Planning the Lame Duck Endgame

Conversations with Capitol Hill Members and staff over the middle of this year evidenced a considerable “process fatigue.”  This was not terribly surprising given that they had lived through — and been run over by — the National Commission on Fiscal Responsibility and Reform (Bowles-Simpson), and the debt-limit deal with its Supercommittee and sequester.  The players were not interested in another road map to a solution; they wanted the solution itself (ideally, handed to them fully cooked on a plate).

With a greater realization of the limited potential of the coming lame-duck session of Congress, and a greater appreciation of the consequences of a flight off the “fiscal cliff,” all that is gradually changing.  There are no firm decisions, pending the election results; anything planned today could be irrelevant at the opening of business on November 7.  But people are beginning to understand that there must be some resolution (or at least credible assurances) on the fiscal cliff before the end of the year; and that resolution is impossible without some firm indication of impending action on the underlying budget problem.

But as discussed earlier, the lame duck is most unlikely itself to resolve the budget problem.  And the budget processes noted above, though widely heralded as unprecedented delegations of power, all failed.  So what kind of process can the lame duck create that will be credible in the global financial markets and in the jaundiced and jaded domestic political environment — not to mention, that will have a snowball’s chance in Hades actually to work?

As you may know, CED has continued its collaboration with the Bipartisan Policy Center, which began with our participation in the BPC’s Debt Reduction (“Domenici-Rivlin”) Task Force.  The nucleus of that group earlier this week released its conception of the legislation that the lame duck will need to enact to achieve both credibility and efficacy on the budget problem — to justify postponement of the disciplines in the fiscal cliff, and not long thereafter to kick the can not down the road, but rather through the uprights.

To be perfectly clear, this plan is not a prediction of what the Congress will do.  It is, rather, a prescription for what the Congress should (if not must) do.  And it applies not so much if either party sweeps the Senate, the House, and the White House in the election, but rather if party control is in any way divided.  (Per the past post linked above, a party that sweeps the election likely will refuse to accept any lame-duck compromise action by the current divided government, and instead will send a “help is on the way” message as it waits until it can gather all of the reins of government and solve the problem its own way in January.  That prediction, of course, sidesteps the question of whether small minorities within that majority recognize that they hold the balance of power, and begin to issue demands that make running a narrow majority a lot more difficult than it appears from the outside.)

The essential realization behind the BPC approach is that the prior processes failed in significant part because they delegated authority from the congressional committees of jurisdiction to extraordinary groups.  This is not to denigrate those groups.  Indeed, Alice Rivlin, one of the co-chairs of the original BPC Task Force and a part of the current BPC effort, also was a member of the Bowles-Simpson commission.  Rather, the essential point is that the leadership of the standing committees of the Congress do not take kindly to being cut out of the process — in part for the thoroughly justifiable reason that they have the accumulated expertise to address these critical issues.  The National Commission process included public members from outside of the Congress.  The Supercommittee at least restricted membership to the home team, but even the committee chairs who were members seemed to believe that their authority was diluted.

The BPC approach avoids that pitfall — emblemized by its self-designation, “Accelerated Regular Order.”  For those not immersed in the language of the Congress, the “regular order” is the normal set of rules and methods for getting things done.  That is the pattern for decision-making by the customarily empowered decision-makers.  But the regular order must be “accelerated,” because if unchanged it affords too many side roads (like a Senate filibuster) where the necessary painful budget choices might be sent to die.

From a more-complete perspective, the BPC package contains the following essential elements:

1. Require the committees of jurisdiction of the 113th Congress (that is, the Congress to be seated in January of 2013) to produce a debt reduction package containing policies that, if enacted, would reduce projected federal debt by $4 trillion over a decade relative to a current policy baseline.

2. Allow for such a package to move through Congress via “accelerated regular order,” which includes a threshold of a “simple majority of all members present and voting” to pass the debt reduction legislation. This comports with regular order “reconciliation” as it exists under the standard budget process.  (“Reconciliation” is the accelerated, Senate-filibuster-free process that was used to pass the spending-cut bill of 1981, the deficit-reduction legislation of 1993, the tax cuts of 2001 and 2003, and the healthcare reform of 2010, among other laws.)

3. Turn off the “fiscal cliff” (that is, avoid the expiration of tax cuts, expansion of the Alternative Minimum Tax, imposition of an approximately 30-percent decrease in Medicare and Tricare payments to physicians, and cuts from the ”sequestration” provisions of the Budget Control Act of 2011) and impose a legislative “backstop” that would automatically become law if the 113th Congress failed to act and pass the debt reduction legislation outlined above.

4. As part of the agreement, enact an initial package of tax and spending changes (a “down payment”) in the lame duck that will offset some of the fiscal cliff, and that can be built upon to achieve the larger comprehensive debt reduction package in 2013.

Will this approach come to pass?  And if it does, will it yield ultimate success, and resolve the debt crisis?

In answer to the first question, the probability is far below one.  Extrapolating from recent behavior, probability likely is close to zero.  However, it is hard to imagine that the budget problem will be solved if there is not legislation very similar to this template passed in the lame-duck session of this Congress.

As things stand now, there are some in the Congress who believe that the major elements of the fiscal cliff — especially the expiration of the tax cuts and the automatic spending cuts on defense — combine to provide the best deficit-reduction deal they ever could get.  Some of those policymakers probably want deficit reduction; others simply believe that with the fiscal cliff policies in effect they could strike a deal with the other side to trade the domestic spending cuts for some — but not all — of the defense spending cuts and the expired tax cuts.  Some of those people might anticipate little ultimate deficit reduction, but a high percentage of that coming from the other side.

If they are to avert this temptation, Members of Congress will need to understand the economic risk to the nation if it endures this abrupt deficit-reduction pounding in its current weakened state.  The economy is now barely above stall speed, and there already are threats from domestic weaknesses and dysfunction in other countries.  (More on that problem next week.)

And then, for even this process to reach its ultimate objective in 2013, there must be another raising of consciousness among our elected policymakers in Washington — in particular, among the members of the political party that does not control the White House (again, assuming some measure of divided government).

If one party controls even only one chamber of the Congress, and the other controls the White House, then the ultimate bargain must be acceptable to both the White House and the other party.  Each chamber of the Congress holds an effective veto over the legislation; and the President of course has his constitutional veto power.  From this simple fact, the party out of the White House must understand that it will not have a meaningfully stronger bargaining position for at least four years.  If it holds only one chamber of the Congress in 2013, it might take control of the second in 2015; but even if it does, it will in effect bargain with the same President.  So the party out of the White House must calculate whether it dares to postpone addressing the budget crisis for four more years.  I would wager that the vast majority of economists and financial-market players would answer that question with a quavering, “No.”

In other words, the party out of presidential power must cut the best deal it can in 2013.  If it refuses to do so, and if the then-President can establish that he was willing to bargain but was jilted, the opposition party could carry a political burden that could last for a generation — not to mention the consequences for the nation.

Personally, I have one comparatively minor difference with my partners in the BPC framework — on the last item in the agenda.  Many people believe that a budget-process deal in the lame duck will require a “down payment” to achieve credibility.  I doubt that.  The debt-limit deal that spawned the Supercommittee had a substantial down payment — an amount virtually equal to the total discretionary savings recommended by the Bowles-Simpson National Commission and the Domenici-Rivlin Task Force.  But that deal failed.

Beyond that, I am concerned that the down payment might complicate the ultimate budget deal. Start with the premise that the already enacted appropriations savings — before and not including the fiscal-cliff sequester — have fully achieved the Bowles-Simpson-Domenici-Rivlin goal.  How much more can future appropriations give without threatening needed services in law enforcement, transportation, education, and the rest?  So the down-payment savings will have to come from other areas, by far the most important of which are health care and revenues.  Ultimately solving the budget problem will require fundamental reform of Medicare; but it will be very hard to enact 20 percent of fundamental reform as a down payment.  Likewise, the ultimate revenue deal will require closing tax loopholes, but no one will volunteer to have his or her tax loophole closed first.  No one wants to make the first sacrifice to resolve the problem, and then have the process break down and discover that he or she was the only person to make any sacrifice.

From this admitted minority view, what really is needed to provide credibility is a public acknowledgment from both political parties that the problem must be solved in 2013.  Such an acknowledgement could be deemed a sacrifice.  The first principle of bargaining is that striking a good deal requires a willingness and ability to walk away from the table.  Admitting that a deal must be struck to some degree forfeits that ability.  Careful nuance will be required.  But what the markets really want is not another partial payment on a really large debt.  Rather, they want real confidence that full payment will be made (speaking figuratively; a successful deal will contain the debt, not necessarily pay it off at any time in the foreseeable future).  The leaders of the two parties in Washington, speaking even in very loose harmony, can provide that without a down payment that sets traps on the path to an ultimate agreement.

Discounting for the fact that I tried to contribute to this BPC process, I believe that something very much like its framework is essential to resolving the debt crisis.  If we do not reach that goal, our future will be at risk to unprecedented circumstances and unpredictable economic behavior.  But if we do, this nation will be poised for prosperity for decades to come.

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