This Is A Custom Widget

This Sliding Bar can be switched on or off in theme options, and can take any widget you throw at it or even fill it with your custom HTML Code. Its perfect for grabbing the attention of your viewers. Choose between 1, 2, 3 or 4 columns, set the background color, widget divider color, activate transparency, a top border or fully disable it on desktop and mobile.

This Is A Custom Widget

This Sliding Bar can be switched on or off in theme options, and can take any widget you throw at it or even fill it with your custom HTML Code. Its perfect for grabbing the attention of your viewers. Choose between 1, 2, 3 or 4 columns, set the background color, widget divider color, activate transparency, a top border or fully disable it on desktop and mobile.
Blog 2016-11-07T16:13:20+00:00

Baseline games

Suppose I bought an iPhone yesterday for $500.

Suppose I argue that I will save $2000 this week, because I intend to refraining from buying an additional iPhone today, nor will I buy one this Wednesday, Thursday, or Friday.

Suppose I plan to buy a new flat screen TV tomorrow for $1500.

Can I claim I that have paid for my TV by cutting other spending, and that in addition I will be saving $500 this week?

This is what the Administration has done with war costs in their budget.

There is no debate about how much I will spend this week: $500 for the iPhone, plus $1500 for the TV, equals $2000 of total spending.

The question is instead whether I have increased or decreased my spending compared to what it otherwise would have been.

In this example, I argued that I will cut my total projected spending by $500, and I am also paying for the TV by cutting spending.

You argue that it is absurd to assume that I would buy an iPhone each day this week. The right baseline, you argue, is to treat the iPhone purchase as a one-time expenditure, and tp use a spending baseline of zero for the remainder of this week. Thus the $1500 TV purchase is a spending increase, not a spending cut.

The argument about whether the President’s budget increases or cuts the deficit is therefore a debate about the baseline – what would happen otherwise?

Rep. Paul Ryan (R-WI) did a good analysis of the war spending assumption in the President’s budget. He and his staff conclude that the President’s budget includes $1.5 trillion of phony savings (over 10 years) by inflating the war spending baseline the way I did with my mythical cancelled iPhone purchases. The President’s budget makes a similar $330 B assumption for Medicare payments to doctors.

Even more intriguing, the President’s budget (table S-5 in this document) argues that the $9 trillion of incremental baseline debt they argue they “inherited” should include $835 B of additional debt resulting from two laws President Obama signed: the stimulus law, and the omnibus appropriations law. Clearly that $835 B of additional debt was not inherited, and should be netted out against their claimed future deficit reduction.

Here is the math behind the Administration’s claim of fiscal responsibility, and CBO’s countervailing analysis. All figures are for the next ten years (2010-2019):

Administration CBO
Additional debt under the baseline $9.0 trillion $4.5 trillion
Additional debt under the President’s budget $7.0 trillion $9.3 trillion
Effect of the President’s budget on additional debt -$2.0 trillion of debt +$4.8 trillion of debt

Let us walk through this step by step.

  • The Administration has a radically different starting point than CBO. The President’s budget starts by assuming that $9.0 trillion of debt will be accumulated over the next ten years if the President’s budget is not enacted. The Congressional Budget Office assumes that $4.5 trillion of debt will be accumulated over the next ten years in the same scenario.
  • The Administration assumes that its policies will result in $7 trillion of additional debt added over the next decade. That is $2.3 trillion less than CBO assumes. We saw why yesterday – the President’s budget assumes that the economy will grow faster than CBO assumes. This faster economic growth assumption would result in faster revenue growth for the government, and therefore smaller (but still huge) budget deficits.
  • These two differences in assumptions result in two completely different views of the President’s budget. The President and his advisors argue they are being responsible by reducing the deficit by $2 trillion over the next decade, while someone relying on CBO’s numbers would say the President’s budget is horribly irresponsible and that it increases the debt by $4.8 trillion more than it would otherwise be.

This debate about whether the sign is a + or a – is politically significant. The -$2 trillion figure is the cornerstone of the Administration’s claim to fiscal responsibility. It allows them to justify big spending increases like the $600+ B new health entitlement.

At the same time, we should not let this important debate obscure that, even using the Administration’s more optimistic numbers, the President’s budget would mean that debt held by the public will increase by $7 trillion over the next decade, to a share of the economy not seen since the end of World War II.

Even if you believe the Administration’s deficit reduction claim (I do not), it is nowhere nearly enough deficit reduction. We need either to dramatically slow spending growth, or raise taxes, or some combination of the two. I support doing it all on the spending side while keeping taxes from increasing. Your view may differ. But we cannot accumulate $7 to $9.3 trillion more debt over the next decade and claim that we are being fiscally responsible.

Tuesday, 21 April 2009|

The danger of autopilot entitlement spending

Each year Congress enacts 12 annual appropriations (spending) bills. Those bills are the subject of vigorous and legitimate fights about spending priorities.

Included in these annual appropriations bills are spending for defense, veterans, military construction, highways, housing, education (except student loans), foreign aid and the foreign service, the FBI, CIA, and Department of Justice, most of the Departments of Commerce and Labor, Congress and the White House, the Department of Homeland Security, including Border Patrol and Customs, highways, airports, and ports, health and energy research, scientific grants to universities, the Interior Department and Environmental Protection Agency budgets, national parks, … you get the idea.

Much of what we think of as the federal government gets its funding annually through these 12 bills. As a result, these debates and tradeoffs occur each year. This is called “discretionary” spending, which goes through the “annual appropriations process.”

In contrast, several “mandatory spending programs,” aka “entitlements” are on autopilot. Spending occurs based on formulas written in law. Those formulas contain variables that change according to external factors (wages, inflation, food costs, health care costs). Most importantly, these programs are on autopilot. Spending continues from one year to the next according to these formulas unless the laws are changed.

If Congress does not enact an annual appropriations bill this year for the Department of Justice, then DOJ will have to shut down on October 1st.

If Congress does not enact a law this year affecting Social Security, Medicare, or Medicaid, those programs will continue spending money based on the automatic formulas within them.

There are many smaller entitlements other than the big three (Social Security, Medicare, and Medicaid), but in an aggregate budget sense, it’s the big three that matter most. Payments to federal retirees and the refundable elements of tax credits are the next biggest.

From an aggregate budgetary perspective, these big three programs are (i) huge, and (ii) growing faster than the economy. As a result, they are swallowing up the rest of the budget, and they are the principal source of future spending growth.

These automatic spending increases that are “built into the baseline” are not carefully reexamined each year, and are not forced to compete with other priorities. The national parks, scientific research, and defense budgets are at a tremendous disadvantage – each year they have to compete for the marginal spending increase dollar, while the Big 3 entitlements quietly grow without anyone really noticing too much.

Let’s look at some numbers.

If the President’s budget were to be enacted in full, four areas of spending would increase dramatically over the next ten years.

  • The new health entitlement would go increase $100 B per year in 2019 (starting from nothing now).
  • Non-defense discretionary spending would increase $74 B from this year to 2019.
  • A collection of low-income cash support and food stamps programs would increase $61 B from this year to 2019.
  • Federal spending on student loans would increase $29 B from this year to 2019.

Importantly, these are proposed policy changes from the default baseline. Now let’s look at a picture and see where the increased spending would go. This graph shows increases in spending, comparing 2019 under the President’s budget to spending this year. To be clear, this graph shows the level of projected spending in 2019, minus the level projected for this year (2009). The amounts on this graph are increases above where we are now, measured in billions of dollars.

spending increases

The green bars show the President’s big spending increase proposals. You can see the big new health entitlement, the net effect of his new student loans proposal, and the spending-side effect of his “making work pay” credit and his expansion of the earned income and child credits.

You can also see that he would increase spending for non-defense discretionary. The red bar on defense, in contrast, is the amount that he would shrink defense spending. You can see he would make a similar change in the Medicare spending increase.

What about the yellow bars? They dominate the graph. They show the spending that will occur if we follow the baseline. For the top two bars, that’s a concept that we just do what we did last year, and increase everything by inflation. For everything else, that’s the effect of the autopilot effect of mandatory spending programs.

Look at those bottom three bars. While we’re fighting about the new health entitlement (I’m opposed), federal Medicaid spending will grow $171 B without any Congressional Debate. Federal Medicare spending will grow (net of premiums) $367 B with almost no debate. And Social Security spending will be $408 B higher in 2019 than in 2009, if Congress keeps burying their heads in the sand for the next decade.

By all means, let’s debate and even fight about the green and red bars. But if we ignore the spending increases in Social Security, Medicare, and Medicaid that occur without any changes to law, it will all be for naught.

p.s. This trend gets worse in the second decade.

Tuesday, 21 April 2009|

Deficits and debt under the President’s budget

There has been a lot of debate about whether the President’s budget improves or worsens the future deficit picture. This is a debate mostly about baselines – what do you assume would happen otherwise? Rather than engaging in that debate here, I am going to look at the results of what the President has proposed.

What would federal deficits and debt held by the public be if the President’s budget were to become law exactly as proposed?

We will look at it both from the Administration’s point of view, and from that of the Congressional Budget Office, which serves as the referee for Congressional legislation. While the two differ in some respects, the fundamental conclusions are the same.

We will begin with spending. You can see from this graph that CBO and OMB agree precisely on how much the President’s budget would spend over the next ten years.

spending comparison

Now we turn to revenues. The President’s budget assumes faster economic growth than does the CBO. A bigger economy leads to more revenues for government, so OMB assumes more revenues from the same set of policies as CBO.

revenues comparison

Don’t be fooled by the scale of the graph. That’s a $500 billion difference in 2019.

It is this difference in revenue assumptions that leads OMB to have a more optimistic deficit forecast for the President’s budget than CBO. I am going to put the proposed deficits in historic perspective, and switch to % of GDP so we have a fair comparison over a long timeframe.

deficit comparison

The light green line shows historic deficits (above the line). The light blue line shows the post-World War II average deficit of 1.7% of GDP. Red is the CBO’s estimate of deficits under the President’s budget, and yellow is the Administration’s estimate. The gap between the two is because of different assumptions about GDP growth leading to different estimates of future federal revenues.

I find it more interesting and worrisome that both estimates show annual budget deficits for the next decade that far exceed historic averages. The Administration’s estimate hovers around 3.0% of GDP, while CBO’s estimate climbs steadily to 5.7% of GDP by the end of the decade. Neither is anything to brag about.

Now let us look at the effects of the President’s budget on debt held by the public.

debt comparison

Again, red is CBO, and yellow is OMB. Orange is Budget Director Peter Orszag’s new net worth measure of debt held by the public, minus the value of financial assets. While interesting, we should not ignore the yellow and red lines. If you borrow money to buy stock, you still are in debt.

No matter which estimate you choose, the conclusion is inescapable: under the President’s budget, debt held by the public will climb to a level not seen since the aftermath of World War II. And in the early 1950s we were paying down debt. Now we will be increasing our indebtedness, just as the federal government begins to expend massive amounts to pay Social Security, Medicare, and Medicaid benefits for the Baby Boomers.

In case you’re interested, the last year of this graph is 2019. In that year:

  • OMB’s estimate of debt net of financial assets is 60.5% of GDP.
  • OMB’s estimate of debt held by the public is 67.2% of GDP.
  • CBO’s estimate of debt held by the public is 82.4% of GDP.

Here are my conclusions:

  1. CBO and OMB differ on their economic assumptions.
  2. CBO and OMB differ on how they define the baseline (not covered in detail here). This affects the rhetorical debate about whether the President’s budget makes deficits bigger or smaller.
  3. CBO and OMB basically agree on the qualitative picture of the results of the President’s budget on future deficits and debt. They disagree more about the point of comparison than they do about the result.
  4. No matter whose economics or baseline you use, the result is terrible for federal deficits and debt over the next ten years, both of which are way above historic averages and not showing any positive trends.

Thanks to Steve McMillin for his help with this post.

Monday, 20 April 2009|

Site is back up

This site was down for about 16 hours today, beginning late last night, due to a hardware problem at my hosting service. I am hopeful the problem will not return.

If you notice a few things moving around over the next week, I will be playing with some functionality and layout issues. They will be small enough that you may not notice them.

Saturday, 18 April 2009|

TV Monday morning

I am scheduled to be a guest on CNBC’s Squawk Box Monday morning, beginning around 7 AM EDT. Former Vermont Governor and DNC Chairman Howard Dean and I will be discussing health care, taxes, and spending.

Friday, 17 April 2009|

America’s long-run fiscal problem is spending growth, not taxes

Yesterday I wrote about the history of tax increases since World War II, and about the battle over the total level of taxation. Now I want to turn to spending.

I am a low-tax guy. I have worked on tax issues for 12 of my 15 years in Washington, helping elected officials lower taxes and prevent tax increases. You can see a list of the taxes President Bush cut here. I would like to cut taxes far below where they are today, and I will continue to make the case that America is better off with a bigger private sector and a smaller government. America’s long run fiscal debate, however, is instead principally about whether we will allow future spending increases to force taxes to increase dramatically above where they are today.

I believe that America’s greatest economic policy challenge is the projected long run growth of spending on three programs: Social Security, Medicare, and Medicaid.

I would like to show you why I believe this, and how it relates to taxes.


Thursday, 16 April 2009|

The total tax battle

Now that we have reviewed how big a bite the government has taken out of the economy over time, let’s examine the competing tax proposals for the near future.

Revenues are only one element of a budget proposal. For a complete picture of the effect of a budget proposal on the rest of the economy, we should also look at deficits. At the same time, it’s useful to start by understanding how much each budget proposal would take from the economy in total taxes.

We are using the same graph format as before, in which we measure total federal revenues as a share of the economy. Please remember that even a flat line on this graph means the federal government is collecting more taxes in inflation-adjusted dollars each year.

Let’s compare the President’s proposed total federal revenues, with proposals from House Republicans and House Democrats. The House Republican proposal was authored by the ranking Republican on the House Budget Committeee, Rep. Paul Ryan (R-WI). The House Democrat proposal passed the House, and was authored by the House Budget Committee Chairman, Rep. John Spratt (D-SC).

Obama v Ryan v Spratt revenues short-term

From this graph you can see:

  • Over the next few years, all three proposals show a steep dip in revenues, followed by a steep increase. This has nothing to do with policy and is entirely about the predicted recession and recovery.
  • The President’s budget would have the government take 0.9 percentage points more of the economy than the Ryan proposal. That’s an extra 90 cents out of each $100 of income. This is a fairly steady gap over time.
  • The budget passed by House Democrats has higher taxes than even the President’s budget. The House Democrat budget is only a 5-year proposal, so the long run gap could be bigger, but the House is collecting at least another 0.5 percentage points more than the President’s budget. The budget passed by House Democrats means that government will take an additional 50 cents out of each $100 of income above what the President proposed. Compared to the House Republican alternative, the House-passed budget would take an additional $1.40 out of each $100 of income for the federal government. That’s a lot.

Now let’s compare these proposals to the historic average. I’m a low-tax guy, so I would like to use the post-WWII average of 17.9%. In most discussions, however, the range ends up being between the 50-year average of 18.1%, and the 30-year average of 18.4%. I will include those bounds on this graph, even though my preferred comparison path is a bit lower than the lowest line.

Obama v Ryan v Spratt revenues short-term with trends

By adding these historic averages, we can see that the House Republican proposal would bring revenues down to a bit below the 50-year historic average. Even under this proposal, the federal government would be getting more inflation-adjusted dollars each year, because a constant percentage still grows in real dollars as the economy grows.

The Obama tax proposal is above the top end of the historic range, and the Democrat House-passed budget is above even that.

Wednesday, 15 April 2009|

A short history of higher taxes

There is always a lot of rhetoric on Tax Day. Later I will comment on some of today’s rhetoric. In this post I will instead focus on some basic facts that are not earth-shattering, but provide some important historic context for the current tax and spending debate.

Let’s start by looking at just the total amount of taxes collected by the Federal government over time, adjusting for inflation.

total federal taxes (real)

You can see taxes growing fairly steadily over time. The various bumps are a combination of changes in law and economic cycles. Still, even given those factors, the total amount of inflation-adjusted dollars going to the federal government has clearly climbed over time. In real terms, government’s take has gotten bigger.

Some argue that we should instead measure total federal taxes as a share of the economy. This presumes that as the economy gets bigger, government “should” get bigger proportionately. I disagree with that view. Some things that government does clearly are related to the size of our population, or are related to other measures of society’s income or wealth. I do not buy that principle as a general matter. Still, let’s look at that perspective.

total federal taxes share of gdp

You can see that the federal government’s take from the economy has remained roughly constant since the end of World War II. The flat line is at 18.1%, and shows that, on average over the past 50 years, Uncle Sam takes about 18.1% out of every dollar earned in America. This graph makes the policy changes and economic fluctuations easier to see. For instance, you can see the effects of the 1993 reconciliation bill (which raised taxes), plus the economic growth of the 90s, ending in the stock market “bubble” (I use that term loosely) in 1999 and 2000 with phenomenally high capital gains revenues, followed by the stock market decline and recession in 2001 and 2002, combined with the effects of the 2001 tax cuts.

There’s actually a slight upward trend to this line. If you look at share of GDP since the end of World War II, the average is 17.9%. If you look over the past 50 years, it’s the 18.1% I have displayed on the graph. Over the past 40 years, it’s 18.3%, and over the past 30 years it’s 18.4%. So there is a creeping upward (measured as a share of the economy), but it’s pretty slow: one or two tenths of a percent of GDP over time. Remember that a flat line on this graph would still represent more real dollars each year going to the federal government.

Still, the overwhelming impression this graph should give you is that of a basic constancy since World War II.

Now let’s add State & local taxes to this graph.

federal state and local taxes (share of GDP)

You can see that while Federal taxes have remained roughly constant (with fluctuations), State & local taxes have grown fairly steadily over time, measured as a share of GDP.

Now let’s add the two lines together to see government’s total take from taxpayers. Check out the orange line up top.

federal plus state and local taxes

It’s a little hard to see the long-term trends on the orange and red lines, but the greatest graphing program ever, Swiff Chart, allows me to add trend lines that make it easier to see.

total taxes with trend lines

From this graph, you can see our conclusions:

  1. Federal taxes have remained roughly constant as a share of the economy since the end of World War II, at just over 18% of GDP (I use 18.1%, others use 18.3%).
  2. Even if federal taxes remain constant as a share of GDP, total taxes collected by the federal government are going up in real terms.
  3. In contrast to federal taxes, State and local taxes have grown fairly steadily since 1950.
  4. So the trend line of government’s take of the U.S. economy is steadily upward since the end of World War II, from around 21% of GDP in 1950 to about 28% now. Seven cents more of each dollar earned are going to government now than in 1950.

Please remember that just-over-18 percent of GDP number from #1. You’re going to need it later.

Wednesday, 15 April 2009|

New York Times to Senator Reid on health care: Speak loudly and carry a little twig

Critical policy fights sometimes happen long before a bill comes up for a vote. Legislative process and strategy intersect early to determine the balance of power for a future vote on policy. Health care legislation is several months away from a floor vote, but the tactical maneuvering has already begun.

Fair warning: we’re going to work through some fairly thick procedural weeds. This is the most in-depth post I have written so far. If you really want to understand the tactical chess of legislating and its enormous effects on policy, you need to know this level of detail. With that caution … <deep breath>

The House and Senate each have passed their versions of the Congressional budget resolution, which sets the procedural rules for spending and tax legislation throughout the year. For these rules to take effect, designees from each body must now work out their differences and produce a common text (a “conference report”) that then passes both the House and Senate. The Congressional budget resolution is an internal management tool of the Congress, and never goes to the President for a signature or veto.

The New York Times argues (“The First Showdown on Health Care“) that Senate Majority Leader Harry Reid (D-NV) and Senate Budget Committee Chairman Kent Conrad (D-ND) should put into the budget resolution conference report a Senate reconciliation instruction, to give Leader Reid leverage over moderate Senate Republicans in future negotiations on health care legislation.

If Senators Reid and Conrad do what the Times recommends, then Senate Democrats can in theory, pass a special type of bill, called a reconciliation bill, with only a majority of the Senate. Since the Minnesota Senate seat is still vacant, this means Leader Reid would need 50 of 99 Senators to vote for a health care bill if he uses the reconciliation process. If the budget resolution conference report does not create the process for a reconciliation bill, then he would need 60 votes to overcome any Republican filibuster. There are now 58 Senators who “caucus” as Democrats, including two labeled as Independents, Sen. Lieberman (CT) and Sen. Sanders (VT).

I assume that if he only needs 50 votes to pass a health care bill, Leader Reid will try to start the policy near the left edge of his caucus and then negotiate toward the center as needed to get to 50 votes. The bulk of his caucus is liberal, especially on health care. He will have an eight vote margin to play with, if he limits his universe to just the 58 Democrats and Independents. That gives him a lot of room to maneuver.

If instead he needs 60 votes, he will have to win the support of the most conservative of the 58, and at least two Senate Republicans. Obvious targets would include Senators Snowe and Collins from Maine, or maybe Senator Specter from Pennsylvania.

Thus, I would expect a bill passed under reconciliation to be much farther Left than a bill passed outside of reconciliation. But as we will see in a moment, reconciliation is a limited tool, and cannot be used for every kind of legislative change he might want.

The Times argues that Senator Reid should make sure he has a stick to use against moderate Senate Republicans, in case carrots don’t work. Having this fast-track process in which he would not need their votes would appear to give him and his designees (Sen. Baucus? Sen. Rockefeller? Sen. Kennedy?) leverage in negotiations with those moderates. Note the Times‘ use of the word “weapon”:

Reconciliation is not a weapon that should be deployed immediately. The conferees should agree on language that would allow it to kick in by a date in the fall if the two parties cannot agree on a reform bill. A bipartisan agreement would be nice, but what the country needs right now is effective health care reform.

The Times is imagining a scenario in which Leader Reid would say to moderate Senate Republicans, “I would like to have your votes, and I’m willing to compromise somewhat to get them, but not too much. If you’re not willing to be reasonable, then I will use this reconciliation weapon and pass a more liberal bill without you.”

What does the Times want in this health care reform legislation?

That would make it easier to adopt such important measures as a tightly regulated insurance exchange for those without group coverage, a new public plan to compete with private plans, and mandates that employers contribute to the cost of covering their employees.

The Times wants Leader Reid to wield a stick as he negotiates with moderate Republicans. But if the stick is only a twig, then it will not provide leverage to Leader Reid or his negotiators, and the moderate Senate Republicans are smart enough to know this. The reconciliation threat is effective only if it is a viable path to producing the kind of health care reform that Leader Reid or the Times wants.

The Times hints at why the stick may only be a twig:

The reconciliation approach is not bulletproof. It is primarily designed to deal with spending and revenue issues that affect the deficit. Under current rules, senators can seek to remove any provisions deemed extraneous or “merely incidental” to such budgetary concerns. Nobody is quite sure how the Senate parliamentarian would rule on such items as tighter regulation of private insurers or creation of a new public plan or incentives to improve the coordination of care.

Let’s examine in a bit more detail how the reconciliation rules make this an imperfect weapon for Leader Reid. The Senate reconciliation process is a fast-track procedure that limits the rights of Senators to amend, filibuster, or otherwise delay a bill that they strongly oppose. It is an incredibly powerful legislative tool, created in 1974 as part of a law that comprehensively changed Congressional budget procedures. The law that creates the reconciliation process strictly limits its use to matters that have to do with spending and taxes. (The process exists in the House as well, but I’m going to focus on the Senate where it has a greater effect and is more relevant to the current tactical issue.)

To oversimplify, you can use a reconciliation bill only to change taxes or spending. The process was created to facilitate deficit reduction — various Senate committees would each be given a deficit reduction target, and would be “instructed” by the budget resolution to produce bills that reduced the deficit by those amounts. The Senate Budget Committee would then package all those deficit reduction bills into a single bill, and report it to the Senate floor for debate, amendments, and voting, all under a fast-track process that limits the minority’s ability to filibuster or kill the bill by amendment.

Laws that reduce the deficit either cut spending or raise taxes. Both are politically painful votes for Senators. By combining several smaller deficit reduction bills into a single bill, the reconciliation process was used to create a single bill that reduced the budget deficit by a lot. This gave Senators the excuse to say, “While I oppose the spending cut in section XXX of this bill that would hurt people in my State, the overall benefits of shared sacrifice and deficit reduction make it worth it. I wish

[not really] that I had unlimited opportunity to amend or even delay this bill, so that I could remove section XXX, but I do not, so I will vote for final passage.”

Now any time there is a change of party control in the Senate, advocates for the new majority party argue that reconciliation should be used for everything. If you don’t have the support of 60 Senators to do what you want, then you cry “Let’s put that in reconciliation!” based on a mistaken (or misleading) view that reconciliation can be used to bypass any filibuster or delaying tactic on any type of legislation.

It cannot because of the Byrd Rule, named after Sen. Robert Byrd (D-WV), who included it in the law that originally created the reconciliation process. Basically, the Byrd rule limits reconciliation bills to containing only provisions that turn spending or tax dials. You cannot make broader policy changes that are unrelated to increasing or decreasing spending or taxes, unless you can demonstrate that those policy changes are a “necessary term or condition” of another provision that turns a tax or spending dial. And while this is an exception that lets you include some non-budgetary policies in a reconciliation bill, in practice it is a narrow and limited exception. You cannot in a reconciliation bill make a major non-budgetary policy change if it has a budgetary effect that is “merely incidental” to the scope of the non-budgetary change.

Let us follow the path of the Times’ recommendation, and suppose that the budget resolution conference report were to contain a reconciliation instruction, either to be used to pass health care reform legislation with only 50 votes, or instead to create leverage for Senate Democrats as they negotiate with moderate Senate Republicans (or both).

Now suppose Senate Democrats produced a bill like the Times describes, which created “a tightly regulated insurance exchange for those without group coverage, a new public plan to compete with private plans, and mandates that employers contribute to the cost of covering their employees.”

Creating a new insurance exchange is a policy change that does not affect the federal budget. Sure there would be some expenses for the setup and administration of the exchange (possibly totaling billions of dollars) , but clearly the tax or spending change is incidental to the creation of the new insurance market, which is an enormous policy change by itself. This policy would violate the Byrd rule. If it were included in a final reconciliation bill conference report and there were not 60 Senate votes to waive the Byrd rule, the entire health care reform bill would die. Knowing this, Senator Reid would have no choice but to jettison this policy to avoid jeopardizing the entire bill.

The same is true for an employer mandate. Technically, such a mandate would reduce federal revenues for reasons I won’t get into, but the budgetary effects would again be incidental to the overall policy change proposed. I cannot see how an employer mandate could be included in such a bill and still allow the bill “protected” reconciliation status that would allow Senator Reid to avoid a filibuster.

I think the same is true for the establishment of “a new public plan to compete with private plans,” precisely because it is new. I am less certain of this, and it might depend on how it was written.

The same is true for many other elements of what you would expect in a big health care reform bill. This parliamentary vetting process, which occurs at the very end of a conference negotiation, is called a “Byrd bath.” Budget Committee staff from both sides of the aisle argue their cases to the Senate Parliamentarian. If the Parliamentarian says that a provision violates this rule, then the majority always chooses to remove it rather than risk losing the entire bill. I was the Senate Budget Committee staffer responding for the health portion of the Byrd Bath in the 1995 reconciliation bill, and I helped manage the Byrd Bath process in reconciliation bills in the late 90’s when I worked for Senate Majority Leader Trent Lott.

Returning to the beginning, Senator Reid’s stick is not as big as the Times might like. Yes, he can use reconciliation to expand Medicaid or S-CHIP, or even Medicare, especially if he’s willing to offset those spending increases with spending cuts or tax increases. To the extent he is willing to limit his threat to these areas, reconciliation provides him with leverage.

If, however, he wants health care reform to include the creation of a national health insurance exchange, or employer (or individual) mandates, or other insurance mandates, or a wide range of other health care policy changes that are not principally about taxes or spending, then he won’t be able to use reconciliation to do these things, and he will need moderate Republicans. Those moderate Republicans know that, and should not be fooled if he tries to bluff them.

Speak softly, Mr. Leader. That big stick the New York Times wants you to wield is more like a twig.

Tuesday, 14 April 2009|