The budget process grinds on

We previously offered some dour observations (recapped below) about the Republican budget plans that were adopted by the House and the Senate, respectively, in March. GOP budgets face uphill battle, 3/23/15.

Congressional Republicans have the commendable intention of restoring some semblance of discipline to the budget process, but lack unity of purpose or a coherent strategy. There is little hope of making gains through reasoned debate and logical decision-making; the political stakes are too high and “some of the principals have stopped listening to the other side, if they were ever doing so.” Our guess is that “the Republicans’ plan of attack will falter,” and “the national conversation will turn to the familiar theme of blaming the GOP for any government ‘shutdowns’ that occur.”

The differences between the two plans have now been reconciled, and a budget resolution hammered out by the conference committee was passed by the House last Thursday. The Senate will presumably follow suit this week.

Congress is required by its own procedures to agree on a budget resolution every year, but it had not done so since 2009. The congressional budget heads understandably took a bow. Press release, Rep. Tom Price and Sen. Mike Enzi,
4/29/15.

“This balanced budget reflects a commitment on the part of the House and Senate to fulfill our obligation to be responsible stewards of taxpayer dollars,” said Chairman Price. “Our goal has always been to achieve real results for the American people, and I am grateful for the work of so many who have made this agreement and that effort successful. By working together we have provided a vision for how we can advance solutions to create more opportunity for Americans and a healthier economy, more accountability in Washington and a stronger, safer and more secure nation.”

“Now that the Senate is under new management, we are getting back to work rebuilding the trust of hard-working Americans and doing the people’s business,” said Chairman Enzi. “Congress is poised to approve a 10-year balanced budget for the first time since 2001, which represents an important step in confronting the nation’s chronic overspending. This will help change the way we do business here in Washington to make the government live within its means – just like hard-working families. Most importantly, this balanced budget will boost our nation’s economic output and restore the promise of a government that is more effective and accountable.”

The true picture is not so bright, e.g., approval of the budget resolution will provide no assurance of balancing the budget within 10 years. While recognizing the progress that has been made, therefore, this status update will also discuss some of the challenges that lie ahead.

I. Prelude – Not so long ago (in the overall scheme of things), there was a showdown about raising the debt limit. Various political leaders participated in the negotiations, including the president and House Speaker John Boehner. After much discussion, it was agreed that the debt limit increase would be “paid for” with an equal amount of future deficit reduction. The means of reducing projected deficits, e.g., spending cuts or tax increases, was left open for further discussion. Debt limit deal settled nothing, 8/8/11.

The basic terms have been amply reported. (A) Debt limit increase of $2.4 trillion (or maybe $2.1T); (B) Spending over the next 10 years cut by $900B; (C) a “joint committee” (JC) will look for another $1.5T in deficit cuts, and if the JC deadlocks then a $1.2T spending cut trigger kicks in; (D) Congress will vote on a Balanced Budget Amendment.

The Joint Select Committee on Deficit Reduction was bicameral (six members of each house) and bipartisan (equal number of members from each party). It began work in September 2011, held a number of meetings (SAFE avidly followed and reported on the public sessions), and eventually agreed to disagree – leaving in place the default option, a $1.2T spending cut (across the board reduction in discretionary spending over the next 10 years, aka sequestration).

What was the sticking point? Republicans wanted only spending cuts; Democrats insisted on some tax increases as well (and would get them after the 2012 elections, but continue to demand more). Tax cuts for rank and file now [one-year extension of a temporary reduction in payroll taxes]; tax increases for the wealthy in 2013,
11/28/11.

This outcome was disappointing, but not surprising. As we noted in August, deadlock could be expected if “Side A says tax increases are essential/ Side B says tax increases are a nonstarter.” And by most accounts, that sums up what the Joint Committee spent the better part of three months arguing about.

Essentially the same argument has been going ever since, with no signs that the two sides have gotten any closer to agreement.

II. Budget numbers – Assuming the congressional budget (CB) numbers are realistic, they seem far more palatable than the deficits forever projection in the president’s budget proposal (PB). Here’s a recap.

Screen Shot 2015-05-03 at 4.55.05 PM

And here’s a graphical presentation of year-by-year deficit reduction in the CB (budget is eventually balanced) vs. the PB (current deficit doubles over a decade).

Screen Shot2

Seems like a step in the right direction, for sure, but there are many questions about these projected results. And remember in the ensuing discussion that while the budget resolution is not subject to presidential approval, nor can it be filibustered, spending bills based on the CB will not be similarly exempt.

Having pushed the CB over the goal line singlehandedly (not a single Democrat supported it in the final House vote), Republicans should not expect much help from Democrats in preparing spending bills and moving them through the legislative gauntlet. Consider, for example, this statement from Senate Minority Leader Harry Reid.

They met with themselves in secret. There was no public debate at all on this terrible budget that they have given to the American public.

Many Republicans harbor reservations about the CB too, which may hamper GOP efforts to maintain a united front. Thus, Senator Bob Corker held up the CB announcement for several days by questioning a “gimmick” used in putting the numbers together. [Senator] Bob Corker stalling GOP budget deal, Tom Howell, Washington Times,
4/28/15.

Mr. Corker said one reason he has not signed the deal is because it uses “Changes in Mandatory Programs,” or CHIMPS, which delay mandatory spending to free up money for other priorities. Critics say it is a phony maneuver that simply delays budgetary pain and results in no actual savings. Mr. Corker said employing the budgetary sleight of hand would lead to $190 billion in extra spending over a 10-year period.

As an aside, Senator Corker may have been seeking leverage re an unrelated matter (resolution to give Congress a vote on a nuclear deal with Iran, which if toughened by floor amendments would likely lose Democratic votes and be vetoed). He eventually “relented” and declared his support for the budget deal.

III. Major issues – An overhaul of the federal budget, with substantial spending cuts, could hardly be accomplished without controversy. Here’s a preview of some discussions that can be expected.

GOVCARE - The CB assumes some $2T in spending cuts over the next decade as a result of repealing this unpopular healthcare legislation, but there is no practical way of doing this while the current president is in office.

Republicans plan to avert a Senate filibuster by using the reconciliation process, which should make it possible to move a GovCare repeal bill through Congress. The president would surely veto such a bill, however, and there would be no chance of overriding his veto. Passage of the bill would be a symbolic gesture, and it’s hard to know whether a majority of Americans would be favorably impressed.

For one thing, the reconciliation process is rather involved, which makes it hard to explain. To the extent that Americans are aware of this exception to the Senate’s filibuster rules, they probably perceive it as a rather sneaky tactic – although it’s actually just a way to let the majority decide the issue in question instead of permitting a substantial minority to prevail.

In any case, the GOP has dropped the idea of advancing other controversial bills via reconciliation. Republicans agree on budget deal, Joseph Lawler, Washington Examiner,
4/29/15.

If passed, the joint resolution would also include a pathway for the GOP to repeal Obamacare with only 51 votes in the Senate, bypassing the filibuster. Republicans had debated use of the procedural tool for several legislative priorities, but the conference agreement affirms it for the sole purpose of placing a bill to repeal the healthcare law on President Obama's desk.

Second, repeal of GovCare would terminate the taxes embedded in the legislation – wiping out a big portion of the claimed deficit reduction. It’s conveniently assumed that the revenue loss would be made up through unspecified tax “reforms” (increases), which arguably conflicts with claims that the CB would balance the budget without raising taxes. Democrats take aim at GOP repeal Obamacare “gimmick,” Joseph Lawler, Washington Examiner,
3/25/15.

"Our budget repeals every bit of Obamacare including the job-destroying tax hikes. At the same time we call for fundamental tax reform that would raise the same level of revenue as the current tax code but in a fairer, simpler fashion," said William Allison, a spokesman for House Budget Committee Chairman Tom Price of Georgia.

Finally, the onus would be on Republicans to propose a substitute for GovCare if it was actually to be repealed, and whatever replacement they came up with would probably cost a substantial amount – thereby reducing the claimed savings.

SEQUESTRATION – Without lifting sequestration budget caps for non-defense discretionary spending, Republicans would provide more money for the military by increasing the reserve for Overseas Contingency Operations (military actions) in 2016 et seq. The extra OCO funding vs. the president’s proposal would be $187B spread over fiscal years 2016-2021 ($38B in 2016).
FY 2016 Conference Agreement, summary table 3.

The administration’s position is that sequestration should be lifted for both defense and non-defense spending, and GOP plans to provide selective relief for the military will be a bone of contention as spending bills are developed. Obama rips Republicans’ spending bills over spending limits, Ben Wolfgang, Washington Times,
4/27/15.

Although the president has yet to formally threaten to veto any specific pieces of legislation, Office of Management and Budget Director Shaun Donovan has detailed the administration’s objections to Republican-backed spending bills in lengthy letters to leading House members. The letters also lay out the White House alternatives to Republican proposals — major spending increases paid for in part with tax hikes.

See also earlier threats to veto spending bills if Republicans lifted sequestration for the military only. Showdown coming over non-defense spending, Joseph Lawler, Washington Examiner,
4/1/15.

White House advisers have said, Obama will insist on a deal that raises the defense and non-defense spending caps by equal amounts, paying for the spending increases by cutting the deficit in later years.

Such an argument seems rather artificial. The CB essentially does away with sequestration by providing updated budget caps for all major areas of spending through fiscal year 2025. The real argument should be about whether each of the new budget caps is appropriate - not the mechanics of their development.

Look for determined opposition as the various congressional committees work on spending bills in coming weeks, and remember that Republicans cannot push spending bills through on a majority vote basis as they did with the CB.

OVERALL SPENDING – The pace of deficit reduction that is being projected seems far too leisurely. It should be possible to balance the budget within about three years, we think, without gutting the military or raising taxes. Postelection update: Deficits & debt,
11/24/14.

To speed things up, Congress could take a more aggressive approach. For example, why not abolish government organizations that cost more than they produce (for the country as opposed to employees or special interests) and actually start restructuring entitlement programs instead of just talking about it? A fair – but ultimately misleading – critique of GOP budgets, Daniel Mitchell, Townhall.com,
3/26/15.

In reality, there’s far too much spending in both [the House and Senate budget] plans, and neither Chairman proposes to get rid of a single Department. Not HUD, not Education, not Transportation, and not Agriculture. [Also, what about Commerce, Energy, and Interior?] Heck, the budgets don’t even go after low-hanging fruit such as the Small Business Administration, National Endowment for the Arts, Corporation of Public Broadcasting, or Legal Services Corporation.

If budget cutters move too slowly, this increases the political risks. Better to get the cuts made, or try to, before Side A has time to regroup and launch a counteroffensive.

Delay also increases the economic risks. SAFE and others have been warning of a fiscal meltdown for years, and there will be one eventually unless corrective action is taken in time. If the roof caves in, it may prove very difficult to fix the damage! Don’t forget the fiscal problem,
7/28/14.

So instead of faulting the Republicans for offering a shortsighted and stingy budget, or whatever, a different question should be asked. Why can’t we get this done faster?

IV. Assessment – As discussed, the CB does not guarantee that the budget will be balanced in the future, but simply sets that goal and outlines a plan to achieve it.

How disheartening that many Americans would just as soon not bother, either not realizing there is a problem or preferring to let things slide. Consider the corollary of no House Democrats voting for the CB: 197 Democrats (not to mention 14 Republicans) voted against a balanced budget.

People need to walk before they can run, and the adoption of a congressional budget for the first time in six years is a real achievement – provided Side B doesn’t say “mission accomplished” and let up. A lot of hard work remains to be done, consisting of not only living within the budget this year but also laying the groundwork for structural changes in the future.

The government succeeded in balancing the budget in the late 1990s thanks to a confluence of favorable circumstances and the efforts of some very dedicated and talented people (a mix of Democrats and Republicans). Victory was sweet, but, as one of the key players would later recall, “the flush times” didn’t last long. Comeback America, David Walker (served as the Comptroller General, starting in 1998),
2010 (preface).

After all the work it took to bring the deficit to zero, Washington seemed directionless. What do you do with a budget surplus? The answer is that you use it to build a new culture of fiscal responsibility. Once a balanced budget becomes the norm, you can begin to come to grips with the out-of-control social spending that leads to rising deficits and increasing debt levels. But that’s not how the new crowd in Washington looked at it.

There is no reason the budget can’t be balanced again, but this time let’s hope the victory will not be thrown away after it is won.

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Thanks. All the best! David Walker


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