Tag Archives: In The News

You already have heard that the next fiscal cliff that we will encounter on our journey to Responsibility will come with the conjunction of the expiration of the appropriations at the end of this fiscal year (a date certain, September 30 / October 1, 2013) and the collision of our nation’s debt with its statutory limit (a date highly uncertain, hitherto estimated by the leading nongovernmental authority, the Bipartisan Policy Center, at somewhere between mid-October and mid-November).  But in the last week or so, Washington’s two non-negotiating negotiating partners made their first moves onto the public stage.

On Thursday of last week, the House Republican caucus reportedly held a telephone conference call during which Speaker John Boehner (R-OH) laid out the first steps in his negotiating strategy (AKA Kabuki).  The Speaker said that he would put forward a short-term continuing resolution (CR) to continue agency appropriations at this year’s level – higher than next year’s statutory spending caps – so that the threat of a government shutdown (from the expiration of appropriations) would be postponed until the onset of the threat of a debt-limit crisis – presumably to increase his side’s negotiating leverage.

The conference call, of course, was private, and we have learned only what Members on the call have been willing to relate to the press.  Those accounts, therefore, could suffer from either faulty memory or intentional spin.  But by all accounts, the Speaker’s conservative wing was not happy.  Those Members reportedly have insisted that appropriations, however short-term, should be passed only on the condition that a provision be included to prohibit the expenditure of any funds to implement the Patient Protection and Affordable Care Act (AKA “Obamacare”).  (A few Members would demand approval of the Keystone XL pipeline as well; any other precondition conceivably could be added.)

Despite what the press portrayed as vocal opposition from the conservative wing, the Speaker really didn’t offer very much to the Democratic side.  Again, he reportedly was speaking about only a temporary bill of less than one-quarter of a fiscal year’s duration – just enough to extend the appropriations standoff until the expected collision with the debt limit.  He (and Majority Leader Eric Cantor (R-VA)) reportedly suggested that the same demands regarding health-reform implementation could be attached to exhaustion of the debt limit.  And the press reports gave no indication that the Speaker suggested any change in the statutory appropriations caps.  The Congress could pass higher appropriations in a temporary bill; but without a change in the caps, the temporary overage would merely be recaptured in a later sequester, pinching government operations even harder at the end of the year.  It might even lay the groundwork for further cuts later, given the eventually lower rate of spending.

Of course, the Republican House could not actually write this scenario into law.  The Senate would not pass such a bill, and the President surely would veto it.  This maneuver would be either a political statement before a contrary ultimate agreement, or a threat that the President either capitulate on his healthcare law or suffer a government shutdown and/or a Treasury default (use of that term is controversial).  Most Washington watchers would characterize either a shutdown or a default as an extreme outcome, but a default as much the worse of the two.  That the Speaker would maneuver to connect the two outcomes suggests that he is at least keeping his options open, while extending the process would allow the heat and the pressure to build.

Then this week, the Administration acted – or perhaps reacted.  Treasury Secretary Jack Lew added to his portfolio of letters sent to Congressional leaders, which in the current environment means the Speaker, since the last postponement of the debt limit tensions in May.  In this new letter, Secretary Lew for the first time provided a point estimate of the onset of serious default risk, placing it at mid-October.  The Secretary, as he and his predecessors always have, asked the Congress to act expeditiously to increase the debt limit.  His purpose seemed to be to send a message that the drama over the annual appropriations and the debt limit could not be long postponed.

The Treasury typically is reluctant to make public point estimates of the final moment of a collision with the debt limit.  And the language of Secretary Lew’s letter suggests that its mid-October estimate is conservative.  But based on the BPC’s estimate, Secretary Lew’s request for action prior to that time is only prudent.  Truth be told, with all of the good will in the world, the Treasury cannot project its cash position with precision over even a few days.  Numerous routine cash events are none the less quite unpredictable; and at this moment the chance of military operations in Syria, and the multiple contingencies that could follow from them, is far from routine.  And this is not an annual budget deficit projection, where, as in horseshoes or hand grenades, close is good enough.  A small error in a cash projection near the debt limit could have disastrous and irreversible consequences.

Opinions differ, and are strongly held, but in my opinion the United States of America should give the widest possible berth to any risk of a failure to pay any of its bills.  Members of Congress who wish to create an action-forcing event should do so over the annual appropriations, rather than court what could become a global financial crisis.  The downside of a federal government credit event is far too great to take any chances.

It is impossible to say how this Kabuki will play out.  Rational players on both sides fear being jammed at the last instant by the other, after a failure to negotiate straightforwardly.  Congressional Republicans will accuse the Administration of waiting until the last moment before demanding a total capitulation, at the risk of the Republicans’ being identified as to blame for a default.  The Administration will counter that the Congressional Republicans want to be handed the tools for an effective negotiation over their hostage, when they had no right to take the hostage in the first place.  This is a principled debate that will not be easily resolved.

And this entire confrontation is not a negotiation where one side wants 100 and the other side wants 80, with the possible result that after lengthy and painful negotiations both can somehow find their way to accept 90 as the answer.  This is, rather, the culmination – for this year – of a long-running ideological dispute in which the disputes effectively are over the difference between yes and no, and large shares of both sides believe that compromise is totally unacceptable.  The swords in this Kabuki are not made of wood.

Enjoy the play.

The title of the explanatory fact sheet on the President’s new economic program is “A Better Bargain for the Middle Class: Jobs.”  That conveys several things.  For one, the White House understands that government is divided, and if you want to get anything done (or at least appear that you are trying to), you need to strike a deal.  Fine so far.  Second, most Americans either identify themselves, or wish they could identify themselves, as middle class.  So favoring that group is good politics, and actually succeeding in helping that group might well be good economics.  OK again.  Finally, the sore spot of the economy is jobs.  Four years into an economic recovery, we remain well short of the employment level of the previous cycle peak, and millions of Americans are so disheartened as to have given up looking for work.  So the title of the exercise seems promising.

The suggested deal is an exchange of corporate income tax reform, with the statutory tax rate reduced to no more than 28 percent — which is assumed to entail a one-time increase of revenues but to be revenue-neutral in the long run — in exchange for the use of those additional one-time revenues for specified one-time programs that will “support middle-class jobs.”

We should look at the two parts of this deal separately.  And we will discuss the corporate tax reform idea, both in the abstract and in the context of the President’s new program, in a post two weeks from now.  It is appropriate to ask at this time, however, whether the President’s conception is that the revised corporate tax would be revenue neutral plus yield a one-time revenue bump.  Only the fine print, not yet supplied, would answer that question.

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President Obama submitted his fiscal year 2014 budget on April 10.  Some have criticized the President on the ground that the budget was more than two months late.  (The statutory deadline is the first Monday in February.)  That criticism is fair enough – with the footnote that budget decisions for the preceding, ongoing fiscal year were well behind schedule as well, and in fact were not completed at the turn of the calendar year, when the ink of a President’s budget always has been both figuratively and literally drying.  The budget law was written under the presumption that a President would know the budget outcomes for one fiscal year before he was required to prepare and submit the budget for the next.

There was a throwaway comment in the early press that “the President’s budget has virtually no chance of being adopted.”  Well, no President’s budget ever is adopted; the Congress always makes changes (if it adopts meaningful budget legislation at all).  A much more important test today is whether the President’s budget moves the current fiscal stalemate off of dead center (with the accent on the “dead”).

We will have a deeper account of the prospects for the politics and policymaking of the budget season next week.  But the big-picture takeaway from the release of the budget is that this is the biggest and best opportunity to move the ball that anyone in Washington could have had a right to expect.  It’s time, guys.

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This is just to tie up any remaining loose ends for you on the weekend’s legislative action on a congressional budget resolution for fiscal year 2014.

As you heard, the Senate passed its version of a budget resolution, to provide the opposite bookend – on a very, very long shelf – to the House version.  Some have argued that the House resolution “jump-started” the budget process, and that the Senate version “set the stage” for a hard and contentious conference.  Neither did any such thing.  The greatest likelihood, though admittedly not a certainty, is that you already have seen the sum and total of meaningful action on a budget resolution for next year – hence a “post-mortem” is fully in order.

There may be an initial meeting of a conference committee on the resolution, but it most likely will be what in the trade is called a “photo-op” meeting.  That is, Members from the two chambers gather, and the press is invited to take pictures.  The Members read their opening statements.  Then the meeting is adjourned, and the Members leave subject to the call of the chair – a call that never comes.  There is no rule that different bills that pass the two chambers must be reconciled and enacted; history is replete with bills that passed the two chambers in different versions and went no further.  This instance seems a prime candidate to enter that gallery.

The Budget Act requires that the Congress pass a budget resolution, but it also provides a procedure in case it does not.  And no one ever has gone to Budget Jail for failing to pass one; Budget Jail was grossly (indeed totally) understaffed even before the recent spending sequester.  You will recall that the recent “no-budget, no-pay” law is satisfied by each individual chamber passing its own budget; there is no requirement that the Congress reconcile the two and pass a single, final budget resolution.  So any motivation from that provision has been fully sated.

The passage of the Senate resolution did provide good theater.  The Senate normally allows unlimited debate (which is what a filibuster is), but a primary motivation of the creation of the current budget process was to prevent the budget from being talked to death.  The compromise that was struck was to allow Senate floor consideration, even after the statutorily limited time for debate has expired, of any and all amendments filed before a deadline.  This yields the notorious “vote-a-rama,” during which amendments are voted on even though they cannot be debated.  The process ends only when all of the filed amendments are voted upon (typically many are withdrawn without a vote) or the Senators give up in exhaustion, whichever occurs first.  This year’s marathon extended almost until dawn on Saturday morning.

But all of those undebated votes have no real significance.  The budget resolution is only a concurrent resolution, and cannot become law.  Any amendments to the resolution – some mentioned prominently in the press this year relate to the Keystone XL pipeline, sales taxation of Internet transactions, and the 2010 healthcare law’s provisions for a tax on medical devices and a reduction of the maximum contribution to flexible spending accounts for out-of-pocket medical bills – are purely advisory.  The recent push for a budget resolution in the Senate was thought by some to be a necessary first step toward meaningful negotiations.  That might be, but a more cynical interpretation is that the vote-a-rama provided an unlimited opportunity to force votes on artfully worded amendments for purposes of attack ads for future election campaigns.

Even the most charitable interpretation of the intent of all those amendment votes must include that they do not predetermine any subsequent votes actually to change the law.  If a real bill comes along, Senators can find ways to prevent its ever coming to a vote.  And there always are details in actual legislation to justify a Senator’s vote that is seemingly contradictory to an earlier vote on an amendment to the budget resolution.  A Senator could point to some other provision of a later bill as requiring a contrary vote.  The later bill might have an unacceptable budgetary offset to the bill’s cost, or it might have no offset at all.  So one should not leap to the conclusion that a vote on an amendment to a budget resolution is a harbinger of future action to the same effect.

It is certainly better to have action on a budget resolution than not.  (And if you have a strong position on a particular issue, it is better to have a favorable vote on a budget resolution amendment than not.)  To say that a budget resolution is a necessary condition for serious action on our budget problem probably goes too far, though one might make a case that a full and fair debate on a resolution would facilitate success.  But it unquestionably would be way off the mark to say that a budget resolution is a sufficient condition for solving our deep-seated problem.

Senate Majority Leader Harry Reid (D-NV) was reported in the press to have expressed skepticism at the prospect for a budget resolution conference.  Whether you agree with Senator Reid on the issues or not, he has a good sense of the politics of the Senate – and he has the authority to make the key decisions.  To paraphrase an old Washington friend of mine, the House and Senate passage of their budget resolutions plus $2.50 will buy you a day-old cheese sandwich – and not a very good one at that.

In an article on the Wall Street Journal, Damian Paletta reports that the federal budget deficit is slowly shrinking as corporate and individual income taxes rise due to the improving economy:

Individual income-tax revenue from October through March, the first half of the government’s 2012 fiscal year, hit $484.1 billion, up from $475.6 billion in the year-earlier period. Corporate income taxes rose to $84.5 billion from $55.1 billion a year earlier. The higher tax revenue helped shrink the six-month deficit to $778.8 billion this year, $50 billion lower than the year before.

However, monthly tax data can fluctuate considerably and the deficit could grow again if the economic recovery loses steam.

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