No Steps Forward- Any Steps Back?

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.

One reason for hope this year was that each of the two parties would conclude that a solution of the budget issue could not wait for four years, and that neither party could achieve a qualitatively improved bargaining position in at least that time.  The Democrats hold the White House and the veto; the Republicans are seemingly secure in their control of the House.  Therefore, a bipartisan compromise would be inevitable.  However, someone didn’t get the memo.  Perhaps the Republicans believe that they can delay real budget action for two years, and at least gain control of the Senate, and therefore could write any bill that they wanted and jam it down the President’s throat (his political throat, that is; he surely could sustain a veto).  Perhaps Democrats believe that they could so demonize the House Republicans that they could regain control of that chamber in 2014.  Or perhaps both sides believe that they can procrastinate through 2016 with impunity, and then solve the problem all their own way after an electoral sweep.  But for whatever reason, there is little sense in Washington that action on a compromise budget this year is required.

House Budget Committee Chairman Paul Ryan (R-WI) has produced a headline with a draft resolution that achieves budget balance in the last year (2023) of its 10-year budget window.  That might seem noteworthy, but in fact his resolution this year is very little changed from last year.  Specific comparison is impossible, because last year’s resolution ran through only 2022.  But looking at the 2022 numbers from both last year and now gives a sense of the similarity.

Last year’s resolution projected a 2022 deficit of $287 billion.  Eliminating a deficit approximately that large (taking that number as a rough proxy for the new 2023 deficit number) would seem a very heavy lift.  However, much of that work was done for Chairman Ryan by the economy and by last year’s Congress.

For starters:  Between last March, when Chairman Ryan issued his previous resolution, and now, the Congressional Budget Office (CBO) reduced its estimate of the 2022 “baseline” deficit – the deficit that would occur if the Congress and the President did nothing – by $56 billion solely on the ground of changes in the economy and other “technical” estimating revisions.  Then, the end-of-year fiscal cliff deal cost the budget $500 billion of revenue in 2022 relative to CBO’s baseline; but Chairman Ryan already had penciled in a loss of $617 billion from extending all of the expiring tax cuts, not just the non-upper-income reductions that actually were made permanent.  That saved Chairman Ryan another $117 billion.  (Some have pointed out that Chairman Ryan had opposed increasing taxes in the fashion that the fiscal-cliff bill did, but that rather than proposing to undo those tax increases in his budget resolution, he is keeping the money.)  Throw in the debt-service savings over ten years from those differences, plus the differences between the 2023 estimate and last year’s 2022, and most of the work of balancing the budget was done before Chairman Ryan ever walked in the door – and he said as much in press interviews leading up to his public release.

The documentation of Chairman Ryan’s proposal is more sparse than last year’s, so it is difficult to determine exactly where the additional savings to push the budget into balance in 2023 come from.  Most appear to result from additional assumed reductions in non-defense discretionary spending.  Last year’s resolution cut 2022 non-defense discretionary spending, relative to the levels dictated by the spending caps enacted in August of 2011, by about three times as much as the scheduled sequester, or about an additional 19.3 percent below the cuts already imposed by the caps.  This year, Chairman Ryan’s 2022 discretionary spending level is $20 billion below last year’s resolution.  Furthermore, his discretionary spending amount in 2023 is a much smaller year-on-year increase in 2022 than he proposes in any of the previous three years.  (Please see two previous blog posts here and here to see why these assumptions of future appropriations savings are risky.)  In fact, in this year’s resolution, Chairman Ryan proposes total appropriations $8 billion lower for 2023 than he proposed last year for 2022.

In short, despite the sparse details, it appears safe to say that this year’s House budget resolution is pretty much the same as last year’s.  Let’s take a look at just what that is.

First, you need to understand what a budget resolution is.  It is a blueprint, not a building.  It is passed as a concurrent resolution; it does not require the President’s signature, and it is not a law.  It contains no legal language, not even on an advisory basis, to enact any of the policy changes that it might propose.

Although a budget resolution is about 100 pages long, in a normal year it contains only one number that has any consequence: the total amount of budget authority that may be appropriated for the coming fiscal year.  That number controls the amount that the appropriations committees can appropriate.  If no budget resolution is passed, then the two chambers must jump through hoops to appropriate amounts in excess of those from the prior year.  The House can “deem” the amount of appropriations that is allowed; the Senate must somehow shoehorn that number into an enacted bill, which can be on some totally unrelated subject.  In recent years, when the amounts appropriated have been tightly constrained, this function of the budget resolution becomes relatively less important.

The budget resolution also contains an allocation of the amount of discretionary budget authority among the various appropriations subcommittees (which is identical to saying “among the various appropriations bills;” each appropriations subcommittee writes one bill).  But that allocation is meaningless.  The appropriations committees are empowered to do their own allocation of the total among their own subcommittees, and they always do.  The budget resolution also contains numbers for total budget authority for future years – typically nine (for a total of 10) or four (for a total of five) – but future budget resolutions will re-set those numbers, and so they have no practical import either.

So again, only the one number – the total amount of discretionary budget authority – has practical meaning.  Every other number in a typical budget resolution is purely hortatory.  There is no consequence if the actual amounts passed by the Congress, or the amounts that ultimately occur in the fullness of time, do not match any or all of the other numbers – apart from that one appropriations budget authority number – in the budget resolution.  Similarly, in a typical year, all of the words in a budget resolution are purely hortatory.  There are “Sense of the Congress,” “Sense of the House,” and Sense of the Senate” provisions, plus other narrative paragraphs, all of which are there for messaging only.

From this you would infer, correctly, that the failure of the Congress to pass a budget resolution in recent years, though dispiriting, is not the cause of our budget problem.  It is, rather, much more an effect:  No one wants to vote for a budget resolution that acknowledges the painful reality of large deficits and mounting debt.

The above discussion applies to “typical” years.  There are, however, exceptional years in which the budget resolution can go farther and empower the Congress to take major budget action.  An enacted budget resolution (failed budget resolutions don’t count) can “reconcile” the authorizing committees (that is, those other than the appropriations committee) to report bills that achieve stated amounts of savings in their areas of jurisdiction.  If those committees fail to report such bills by the deadline stated in the resolution, the budget committee is empowered to write its own bills to achieve that effect.  (This power of the budget committee has never been tested under fire.)  Such “reconciliation” bills have parliamentary privileges, most notably that they are not subject to filibuster in the Senate.  It was never anticipated that reconciliation would occur every year.  In some years, the budget is doing well, and major action is unnecessary.  In other years, the Congress can accomplish what it needs to do under the “regular order,” with 60 votes in the Senate.  In still other years, such as the year after an exhausting reconciliation battle, the Congress can simply be out of budget gas.

This reconciliation process has occasioned some of the most important budget legislation in recent years: spending reduction (notably in 1981, 1990, 1993, and 1997), tax increases (in 1990 and 1993), and large tax cuts (in 1981, 2001, and 2003).  Chairman Ryan’s draft budget resolution clearly contemplates reconciliation this year.

To illustrate that the budget resolution is a blueprint, not a building, here is a typical paragraph from Chairman Ryan’s document from yesterday, specifying proposed action on farm subsidies:

Recognizing that the Agriculture Committee is responsible for implementing these reductions, and to maintain flexibility for the Committee, this proposal does not dictate the specific changes to the programs [in] under the Committee’s jurisdiction. These reforms will save taxpayers $31 billion over the next decade.

You might wonder how the Budget Committee, while not prescribing specific policy choices to the Agriculture Committee, somehow would know that the policies that the Agriculture Committee would choose would save precisely $31 billion over 10 years.  Well, the two Chairmen surely had a conversation.  Past Budget Chairmen have on occasion skipped that nicety, with the effect that their handiwork never went much further than the Budget Committee itself.  But at the end of the day, even with careful prior consultation between the Budget Chair and his counterparts, the budget resolution’s recommendations require action by the committees and the floors of both chambers, and then the signature of the president.  So the rhetoric in the resolution does not guarantee enactment, and must be evaluated in that light.

With that limitation in mind, following are brief discussions of the major policy steps incorporated in Chairman Ryan’s resolution.

The biggest money-saver is the “repeal of the health-care law,” that is, the Patient Protection and Affordable Care Act of 2010.  As has been widely recognized, however, although the budget resolution asks for the repeal of the expansion of Medicaid and the subsidies for individual purchases of private insurance, it does not propose the repeal of the spending reductions (primarily from Medicare) and the revenue increases that were included in the law to pay for the costs of the coverage expansions.  Chairman Ryan has had a checkered history of positions on the budget savings provisions of the PPACA, proposing to keep them in his previous budget resolution, but then advocating their repeal during his vice-presidential campaign.  He now returns to the status ante.

By most accounting perspectives (there are several possible interpretations), the health-insurance-coverage repeals provide almost half of the resolution’s total non-interest savings.  Some would think it incongruous to retain the costs of expanding health-insurance coverage without expanding health-insurance coverage; others would see those policies as reducing the cost of health care, and thus being justifiable in their own right.  But those who take the former perspective hold all the cards in this game; this provision has no chance in the Senate, and no chance of avoiding the President’s veto.  Scratch it off of the resolution’s scorecard, and there is no chance of achieving the aspiration of balancing the budget in 10 years.

The second-largest individual provision of the resolution is converting the Medicaid program into a block grant, and reducing the amounts of money sent to the states.  Chairman Ryan’s planned savings for this provision are not quite half as large as the health-insurance coverage repeals.  The diametrically opposed, intensely held views on Medicaid extend from citations of the need for care for low-income persons who otherwise would go without, to condemnations of inefficiency and poor care under the program.  Because financial responsibility is divided between the federal government and each state, the administration of the program sometimes looks like a game in which each party attempts to find ways to foist more of the cost onto the other.  Some say that block granting the program will give each state the authority and the incentive it needs to custom-design the cost-efficient system that meets its needs; others fear that states will pursue “beggar-thy-neighbor” policies to induce their low-income populations to move elsewhere because of poor and restricted care.  But one way or the other, chances of enactment in the Senate and approval of the President are about zero.  So with those two proposals running extremely long odds, that is about 70 percent of the non-interest savings of the Ryan budget resolution gone.

Other proposed budget savings in the resolution are controversial, but are sufficiently small that they could be subject to “split-the-difference” negotiation if good-faith agreement on the major budget issues could be achieved.

The resolution also proposes some major policy changes that would not have budgetary consequences, either in the first ten years, or ever.

Chairman Ryan continues to propose a market-based, incentive-driven restructuring of Medicare.  Individual beneficiaries would be granted funds to choose and buy a plan from among a menu of competing alternatives.  The least expensive alternative would be available for the amount of the grant; individuals could buy more-expensive plans, but would be responsible for the incremental cost.  This follows the broad outline of CED’s recommendation.

Democrats, including President Obama, ran explicitly against “turning Medicare into a voucher,” and perceived that they had achieved substantial success.  Enough Republicans felt burned on the issue that they prevailed against Chairman Ryan when he proposed to have his Medicare restructuring plan take effect within the 10-year budget window; the current proposal would exempt people who now are 55 years old, and thus there would be no effect within the 10-year budget window.  So the Medicare proposal’s odds are even longer than just having the Senate and the White House dead set against.  If you could imagine any prospect of success for Chairman Ryan’s resolution, even members of his own party in the House would be likely to argue that, because the Medicare plan would not take effect within the 10-year window, it might as well not be included in the budget plan’s ultimate implementing legislation.  So from the perspective of CED, there is a long haul ahead to achieve a market-based, incentive-driven reform of Medicare.

Another zero-saving (or zero-cost) proposal in the budget resolution is a revenue-neutral income tax reform.  As in last year’s version, Chairman Ryan specifies substantial reductions of income tax rates, but does not specify how he would recover the revenue needed to achieve deficit neutrality.  Chairman Ryan says that those details are in the jurisdiction of Ways and Means Committee Chairman Dave Camp (R-MI), which is true, but it is not clear why the attractive details, like the reductions of tax rates, are not also in Chairman Camp’s jurisdiction.

The tax issue provides a conceptual link between Chairman Ryan’s budget resolution draft and the comparable proposal in the Senate.  The Senate Budget Committee has begun to mark up its draft resolution as this is written; no descriptive materials are yet available.  But based on fairly open discussions with the press to this moment, it seems clear that Senate Budget Chair Patty Murray (D-WA) is taking the diametric opposite position on “tax reform.”  Representative Ryan wants to close tax “loopholes,” but to return all of the additional revenue through tax rate reduction.  Senator Murray wants to close tax “loopholes,” but to keep all of the additional revenue for deficit reduction.  There ought to be ground for a compromise here.

Senator Murray’s position aims too low.  Fundamental tax reform could achieve substantial deficit reduction with revenue left over for rate reduction.  The proposal of the Bipartisan Policy Center Domenici-Rivlin Debt Reduction Task Force, to which CED contributed, is a good prototype. With potential rate reduction as a reward, the policy process would have more incentive to trim or eliminate tax preferences.  Particularly considering the additional rate reduction, the economic benefit would be greater.  And the rate reduction would at least give those who lost tax preferences some compensation; without it, the “tax reform” process would be merely an identification of sacrificial lambs, and would be far less likely to succeed.  The potential rewards of rate reduction were an important part of the political calculus in the 1986 tax reform process; and even though the circumstances today are far different, that political calculus still holds.

Some press reports have made much of small changes in language in the presentations of the two plans, saying that they bode well for cooperation going forward.  I pray that those interpretations are right, and that I am wrong.  But I see very little coming from either side that suggests a sense of such urgency that there is a need for compromise.  The gulf between the two draft budget resolutions is huge.  Something must break the ice.  I don’t see that ice-breaker yet.

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