Government Avoids Shutdown; Hard Part Still to Come

Yesterday the House finally passed a spending bill to keep the federal government functioning for two weeks. It included $4 billion in cuts, and the legislation is expected to be approved by the Senate. Classic Washington move: when you can’t reach an agreement, DELAY!

CNN Money reports:

But that $4 billion in cuts was the lowest of the low-hanging fruit. House Republicans now want to return to their plan that would cut roughly $60 billion from the federal budget over the remaining seven months of the fiscal year.

And that plan contains things Democrats -- who control the Senate and the White House -- will never agree to.

That plan would eliminate funding for President Obama's signature policy victories, including the health care and Wall Street reform laws.

It would also block all federal funding for Planned Parenthood, bar any federal agency from spending money on implementing the new health care law, and limit the activities of the Environmental Protection Agency and public broadcasting.

Read more here

CBO Reports U.S. 2010 Deficit to Exceed $1.3 Trillion

From C-Span.org:

The Congressional Budget Office (CBO) released a report this morning that estimates that the federal budget deficit for 2010 "will exceed $1.3 trillion—$71 billion below last year’s total and $27 billion lower than the amount that CBO projected in March 2010."

CBO Director Doug Elmendorf updates reporters today on the latest federal budget and economic numbers compiled by his office. In late July, the CBO released a report warning about a looming fiscal crisis if nothing is done about U.S. debt levels.

In June, the CBO indicated that the national debt will reach 62 percent of gross domestic product (GDP) by the end of 2010. The office also reported that the debt could reach its highest percentage since the end of World War II. The causes of the increase is driven by higher federal spending and lower tax revenues in the recent economic downturn.

From: “Federal budget: $59 billion here, $300 billion there ...”

Congress is currently mulling over a large collection of bills that has a lot of people concerned over how much these measures are actually going to cost. A major topic of concern is extending the 2001 and 2003 tax cuts, which could cost anywhere from several hundred billion dollars to more than $2 trillion.

According to an article on CNNMoney.com, “Some of the measures have already been factored into 10-year deficit projections,” and that yes, many measures are expected to be paid for with revenue-generating provisions, but the total cost of everything under consideration would not be fully offset. Without offsets, we would increase the deficit. “That's in large part because several measures are exempt from the new "pay-as-you-go" law.”

Both parties have favored making the cuts permanent, but that would dramatically worsen the nation’s fiscal problems. Some believe extending them only for a year or two may be the smartest move.

Here is a breakdown of some of the bills that might make the cut and what they cost:

Extension of tax breaks: Dozens of tax breaks for businesses and individuals have lapsed. The cost of extending them for this year is $31 billion. Such "tax extenders" include the research and development credit for businesses and the choice for individuals to deduct either their state and local income tax or their state and local sales tax.

Estate tax: Defying all expectations, Congress let the estate tax lapse at the end of 2009. But it's coming back in 2011. The question is: at what level. Unless Congress acts, starting next year no more than $1 million of a person's estate would be exempt from the estate tax -- which is well below the $3.5 million exemption in place last year. And the top estate tax rate would revert to 55%, up from 45% in effect last year. President Obama has proposed permanently extending the estate tax at 2009 levels, which the Tax Policy Center estimates would cost $234 billion over 10 years. In the Senate, however, a proposal to exempt $5 million and set the top rate at 35% has garnered some bipartisan support. Depending on how various parameters are set, the proposal could cost north of $300 billion.

Safety-net provisions for the unemployed: Some lawmakers are pushing to retain a program that extends the number of weeks an unemployed person may collect federal unemployment benefits. When combined with state benefits, under the program, that means a person can qualify for up to 99 weeks of benefits. But the program expires in June. The measure under consideration would extend it to the end of the year.

Read the full article here.

Federal Budget Deficit Hits April Record

The U.S Federal budget deficit last month reached $82.7 billion, the highest amount ever recorded for the month of April. This is up drastically from last years April deficit of only $20 billion. According to the Associated Press, the number was above the $30 billion deficit private economists had been forecasting.

The government normally runs surpluses in April as millions of taxpayers file their income tax returns. However, income tax payments were down this April, reflecting the impact of a severe recession which has pushed millions of people out of work.