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U.S. Legislative Updates

By Erik Pages

November’s midterm elections ushered in some big changes in Washington, D.C. In the aftermath of what President Barack Obama referred to as their “shellacking,” Democrats are trying to regroup. Meanwhile, Republicans are getting ready to assume leadership of the House of Representatives. By gaining control of the House, Republicans assured that they would hold the chairmanships and larger staffs on all House committees. We will outline details of these changes in an upcoming issue.

While the election generated some momentous change, many observers don’t expect to see a major shift in output from Capitol Hill. Democrats still control the White House and hold a slim margin in the Senate. Observers expect that efforts to expand government programs or increase spending will face higher hurdles than in the past. Republican control of the House, coupled with the release of several blue ribbon panel reports on deficit reduction, will create significant pressure to cut government programs in the coming year. This Legislative Updates column examines recommendations from key deficit and debt reduction panels to provide you with a better understanding of the outlines.

Two sets of recommendations have generated the greatest interest thus far: the report of the National Commission on Fiscal Responsibility and Reform (better known as the Bowles-Simpson Commission) and the Bi-Partisan Policy Center’s Debt Reduction Task Force Report. The latter effort was produced by an outside group, led by former Republican Senator Pete Domenici and former Clinton Budget Director Alice Rivlin.

The Bowles-Simpson Commission, created by President Obama, includes representatives appointed by both Democratic and Republican congressional leaders. Its efforts have been controversial and bipartisan unity has been limited. However, a majority of commissioners ultimately did sign on to the Commission’s final recommendations. However, the report needed 14 votes to trigger automatic congressional consideration of the plan, and it received only 11 votes. The report can be accessed here.

The Commission’s report calls for nearly $4 trillion in deficit cuts over the next decade. The headline-leading items include proposals for a payroll tax holiday in 2011, elimination of many current tax breaks, some tax increases, and cuts in Medicare and Social Security benefits. The plan also envisions big cuts in many government programs – with $2 in budget cuts for every $1 in increased government revenues.

Under the plan, federal economic development programs are heavily slashed. Here are some of the breakdowns:

  • Merge the U.S. Department of Commerce and the U,S, Small Business Administration into one agency and trim its budget by 20 percent
  • Eliminate the U.S. Economic Development Administration
  • Eliminate a number of programs administered by the U.S. Department of Agriculture Rural Utilities Service
  • Eliminate the Appalachian Regional Commission, Delta Regional Authority and Denali Commission
  • Terminate the Hollings Manufacturing Extension Partnership Program
  • Eliminate all earmarks
  • Drop wealthier communities from the U.S. Department of Housing and Urban Development Community Development Block Grant program

In total, the Commission has proposed roughly $23 billion in cuts to domestic discretionary programs, including approximately $2 billion in cuts to economic development programs. The SBA-Commerce merger accounts for half of this total. Cuts to federal earmarks could generate approximately $16 billion in savings.

As the Commission did its work, outside groups also were developing their own budget plans. One of those plans in particular – the Bipartisan Policy Center’s plan – also has generated attention. This proposal, which can be accessed at http://bipartisanpolicy.org/projects/debt-initiative/about, relies less on program cutbacks.

The Center’s plan calls for major tax reforms, including the introduction of a new 6.5 percent national sales tax, with revenues going toward debt reduction. It also freezes (for four years) government domestic discretionary and military spending and makes major changes in the Social Security and Medicare programs. While the government spending freeze would create a very challenging budget environment for federal economic development programs, these initiatives are spared any additional cutbacks in the Bipartisan Policy Center’s plan.

Finally, progressives based at the Center for American Progress have also responded with a plan of their own. It can be accessed at: www.americanprogress.org/issues/2010/12/pdf/deficit_reduction.pdf. Their proposal calls for quick action, which they believe could lead to significant deficit reductions by 2015. An earlier report from the Center for American Progress examined potential spending cuts; the new study reviews revenue-raising options.

The group proposes a host of revenue-raising options, which they contend, if fully implemented, could raise more than $250 billion. Many of the ideas are likely to generate controversy, but will stimulate debate and discussion. Examples include increasing taxes on capital gains and dividends, imposing a $10 per barrel fee on imported oil and implementing a graduated surtax on households making more than $500,000 per year.

These reports should be viewed as the opening salvoes in what will likely be a difficult series of debates about the deficit and the role of government in American society. At this point, the plans highlighted in this column are simply in the proposal stage. However, the attention they’re receiving serves as an indication of difficult budget decisions in the coming year.

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