Some Key Points About The House Republican Budget Resolution

The late North Carolina Senator Jesse Helms once told a story of a defense planner in the early years of World War II, who was tasked by his colleagues to figure out how the United States could supply England.  He thought for a while, and then proposed that we should drain the Atlantic Ocean and drive the provisions over by truck.  When his colleagues protested that this plan was hopelessly unrealistic, the planner responded, “I’m the big picture guy.  Implementation is your problem.”

There is some measure of this problem in just about every budget-deficit-reduction plan.  The budget is big and complex.  Many claims of budget savings are very hard to verify.  Yet if the individual pieces do not pan out, the much bigger whole will break apart.

House Budget Committee Chairman Paul Ryan’s new draft budget resolution raises such concerns.  Some of its major budget savings may prove unrealistic, in terms of their subsidiary consequences or whether they can be implemented at all.  Or, on the other hand, they may be implemented and provide the answer to our prayers.  The answer at this point is a judgment call or a forecast on the part of budget analysts, not a certainty.

The supply of numbers and program specifics in the Committee’s papers, released today, is rather slim.  However, the following key points are apparent:

The budget resolution claims a stunning turnaround in the deficit and debt.  A $1.2 trillion deficit this year would be cut more than in half in two years, and then would hover at only about $0.2 trillion from 2016 through 2022.  The public debt as a share of the GDP would rise from 73.2 percent at the end of 2012 to a peak of 77.6 percent in 2014, and then fall to 62.3 percent by the end of 2022.  In contrast, debt at the end of 2022 in the President’s budget would be 76.5 percent of GDP.

The Committee’s documents compare the budget resolution’s annual projections to the President’s budget.  The budget resolution claims $3.5 trillion less added debt over the next ten years – while collecting $2.0 trillion less in revenue.  Or, with rounding, the budget resolution would reduce spending by $5.3 trillion, relative to the President’s budget.  None of those savings would come from either Social Security or defense.

Here are the biggest differences between Chairman Ryan’s budget resolution and the President’s budget, in terms of spending over the ten years:

Mandatory (“entitlement”) spending other than Social Security, Medicare, or Medicaid: $1.9 trillion.  This is an extraordinary amount of savings from a category of the budget that receives limited attention – a cut of more than one-third relative to the President’s budget.  Instructions in the budget resolution itself – which are only numerical targets, but which do specify the congressional committees which must find the savings – add up to less than one-fifth of the $1.9 trillion.  The English-language, non-numerical documents released today give precious little hint of where these savings would come from – except to say that this category of spending would be capped, and any overage would be subject to a sequester.  (Because this part of the budget includes, for example, veterans benefits, the sequester mechanism might prove controversial.)  If this big chunk of the required savings should not materialize, the plan would fall well short of its targets.

President’s healthcare law: $1.6 trillion.  Again, the documents are not specific, but from the claimed savings it is clear that the budget resolution would repeal the spending in the Affordable Care Act, but not the offsets for that spending.  This means that, for example, cuts in Medicare spending in the ACA, which were attacked in past election campaigns, would be allowed to remain in effect.  At the same time, the budget resolution claims still further Medicare savings of $0.2 trillion relative to the President’s budget.

Medicaid and other health: $0.8 trillion.  The documents indicate that Medicaid savings would derive from giving the states both greater funding responsibility and greater program flexibility.  A key question will be whether those two elements would balance out from the states’ point of view.

Discretionary (annual appropriations): $0.4 trillion.  Under the President’s budget, annually appropriated spending, combined defense and domestic (and international affairs, sometimes considered separately) would fall to less than 5 percent of GDP by the end of the decade.  Many budget experts have argued, publicly or privately, that such savings are unrealistic.  The new budget resolution would cut $0.4 trillion below that.  As with “other” entitlements, the most detailed discussion of where those savings would be found points to caps enforced by a sequester mechanism.  To be fair, most big-picture budget plans fail to specify claimed ten-year savings in annual appropriations in detail.  If a budget resolution did so, congressional appropriators would consider it a violation of their turf.  But the primary reason why budget plans stop short is that no one knows the future of these mind-numbingly detailed annual processes.  Hence the reliance on caps and sequesters – which do not say what the consequences of the increasingly optimistic savings numbers really would be.

Because of all of these other savings, the budget resolution projects debt-service savings of $0.5 trillion.

The resolution also proposes income-tax changes that would be “deficit neutral” relative to a continuation of current law – which itself would collect $2.0 trillion less than the President’s budget.  Again, details are sparse.  The resolution’s documentation specifies that there will be two individual income tax rates – 10 percent and 25 percent – and that this rate reduction would be paid for by eliminating tax preferences.  It does not say which tax preferences would be eliminated.  It says that the corporate income tax rate would be 25 percent, and that it would convert from our current worldwide to a territorial system.  From my limited experience, those numbers might work, because of the relatively low revenue yield that is assumed (as noted above, $2.0 trillion less than the President’s plan).  However, it would require a quite extensive elimination of tax preferences, unless the legislators were willing to assume a substantial acceleration of economic growth as a result (what is known as “dynamic scoring”).

So for a bottom line, confidence in the House budget resolution requires a belief that considerable unspecified spending reductions can be achieved.  Some might argue that the resolution’s claimed deficit and debt reduction is so large that it leaves a substantial margin for error, at least relative to the President’s budget.  However, others might counter that the claims are so extraordinary that they might undermine credibility and thus reduce the chances of enactment in the first place.  Nothing is certain – except that with a divided Congress, very little of moment will happen this year.

1 comment
  1. Tucson Federal Credit Union said:

    There are some attention-grabbing time limits on this article but I don’t know if I see all of them heart to heart. There may be some validity but I will take maintain opinion until I look into it further. Good article , thanks and we wish more! Added to FeedBurner as well

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