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BUDGET WATCH: THIS WEEK...

September 29, 2011

Another Shutdown Averted As Supercommittee Plugs Away

Congress has spent the last couple of weeks once again trying to avert a government shutdown. Because the 12 appropriations bills for fiscal year 2012 (which begins on October 1, 2011) have not yet been approved, Congress needed to pass a continuing resolution by September 30th to keep the government running. The major impediment to passage of the continuing resolution involved a disagreement regarding the amount of disaster relief funding for the Federal Emergency Management Agency (FEMA), and whether increased disaster aid must be partially offset with spending cuts to programs considered Democratic priorities. After reaching another impasse last week, the House went home on recess and the Senate reached a short-term agreement Monday evening that was sent over to the House to be approved today in a pro forma session. This agreement will fund the government through next Tuesday, when House members will return to Washington and consider yet another continuing resolution to fund the government through November 18th.

Meanwhile, all eyes remain on the supercommittee. Last week they held their second public hearing – this one focused on tax reform – and then met again twice this week, though both were private meetings that lasted for many hours. Members of the committee continue to describe the talks as “good” and “productive” without giving much detail as to how much progress has been made. One of the topics of discussion may have been President Obama’s “Plan for Economic Growth and Deficit Reduction” that his administration released last week. The president contends that through his plan, by 2017 current spending would no longer be adding to our debt, debt would be falling as a share of the economy, and deficits would be at a sustainable level. Taking into account the $1.2 trillion dollars in discretionary spending cuts already approved as part of the Budget Control Act and the costs of the American Jobs Act, his plan proposes a net $4.4 trillion in savings over the next 10 years:

  • $1.1 trillion from the drawdown of troops in Afghanistan and Iraq,
  • $1.5 trillion from increased tax revenues,
  • $580 billion from cuts to mandatory programs, and
  • $430 billion in savings from lower interest payments.

The president’s plan appears to avoid some of the most contentious proposals that have been discussed, particularly with respect to mandatory programs. He does, however, propose to cut Medicaid by $72 billion over 10 years (about $22 billion less than his April budget proposed). And he also calls on the committee to undertake comprehensive tax reform in such a way that people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay. President Obama warned Congress that he would not support a "one-sided deal that hurts the folks that are the most vulnerable" and emphasized that at least $1 of tax revenue would have to be included for every $2 in spending cuts.

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