmarks distract attention from other abuses of taxpayer dollars.
Will the next fiscal crisis start in Washington?
With more than 70 percent of U.S. Treasury obligations held by private investors scheduled to mature in the next five years, an erosion of investor confidence would lead to sharp increases in government and private borrowing costs.
Was deficit commission doomed from start?
Some, like the Kerner Commission on the urban riots of the 1960s, break through those roadblocks and help address major problems. But many commissions get swamped by the politics that led to their creation and produce very little.

Blogs
FRIDAY
Don't believe the hype: The deficit proposals are plenty progressive
Let's agree on the facts, regardless of the politics: the Bowles-Simpson plan and Rivlin-Domenici plan will raise taxes on the rich. Not marginal tax rates, but average tax rates.
How Europe's Debt Crisis Could Infect America
...as economists and U.S. government officials connect the dots, it's becoming clear that a broader crisis in Europe could quickly destabilize America's banking system and perhaps the whole U.S. economy.
Europe Debt Crisis: Halt the Contagion, Before It’s Too Late
No sooner than Ireland accepted a $112 billion financial rescue on Nov. 28, after Greece’s $102 billion bailout package back in May, the markets zeroed in on the troubles in Portugal.
Re: Debt Commission, Obamacare, and the GOP — a Question
The biggest problem with the commission’s report is that fails to address the explosion in entitlement spending driven by Medicare and Medicaid.
Lobbying on the Estate Tax: Cui Bono?
...there are more economically efficient ways to deal with the problems posed by large estates, like simplifying the income tax, eliminating the capital-gains step-up on inherited assets, and possibly taxing inheritances as income.
Barry Eichengreen on the Irish bailout
Barry Eichengreen has a magnificent, angry piece about what happened last weekend in this morning’s Handelsblatt.

THURSDAY
The President’s Fiscal Commission: It’s a Start
...the report recognizes, to its credit, that our corporate income tax structure puts U.S. corporations at a considerable competitive disadvantage against their foreign competitors.
Government spending and the 1990s
The 1990s saw a surplus because of post-Cold War cuts in military spending and cuts in federal programs, not because the marginal tax rate went up.
Bright Spots in Fiscal Commission Report
Three of the report’s main themes are on target: the need to make government leaner, the need to cut business taxes to generate economic growth, and the need to impose tighter budget rules to discipline spending.
Would the Bowles-Simpson proposal raise or lower your taxes?
How will a proposed budget affect your taxes? It depends entirely on how you define now. 'Current law' and 'current policy' turn out to be very different baselines.
Republican Earmarkers Already Enabling Higher Government Spending
The problem is that the votes earmarks secure from the sponsoring legislators then allow for ever higher levels of spending on other federal programs.
What will it take to avoid European defaults?
...if the market is right and a bondholder haircut is inevitable, what happens to fragile, debt-holding European banks?

WEDNESDAY
Are All Farms Created Equal When It Comes to Subsidies?
It's true that government support for large commercial farms is unfair and inefficient, but it's not any fairer to turn around and favor their smaller, less productive, less resilient counterparts.
Was private or public debt at fault in Europe?
Once sovereign default is in play, De Grauwe predicts self-reinforcing downward spirals can destroy [the] eurozone.
Is the Euro Dead? No, But It's Pining for the Fjords . . .
Belgian debt levels are actually pretty eye-popping, and they seem to be embroiled in a slow-motion political crisis that could reasonably raise fears about this debt being repaid; Business Insider had an entertaining little primer a while back.
Should States Be Able to File for Bankruptcy?
Despite signs of skittishness in the municipal bond market and increasing budgetary pressures, states continue to avoid the kind of austerity measures that are going to be necessary to balance their books while meeting pension obligations.
Still a crisis of confidence
Markets are underestimating Europe's determination to resolve the escalating crisis. Exactly. And that, in turn, implies that Europe is not adequately demonstrating its determination.

TUESDAY
US Treasuries: China is #2
When it comes to US Treasuries, the big dog is now–wait for it–the Federal Reserve.
White House Federal Pay Freeze Proposal Is a Start
This is a start, but its barely reaching for the belt. With a projected $1.3 trillion deficit for fiscal year 2011, a pay freeze is more a token offering than anything else.
Morning Bell: Don’t Let Obama Pay Plan Freeze Real Reform
President Obama’s partial pay freeze would save only $28 billion over five years. Sherk’s federal pay reforms would save taxpayers $47 billion every year.

MONDAY
Concerns about Spain
"Another concern is that the central government’s cost-cutting zeal might not be matched by regional and local authorities, which accounted for 57 percent of public spending last year."
Deficit Reduction From the Left
Suddenly, it seems, the conversation inside the Beltway has shifted from whether to attack the deficit to how to conquer it.

Reports
FRIDAY
Fiscal Commission Report: Too Much Taxes, Not Enough Spending Cuts
Federal spending—rising from its historical average of 20 percent of the economy to a projected 26 percent by the end of the decade—is the moving variable.

THURSDAY
A Plan to Cut Spending and Balance the Federal Budget
Federal spending is soaring, and government debt is piling up at more than a trillion dollars a year. Official projections show rivers of red ink for years to come unless policymakers enact major budget reforms. Unless spending is cut, the United States is headed down the road to economic ruin.

WEDNESDAY
The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform
Deep down, every American knows we face a moment of truth once again. We cannot play games or put off hard choices any longer. Without regard to party, we have a patriotic duty to keep the promise of America to give our children and grandchildren a better life.