More shutdown drama, mediocre results

Reader feedback at end.

Barring legislative action, the government was scheduled to run out of spending authority at the stroke of midnight on February 8. Congress sprang into action, swiftly completing all procedural steps in the Senate and the House to pass a budget "deal" - the deadline was missed by a few hours, but so what - and send it to the president for signature.

The Bipartisan Budget Act of 2018 (or BPBA) was bipartisan, all right, but that didn't mean this legislation was arrived at by an open process and some of the details were ugly. The best one could say about the outcome was it could have been worse.

Discussion follows under three headings: Action (or should one say theatrics) - substance - path forward.

A. Action - There was a three-day government shutdown in late January due to Democratic demands that a legislative replacement for the prospectively terminated (as of 3/5/18) Deferred Action for Childhood Arrivals (DACA) program be included in the budget deal. Democratic leaders quickly retreated, however, concerned that the American public might blame their party. GOP won shutdown skirmish, but budget battle is far from over, 1/29/18.

The president subsequently outlined a four-point DACA fix (path to citizenship for 1.8M Dreamers; $25B of assured financing for a southern border wall, etc.; termination of the diversity visa lottery program; end to "chain migration"). This was basically presented as his "final offer." Assessing the SOTU address,
2/5/18.

The president pitched his plan as reflecting extensive meetings "with both Democrats and Republicans to craft a bipartisan approach to immigration reform." It was, he said, "a detailed proposal that should be supported by both parties as a fair compromise -- one where nobody gets everything they want, but where our country gets the critical reforms it needs."

On February 6, with the latest budget deadline looming, the president stated that he would "love to see a shutdown if we don't see this stuff [his conditions for legalizing the Dreamers] taken care of." Although he presumably didn't really want a shutdown, this remark suggested he was prepared to go to the mat on the issue. Trump demands fix for immigration loopholes, Anna Giaritelli, Washington Examiner,
2/6/18.

Speaking for their respective parties on the Senate floor around mid-day on February 7, Senate Majority Leader Mitch McConnell and Senate Minority Leader Chuck Schumer announced the terms of the budget deal that had been negotiated.

Sen. McConnell called the agreement "significant," stressed the importance of increased defense funding, and thanked the other side for its cooperation. Sen. Schumer called it a "breakthrough" and "a win for the American people," lauded increased spending for the military but spent more time talking about various increases in non-defense spending, and thanked the other side for its cooperation. Great, bipartisanship seemed to be back in vogue, except Sen. Schumer fuzzed things up by suggesting that the president didn't deserve much credit for the role he had played.

Neither leader mentioned the deal's effect on the government's deficits and debt (even though one of its terms was a one-year moratorium from the debt ceiling). Video (15:04),
2/7/18.

The text of the BPBA ran 652 pages (in the format posted on February 7); it covered a myriad of technical details and touched on various subjects that were at best tangentially related to the budget standoff. Such a bill must have taken several weeks to develop, and both Senate & House (note Sen. McConnell's statement that it was bipartisan and bicameral) personnel had apparently been involved in its preparation.

A key point was treating the Deferred Action for Childhood Arrivals (DACA) issue as a separate matter, to be taken up after resolution of the budget standoff. Sen. McConnell had promised an open debate and amendment process, albeit not guaranteeing a DACA outcome Democrats would favor, and Sen. Schumer et al. were agreeable to proceeding on this basis.

On the other hand, House Speaker Paul Ryan had committed to a debate on a DACA bill only if the president was expected to sign it. House Minority Leader Nancy Pelosi and some other Democrats saw this as equivalent to classing the "Dreamers" as bargaining chips. As though to prove her noble intentions (and perhaps dispel claims that she was getting old), Ms. Pelosi uncorked an 8-hour speech about the DACA issue and made clear that House Democrats should feel free to vote against the BPBA.

GOP conservatives attacked the BPBA as a spending sellout, which they could not support. And to the annoyance of Sens. John Thune (R-SD), Chris Coons (D-DE), and others, Sen. Rand Paul (R-KY) unleashed a one-man filibuster that delayed a Senate vote until after midnight and thereby triggered a very brief government shutdown. "A colossal waste of everyone's time," Al Weaver, Washington Examiner,
2/9/18.

"It's 1 in the morning. Am I upset that the government is shut down?" Coons said, asking rhetorical questions. "Do I want to go convey my sentiments to my colleague from Kentucky? Yeahhh."

The BPBA failed to win a majority of the Republican caucus in the ensuing House vote, but some 70 Democratic votes put it over the top. The bill was then sent to the White House, where the president's signature was announced around 9:00 AM. House, Senate pass massive budget increase; vote to end government shutdown, Speaker Dinan & David Sherfinski, Washington Times,
2/9/18.

B. Substance - Here's a link to the BPBA text (334 pages in the bill's final format, but with apparently the same content as the document posted earlier) for readers who may wish to peruse it. For the most part, we relied on secondary-source reports instead of attempting to wade through the text. Congress.gov, search for H.R. 1892, download PDF.

#SPENDING - The BPBA eliminates the budget caps (aka sequester) for discretionary spending in fiscal years 2018 and 2019 plus providing for additional spending in specified areas (notably $85B for disaster relief, 10-year renewal of the Children's Health[care] Insurance program, and more funding for community health[care] centers). Estimated spending increases are recapped below. 5 things to know about Congress' latest budget-busting bill, Justin Bogle, dailysignal.com,
2/7/18, and other sources.

Screen Shot 2018-02-11 at 11.57.13 AM

This recap doesn't include the additional funding for community healthcare centers as we haven't seen estimates of the cost anywhere. It also omits some $100B in "offsets," which Mr. Bogle says are primarily accounting gimmicks versus real revenue increases.

In addition to identifiable effects on deficits for the fiscal years in question, the BPBA inflates the baseline for future spending requests. Lessons of a bipartisan budget blowout: a short-term political victory at a long-term spending price, Wall Street Journal,
2/9/18.

[The deal] included more than $130 billion in domestic accounts over two years as the price of more money for defense. The dollars for community health centers, child [health]care and more will be baked into the budget baseline. That means anyone who proposes returning even to current high spending levels will be accused of "draconian cuts."

No wonder fiscal conservatives decried the deal as an abandonment of the Republican Party's advocacy of fiscal responsibility while it was in the minority. Republicans repeal the Tea Party, Philip Klein, Washington Examiner,
2/8/18.

When Republicans, given power, are consistently growing government and adding to the debt, it's time to stop saying they're abandoning limited government principles. The reality is, they do not actually have any limited government principles. Their priorities are lower taxes and higher military spending, and they are willing to accede to growth in entitlements and other government programs if that is what it takes to secure their first two goals. This is shortsighted, of course, because their failure to grapple with reality inevitably means the nation will one day face both higher taxes and severe military cuts. If the Tea Party, for all the disruption it caused, couldn't change this dynamic, nothing ever will.

We generally agree with these sentiments, but defense spending has been cut irresponsibly in recent years and increases are probably needed now. Cut defense spending with care,
1/23/12; Postelection update: Defense spending, 12/15/14.

The president's budget proposal for fiscal year 2018 (BP-18) called for significantly increased defense spending, but proposed substantial cutbacks in other areas. What's more, proposed cuts in discretionary spending and welfare programs were spelled out in a Major Savings and Reforms (
MSR) volume as opposed to the usual practice of leaving most of the details to one's imagination. Pluses and minuses: assessing the president's budget proposal, 6/5/17.

Although defense spending would be boosted overall, the budget proposal references Pentagon estimates of about 20% "excess infrastructure capacity" and proposes another round of the Base Realignment and Closure (BRAC) process in 2021. MSR 31.

Other noteworthy proposals include eliminating agricultural subsidies for farmers with Adjusted Gross Incomes of over $500K (MSR 132); selling half of the strategic petroleum reserve (MSR 144); authorizing the USPS to stop Saturday mail deliveries (MSR 168); and restructuring the Consumer Financial Protection Bureau (MSR 169).


#DEBT LIMIT - After being restarted in December, the debt limit has now been suspended again until March 1, 2019 (safely after the mid-term elections). This is just as well, in our view, as the debt limit has been reduced to a meaningless formality. Fixing the fiscal problem: work on what matters,
6/26/17.

Some fiscal conservatives take comfort in having a debt limit, however, and ideas have been proposed for making this device more workable. If Congress is going to raise the debt ceiling again, it should finally fix it, Robert Romano, netrightdaily.com,
2/8/18.

Debt prioritization should be included with any new increase of the debt ceiling. It would guarantee that when the debt ceiling is reached, and extraordinary measures by the U.S. Treasury to maintain it have run out, that interest payments on the debt would be paid first out of existing revenue. After that, things like Social Security, Medicare, Medicaid, the military and veterans' benefits would be prioritized. And so forth. This would guarantee by law that there could never be a default, because existing revenue will always go to servicing the debt first.

#TAX PREFERENCES - In our view, the tax bill that Republicans succeeded in getting across the finish line last December didn't qualify as true "tax reform." Witness the reluctance, for example, to eliminate corporate tax preferences like the wind production tax credit in conjunction with passage of the corporate tax rate cut. Assessing Republican tax plan,
11/13/17.

SAFE [suggested a comparable corporate tax rate reduction] in 2010, but we also proposed the elimination of all corporate tax preferences except foreign tax credit, which would help to offset the lower rates and eliminate distortions in the operation of the US economy. Both the House and Senate bills would prune some corporate tax preferences, but many preferences would survive.

In hindsight, we underestimated the influence of corporate lobbyists. With no explanation or apparent justification, dozens of expired or expiring tax preferences were "extended" by the BPBA. The Senate's ugly budget deal would trample on the success of tax reform, Adam Michel, dailysignal.com,
2/8/18.

The extenders are largely a subsidy package for the energy industry. Two-thirds of the provisions are energy related. The current proposal would extend special credits to solar lighting systems, fuel cells, geothermal heat pumps, and small wind power, among others. Also included in the list of things Congress wants to use your money to subsidize: biofuel, rum producers, private railroads, and nuclear power.

Consider the "we should get it too" comment of one beneficiary. FuelCell Energy applauds reinstatement [through 2022] of a fuel cell investment tax credit, Nasdaq,
2/9/18.

Fuel cells were previously left out of the 2015 tax credit extension for wind and solar. Extending and expanding these incentives for alternative technologies such as fuel cells not only creates jobs, but also aids in encouraging innovation and driving down carbon emissions. The impact of this tax incentive on the energy market accelerates the adoption of American manufactured, clean, efficient and renewable power generation.

#HEALTHCARE - Division E, Health and Human Services Extenders, aka the "Advancing Chronic Care, Extenders, and Social Services (ACCESS) Act" constitutes nearly half of the BPBA. Several of the subjects covered by the ACCESS Act have already been mentioned, such as renewal of CHIP and increased funding of community healthcare centers.

Another notable point is repeal of the Independent Payment Advisory Board, which was authorized by the Affordable Care Act. The Congressional Budget Office reportedly estimated that this change would increase projected deficits by $17.4B over the next 10 years, although how they would know this when the IPAB was never set up is something of a mystery. Ending Obama's cost-cutting panel would cost $17 billion, Robert King, Washington Examiner,
2/8/18.

. . . Republicans and even some Democrats have long hated the panel because it cedes congressional authority over Medicare spending to an outside group. The CBO analysis does not go into detail over why repealing the panel would cost the federal government so much money.

There were also numerous changes in the ground rules for Medicare, etc. benefits. Today's massive budget deal makes big Medicare changes, Howard Gleckman, Forbes,
2/9/18. Query: why were such changes buried in a "must pass" budget deal that was drafted behind closed doors and published about 24 hours before the deadline?

Re eliminating the "donut hole" for Medicare drug reimbursements, for example, it's been suggested that the true beneficiaries were insurance companies. Senate budget bill helps insurers at expense of sick seniors, Sally Pipes, Washington Examiner,
2/8/18.

#SPENDING AUTHORITY - Congress still needs to prepare and pass the omnibus appropriation bill for Fiscal Year 2018 (and maybe 2019, we're not clear about that) by March 23. Interim funding was authorized by a continuing resolution included in the BPBA.

#BUDGET PROCESS - There has been a fair amount of criticism of late, from both sides of the aisle, about the congressional budget process being broken, etc. The BPBA responds by providing for the appointment of a Joint Select Committee on Budget and Appropriations Process Reform to study the matter and recommend remedial legislation. (We'll refer to this committee as the "BP Committee" as there will also be a joint select committee to study a possible taxpayer bailout of multi-employer pension plans).

C. Path forward - Two things relating to the foregoing will happen this week.

FIRST, the Senate will take up proposals for a DACA deal in accordance with Senate Majority Mitch McConnell's promise of an open discussion and amendment process. The DACA deadline is March 5, which should allow plenty of time if the principals want to reach a deal (time will tell about that). With the debt limit suspended, there is no procedural obstacle to considering funding for the "wall" that the president says he will insist on, and including whatever amounts might be agreed to in the omnibus appropriations bill that is being prepared.

SECOND, the president's budget proposal for fiscal year 2019 will be submitted to Congress today (Feb. 12). Given that a deal on spending levels for the year has already been made, the importance of this document is somewhat unclear. It will give the president an opportunity to comment on administration initiatives and/or the fiscal situation, however, as well as providing an updated budget projection (reflecting the tax bill and the BPBA). Look for a lot of finger pointing about the eye-popping budget deficits that will be projected, and also claims that the president's economic assumptions are overly optimistic.

Introspection does seem in order about why the budget process has been working so poorly, but it's hard to get enthusiastic about the planned creation of the Joint Select Committee on Budget and Appropriations Process Reform (BP Committee).

One reason for low expectations is the results of a joint select committee appointed to propose at least $2.1 trillion (over 10 years) in deficit reductions and thereby avert the imposition of across the board spending caps (aka the sequester) under the Budget Control Act of 2011. A "Super Committee" is born,
8/15/11.

After meeting some half a dozen times, including several private sessions, this 12-member group deadlocked due to disagreement about whether the goal should be met by spending cuts (favored by Republican members) or by tax increases (favored by Democratic members). See, e.g., Flattering and cajoling the "Super Committee,"
11/7/11.

Also, the framework prescribed for the BP committee seems to militate against a successful outcome. Consider the following points, with our comments in contrasting font.

•Goal - "to reform the budget and appropriations process" by "[providing] recommendations and legislative language that will significantly reform the budget and appropriations process."

Unless people start with a shared understanding of the problem, they aren't likely to agree on the solution.

And what if the real problem is not the congressional budget rules per se, but rather the chronic failure of the members of Congress to follow them?

Could it be that the problem can't be solved by legislation, which Congress could ignore or change at its pleasure, but will require constitutional amendments of some sort?


•Composition - 16 members, 4 each to be appointed by the House Speaker (Ryan), the House Minority Leader (Pelosi), the Senate Majority Leader (McConnell), and the Senate Minority Leader (Schumer). One of the members will be designated by Ryan/McConnell as a co-chair; another member will be designated by Pelosi/Schumer as a co-chair.

Experience shows that presidential leadership would be essential to promote effective action on the fiscal problem. Perhaps he should appoint some of the members.

Also, a total of 16 members seems excessive if the goal is to get something done.


•Deadline - BP to vote on its findings, recommendations and legislative language by 11/30/18.

Suppose there was a shift in control of one or both houses of Congress in the mid-term elections. Wouldn't this leave the BP with "lame duck" status, thereby undermining acceptance of its recommendations?

•Voting - The BP committee's report requires the approval of a majority of both (a) the members appointed by Ryan/McConnell, and (b) the members appointed by Pelosi/Schumer.

Given the inherently partisan nature of budget issues, how realistic is it to require more than a simple majority of all BP committee members?

•Legislative action - If the BP committee's report is duly approved, it will be published and sent to the president, vice president, and congressional leaders -
presumably for the purpose of being taken up by the House and the Senate. (There is a longwinded provision entitled "consideration of Joint Committee bill in the Senate," which specifies that the filibuster rule and other Senate rules will apply, but no parallel provision for the House.)

One of the fundamental problems with the budget process has been use of the filibuster rule, which has given de facto veto power to the minority party in many cases and given the Senate unwarranted precedence over the House. If consideration of the BP report could be blocked by a filibuster, this problem couldn't be effectively addressed.

So if the BP Committee seems like a nonstarter, what should be done instead? Some ideas will be suggested next week.

**********FEEDBACK**********

#It seems like we all are rushing down the Niagara Falls stream into economic chaos. Very few have noticed, and fewer still understand what is happening. A root cause could be the pervasive use of "fiat money." When I came to this great country, I distinctly recall buying Gulf gasoline, in 1962, for 19.9 cents a gallon. - SAFE member (DE)

#From where I sit, the leadership of both parties are making a "bipartisan" effort to give the uninformed the impression that work is being done. (Read that carefully.) It is my conviction that NOTHING substantial will happen to cure our country's problem until the country embraces TERM LIMITS. All the swamp inhabitants are not Democrats. The weak point in our constitution has allowed the swamp to be inhabited by a self-serving group of professional politicians who will never put the people they are supposed to serve first. Not all, perhaps, but definitely the majority. - SAFE member (DE)

#Time to go nuclear. The Dems certainly would in similar circumstances. - SAFE director

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