One can enunciate any number of criteria by which to judge this week’s budget resolution drafts from the House and Senate Budget Committees. But they all boil down to one: Do they help to solve the nation’s long-term budget problem?
And that is not to ask whether, if enacted, they would solve the problem. It is, rather, whether they move us toward enactment of a budget plan that will solve the problem.
By that simple, meaningful standard, the answer thus far is no; there is no reason to expect any positive movement resulting from the release of the two resolution drafts. (The House Budget Committee resolution draft was announced on Tuesday, though what was made public was a backup document, not the resolution itself. The resolution, with plenty of blanks for numbers not yet determined, came today. The Senate Budget Committee has not yet released its version; but by all accounts, the Senate resolution draft will not move us forward either.)
In fact, the lingering question is whether the net effect of all of the new paper might actually be retrograde. In this implicit, slow-moving negotiation, these two resolutions definitely are first offers, not at all best-and-final submissions. And they might even have a little of the air of insult first offers – where two sides who are obligated to negotiate for purposes of appearance go through the motions and put knowingly unacceptable gestures on the table to justify an end to the charade.
In sum, neither side will see anything that they have not seen already; and what they have seen already has not closed a deal. There is no reason to expect anything new or different going forward, barring some unexpected development.
Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion – mostly through spending cuts, but also by raising tax rates on the wealthiest 1 percent of Americans. As a result, we are more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.
President Barack Obama
The State of the Union Address
February 12, 2013
Many years ago, a seasoned Capitol Hill professional cautioned me about giving any questionable number to a politician. Many have fly-trap minds, and once you put something in, you never can get it out. Any nuanced but only partially understood fact, like a discount-store blowtorch, could be misused with considerable ill effect at some later moment.
This bit of wisdom comes quickly to mind when one hears the current buzz about a mere $1.5 trillion of deficit reduction over ten years ending our budget woes. Some reach that number by the roughest of arithmetic; others use more sophisticated analysis, and even provide important and subtle caveats. But the number, even though it has some limited use, already has left the corral of qualification and analysis far behind.
The simple way to reach that number is the way the President did. Three years ago, Erskine Bowles and Alan Simpson characterized our fiscal plight with a calculation that $4 trillion of deficit reduction would “stabilize the debt.” As the President noted in his remarks, some have estimated subsequent budget action to have achieved $2.5 trillion of that. $4 trillion minus $2.5 trillion equals $1.5 trillion, under either OMB (Office of Management and Budget) or CBO (Congressional Budget Office) scoring.
That little inside-Washington joke is not really a joke, however. Bowles and Simpson’s $4 trillion was derivative of many complex and controversial assumptions, and was calculated at a particular time. Let’s review the numerical spreadsheet, and its even-more-subtle and important conceptual underpinnings.
When I left the Office of Management and Budget after eight years, I e-mailed all my colleagues (then and still among the best public servants in the country) that after all of that experience and hard work, I had the OMB thing nailed. If you want to be successful here, I told them, just follow two simple rules:
- Don’t sweat the small stuff; and
- The devil is in the details.
Similarly today, if you believe some of the commentary about what appears to be an impending budget deal to forestall the “fiscal cliff,” our elected policymakers should follow just two simple rules:
- Get a deal that does as much as you can; and
- A bad deal is worse than no deal.
Clearly enough, in this instance as well as the earlier one, you have to choose your rule. And in this instance, I vote for rule number one – noting that it is not the end of the story.
There are still optimists in Washington. Many of them probably lean on the old adage attributed (probably wrongly) to Winston Churchill about “…after all of the other possibilities.” But we are running out of time, so we had better begin to discard those other possibilities at a faster rate.
One of the “other possibilities” would be the President’s insistence on increasing tax rates in the highest brackets of the income tax schedule. The President isn’t alone in this focus on tax rates; Nate Silver of the New York Times, who earned plaudits for the accuracy of his analysis of the presidential race this year, weighed in along the same lines on a rumored congressional proposal.
Hitherto, the standard position on both sides of the aisle with respect to taxes as a part of deficit reduction has leaned strongly toward tax “reform.” The word “reform” can mean anything that anyone wants it to mean, of course. But if the word has borne any content at all with respect to taxation, it has meant “broaden the base, and lower the rates” — in other words, close or narrow selective tax preferences, and use the resulting additional revenue to reduce tax rates for everyone.
Tax reform for deficit reduction, however, could reduce tax rates to give back only some, not all, of the revenue gained by cutting back tax preferences. The rest of the revenue gained would be kept by the federal government to reduce the deficit. (Some would assert that the rate reductions could return all of the revenue gain using static scoring, but that taxpayers would work harder and invest more, which would result in more revenue being collected at the end of the day — the classic argument for dynamic scoring. Large deficits in the 1980s and in the decade of the 2000s make that proposition suspect.)
But earlier this week, Senator Charles Schumer (D-NY), who has become involved in the “Gang of Six (or Eight, depending on who is counting)” budget discussions in the Congress, made a contrary speech. Senator Schumer says that Congress should give up on reducing tax rates, and instead use any tax-preference cutbacks purely to raise more revenue. He concludes that this path will be more likely to reduce the deficit, and will be better for the middle class.
After the election campaign, the nation likely will turn in one way, shape or form to dealing with the budget. Several analysts and bipartisan groups have had their say on what the ultimate plan should be. Among those statements is a paper by Andrew G. Biggs, Kevin A. Hassett and Matthew Jensen of the American Enterprise Institute, entitled “A Guide for Deficit Reduction in the United States Based on Historical Consolidations That Worked.” This paper, released in December 2010, has received an enviable amount of attention for a fairly technical enterprise.
To tell you what I am going to tell you: The authors argue that the United States should reduce its deficit much more (they pick 85 percent) by reducing spending, and thus much less by raising revenues, than the most widely recognized bipartisan plans (which are at about 50-50). I think they overplay their statistical hand. This post gets a bit nerdy, but in my view the reasoning comes down to a fairly fundamental issue. So all but the faint of heart, please read on.
Over the last 72 hours, former Florida Governor Jeb Bush has done a messaging tap dance. First he made comments about the political behavior of former President Ronald Reagan and also his own father, former President George H.W. Bush. But then Governor Bush made a more-current substantive statement: that he would accept a deficit-reduction deal that included ten dollars of spending cuts for every one dollar of tax increases.
For that, he was immediately castigated by members of his own party. Among them, Republican activist Grover Norquist criticized Governor Bush by saying that “…he thinks he’s sophisticated by saying that he’d take a 10:1 promise. He doesn’t understand — he’s just agreed to walk down the same alley his dad did with the same gang. And he thinks he’s smart. You walk down that alley, you don’t come out. You certainly don’t come out with 2:1 or 10:1.” Norquist’s organization, Americans for Tax Reform, posted a statement saying that “When bipartisan deals are struck promising to cut spending and raise taxes, the spending cuts don’t materialize but the tax hikes do.”
Is the federal budget problem caused solely by overspending? Or does it have roots on both sides of the ledger? And what does the answer to that question say about a potential remedy going forward?
There are people who believe in, and want, bigger government. And there are people who believe in, and want, smaller government. But that is a different issue. It is the gap between spending and revenues today which equals the deficit, which is the annual increment to our potentially unsustainable debt. What is the cause of that gap? To see, it might be worth taking a look at the numbers.
This is the second installment in a series about the two keys – Medicare reform and tax reform – to a comprehensive agreement to solve the budget problem. These commentaries will explain the details of the two issues, and show where it is that each political party – the Democrats and the Republicans – must give ground to resolve this crucial issue.
Last week’s post started a series on Medicare reform and tax reform as the two key elements of a solution to the nation’s budget problem – as well as important contributors in their own right to our collective well being over the long haul. It so happens that this week there was a potentially important contribution to the debate over tax reform, which is worth a second installment in this series about these two critical issues.
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Let’s Make a Deal:
A New Series
There were a couple of developments on the budget this week, coming out of the House Republican camp (pardon the pun – as will be explained in a moment). First, House Speaker John Boehner (R-OH) announced that when the nation’s debt subject to limit (that’s the technical term) reaches its limit late this year or early next, he will again demand that any legislation to raise the limit be accompanied by spending cuts of at least the same amount as the increase. Democrats, including Treasury Secretary Timothy Geithner, the unfortunate keeper of the debt, decried this as the scheduling of Train Wreck II, following on the long-running debacle of last year. Though there is no particular technical connection between the amount of a debt limit increase and the amount of spending reduction going forward – the debt is history, and future spending is, well, the future – this line in the sand has caught on with some observers. Democrats question whether round after round of spending cuts with no revenue increases is sufficiently “balanced,” and question why Republicans demand more spending cuts at the same time as they argue to repeal the most recent round of spending cuts that they demanded for the last increase in the debt limit. With the nation’s financial standing on the line in a game of chicken over default, the next encounter with the debt limit could be at least as consequential as the last.
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