Nickles: An Interesting, Challenging Year for the Budget

Posted January 22, 2010 at 4:21pm

Usually at this time of year, number crunchers and chart makers in Washington, D.C., have already spent weeks preparing for the annual frenzied ritual of crafting the federal budget. This year’s a little different, as the health care bill’s odyssey has consumed all the time and brain waves of the Hill’s most active budgeteers.

[IMGCAP(1)]Even for those who aren’t self-described budget “wonks,— this year is shaping up to be a particularly interesting and challenging budget season. The Congressional Budget Office is expected to release its annual snapshot of the current budget picture on Tuesday. The most important number from that annual release is the forecast for the fiscal 2010 budget deficit. It won’t be surprising to see a deficit topping last year’s $1.4 trillion record. The CBO has already reported that the deficit in the first three months of this fiscal year is 17 percent higher than last year.

On Wednesday, President Barack Obama will deliver his State of the Union address, verbally outlining many of his budget priorities. On Feb. 1, he’ll release his fiscal 2011 budget, providing the fiscal details. Budget writers will have to address health care reform, ongoing wars in the Middle East, the economic stimulus and expiring tax cuts, balanced with efforts to show some fiscal responsibility by taking on the deficit in some measure. No easy task.

As Congress begins this annual process, here are some things to watch for:

Job Creation Versus Tax Cuts. The past year has been one of the most economically challenging and painful for our country in decades. Many Americans are still hurting. Where budget writers will most acutely feel the conflict between ideologies is in hashing out the best policies for addressing ongoing joblessness. My strong belief, and that of many conservatives, is that expiring tax cuts affecting investment must be extended and made permanent.

Personal income tax rates are also critically important, as sole proprietorships and small-business owners whose personal income on paper appears to exceed a certain threshold may be forced to scale back hiring or shut down if taxes are raised. Others will advocate more spending, likely in the form of a second stimulus-like bill. The administration has already signaled it plans to shift sustained attention to jobs and the economy, so this will be the biggest sticking point this budget season.

Deficit Reduction. The Senate this week is set to consider a proposal by Budget Chairman Kent Conrad (D-N.D.) and ranking member Judd Gregg (R-N.H.) that would establish a deficit-reduction commission. The administration as well has signaled support for a similar undertaking, albeit with a different structure. I applaud my good friends for their aggressive thinking in this area, but I caution them that a commission must be structured correctly so it does not become a tax-hike commission to fund the current majority’s spending spree.

Paying for It, or Appearing to. January is rife with tax and policy trial balloons that seek to test reactions to different ideas — particularly on the pay-for side. So far a tax on banks and tax increases on individuals with incomes over $200,000 have been floated. Also surfacing are different ways of taking pieces of the entire budget off the books, such as a recent white paper on a concept called “primary balance,— where the debt interest would not “count— in the overall budget. Creative accounting is not unique to one administration or party, but it is always important to call out so everyone is clear on what is happening.

Amid disagreement and debate, policy and politicking, budget writers hammer out, year after year, a federal blueprint that guides legislation. It is the inevitable outcome of the frenzied ritual. Let the budget begin.

Former Sen. Don Nickles (R-Okla.) served on the Budget Committee for 18 years, including two years as its chairman.