The President’s “balanced” misdirection
The White House is marketing the President’s new deficit reduction proposals as “A Balanced Approach.”
THE PRESIDENT: Now, I’m proposing real, serious cuts in spending. When you include the $1 trillion in cuts I’ve already signed into law, these would be among the biggest cuts in spending in our history. But they’ve got to be part of a larger plan that’s balanced –- a plan that asks the most fortunate among us to pay their fair share, just like everybody else.
The President argues that “balance” between spending cuts and tax increases is good. He further argues that he achieves this desired balance by both cutting spending and raising taxes. I think balance between spending cuts and tax increases is a negotiating concept rather than an objective measure of equity. It defines fair as “each of the negotiating parties has to accept things they don’t like.” That’s a relativist concept based on how one defines what one likes or will accept. Further, the President’s definition of “shared sacrifice” exempts the largest entitlement spending program (Social Security), his biggest legislative achievement (the new health entitlement created two years ago), and tax increases for more than 99% of the population. That is an odd definition of “shared.”
Many others, however, accept the concept of balance between spending cuts and tax increases, and are willing to overlook the above problems. For the moment let’s set aside my problems with spending/tax balance and examine whether the President’s new proposals are balanced between spending cuts and tax increases.
Thanks to the help of a budget expert friend, I’m going to strip out the optical gimmicks from the President’s proposal and show you the new fiscal policy changes he is actually proposing. All numbers below are 10-year totals (in billions of $) from OMB’s new document released today. I put spending “cuts” in quotes because they’re really reductions in the rate of spending growth.
| ($B 10 yrs) | |
| Mandatory spending “cuts” | |
| Medicare & Medicaid savings | -320 |
| Other mandatory | -257 |
| Subtotal, mandatory spending “cuts” | -577 |
| Spending increases | |
| Jobs bill spending increases | +193 |
| Medicare “doc fix” (hidden) | +298 |
| Subtotal, spending increases | +491 |
| Net change in spending | -86 |
| Taxes | |
| Jobs bill tax cuts | -254 |
| Tax increases | +1534 |
| Net tax increases | +1280 |
| Summary | |
| Net deficit effect, spending | -86 |
| Net deficit effect, taxes | -1280 |
| Net deficit effect, all policies | –1366 |
This table differs from the Administration’s presentation in the following ways:
- It does not count (again) deficit reduction resulting from discretionary spending cuts enacted six weeks ago in the Budget Control Act.
- It does not count (again) deficit reduction resulting from the drawdown in Iraq and the anticipated drawdown in Afghanistan, policies which were announced many months ago and do not represent new policy changes.
- It includes $298 B of proposed Medicare spending increases for doctors (the so-called “doc fix”) that the Administration conveniently buries in the baseline. They did the same thing with ObamaCare, enacting that spending increase separately so they could claim the base bills reduced the deficit. This spending will occur, we just don’t know in what legislative context it will be enacted.
- It focuses on policy changes, and therefore excludes the interest savings the Administration is using to bump up their totals. This interest savings would occur, but budget presentations traditionally leave that out and focus only on the direct savings from proposed policy changes.
Based on this presentation, I draw the following conclusions about the President’s new proposal:
- The President is not, as he claims “proposing real, serious cuts in spending.” His proposals would result in a tiny net reduction in spending: -$86 B over 10 years. Almost all of the spending cuts for which he wants to claim credit have already been enacted or accounted for. Almost all the new spending cuts he proposes would be used to offset higher spending in his Jobs bill proposal and for more Medicare spending on doctors.
- The President is proposing about $1.5 T in higher taxes over ten years, offset by about $250 B of tax relief, for a net tax increase of almost $1.3 T.
- Almost all of the President’s new proposed deficit reduction comes from tax increases.
Simplifying even further, there is a perverse hidden logic to the President’s proposal. It goes like this: “We cut spending in the spring and summer, so we’re going to propose almost all tax increases this time. That’s balanced.” If you reread the Presidential quote up top, you can see the rhetorical trick revealed:
THE PRESIDENT: … When you include the $1 trillion in cuts I’ve already signed into law, these would be among the biggest cuts in spending in our history. But they’ve got to be part of a larger plan that’s balanced …
You could be forgiven for thinking that the President is claiming that his new proposals are balanced, and that “the larger plan that’s balanced” is what he has proposed this month, consisting of equal-sized spending cuts and tax increases. That is the incorrect conclusion to which you are led, but technically the President is not claiming that. The “larger plan that’s balanced” is one that includes spending cuts enacted over the past six months. The “among the biggest cuts in spending in our history” are not those newly proposed, but those previously enacted.
They are playing a word game to fool you, and if you listen carefully you’ll hear it repeated over the next few weeks. Team Obama knows they’d never win the public debate if they admitted that the President is now proposing massive tax increases to “balance” previously enacted spending cuts, so they’re engaging in a little misdirection.
(photo credit: Steven Depolo)
The President’s construction pitch
In (2012 Swing State) Raleigh, North Carolina today, President Obama reiterated his pitch for the increased construction spending in his new stimulus proposal:
I don’t know about you — I don’t know about you, but I don’t want any of our young people studying in broken-down schools; I want our kids to study in the best schools. (Applause.) I don’t want the newest airports or the fastest railroads being built in China; I want them being built right here in the United States of America. (Applause.) There are construction projects like these all across the country just waiting to get started. There are millions of unemployed construction workers looking for work. My question is, what’s Congress waiting for? There’s work to be done; there are workers ready to do it; let’s pass this jobs bill right away and let’s get it done. (Applause.) Let’s go.
A few questions come to mind.
- If you’re going to spend federal taxpayer dollars on education, is fixing school facilities the highest priority? More important than merit pay for teachers? Is this prioritization the same everywhere, or do different school districts have different needs?
- School has begun. If your goal is construction jobs now, won’t most major school construction work wait until next summer?
- The President supports some educational reforms that upset teachers’ unions, and his Education Secretary Arne Duncan is making “Race to the Top” funds to States contingent on these reforms. Why not do the same here?
- What does China’s infrastructure investment have to do with ours? Our economies are quite different: China is in the Industrial Age, we’re moving into the Information Age. Should we build a bullet train in California because the Chinese are building bullet trains (that derail)? Should we build spiffy new airports because the Chinese are doing so? Or should we instead determine U.S. public infrastructure spending priorities based on the needs of the national and regional economies here in the U.S.? And should we prioritize infrastructure spending relative to other domestic economic policy priorities based on U.S. needs, or based on Chinese priorities?
- How does the President reconcile today’s “waiting to get started” comment with his admission last October to the New York Times that “there’s no such thing as shovel-ready projects?”
- If there are shovel-ready projects “waiting to get started,” why didn’t the Administration already get them started with as-yet unspent funds from the February 2009 stimulus law? The President asks “What’s Congress waiting for?” What’s the President waiting for?
For me the China argument is the weakest. We first heard this case from the President in his January State of the Union address. Derived from a line of argument popularized by Tom Friedman, the claim is that because China’s economy is growing faster than America’s, the U.S. should mimic Chinese economic policies and specifically Chinese government investment spending.
But China is growing from a much lower base than the U.S. China’s economy, economic policy, and infrastructure needs are quite different from ours in the U.S. It’s easy to see why a country that still relies heavily on bicycles for transportation would prioritize infrastructure spending, while a more advanced economy might have other economic policy priorities (like paying down government debt). Even if you think infrastructure spending should be a top American policy priority, then both the type and location of that spending should be determined by American needs, not by elected officials who “want” to compete for who has the shiniest toys. More broadly, it’s simply nuts to think the U.S. should take economic direction from Chinese policies. Kudos to the Chinese for moving toward a market economy, but that doesn’t mean the U.S. should move toward more centralization.
The political reasons for the President to push for additional government construction stimulus spending now are obvious. If he wants his policies to be taken seriously, he needs to make a stronger case for them.
(photo credit: White House photo by Chuck Kennedy)
Four things to watch for in August
Please expect very light posting from me for the remainder of this month.
Here are four things to watch for in August.
1. Speaker Boehner and Leaders Reid, McConnell, and Pelosi must each name their three picks to the Joint Select Committee on deficit reduction by Tuesday, August 16th. Leader Reid announced his today: Senator Patty Murray will co-chair the committee and be joined by Senate Finance Committee Chairman Max Baucus and Senator John Kerry.
2. The President needs a new Chairman of the Council of Economic Advisers to replace now-departed Austan Goolsbee. With Gene Sperling having replaced Larry Summers at the head of the National Economic Council, the President does not have an academic economist as a principal on his economic team until he fills the CEA slot.
3. CBO should release their updated economic and budget baseline projections later this month. I expect this will incorporate not only a new gloomier economic forecast, but also the effects of the Budget Control Act of 2011.
4. The President’s Mid-Session Review (MSR) of the budget should be released this month. The Administration missed the July 15th statutory deadline, but that’s not that unusual. Like the CBO baseline update, the MSR should incorporate the Administration’s new and more pessimistic economic and budget baseline forecasts. We’ll be able to see what the Administration forecasts for GDP growth, unemployment, and budget deficits.
In addition, the President typically puts his new policy proposals into the MSR, which works just like the President’s February budget – it’s a set of incremental proposals to Congress. Will he incorporate specific numbers and/or policies that reflect:
- His Spring speech, which the Administration labeled a budget “plan”?
- Some or all of the President’s position from the Grand Bargain negotiations?
- Any consensus-recommended spending cuts negotiated by the Biden group?
- His new stimulus proposals, including an extension and/or expansion of the payroll tax cut, extended unemployment insurance benefits, and more infrastructure spending?
- Elements of the Bowles-Simpson recommendations that the President now speaks of favorably?
- Other tax increases or spending cuts to shape the work of the Joint Select Committee?
If the Administration releases the MSR on a Friday afternoon, then you know they are trying to bury bad news.
(photo credit: Ben Werdmuller)
The debt limit threat was undesirable, necessary, and effective
The President spoke today in the Roosevelt Room on S&P’s downgrade of the U.S. government’s credit rating from AAA to AA.
THE PRESIDENT: And we didn’t need a rating agency to tell us that the gridlock in Washington over the last several months has not been constructive, to say the least. We knew from the outset that a prolonged debate over the debt ceiling — a debate where the threat of default was used as a bargaining chip — could do enormous damage to our economy and the world’s. That threat, coming after a string of economic disruptions in Europe, Japan and the Middle East, has now roiled the markets and dampened consumer confidence and slowed the pace of recovery.
I have a different view. I don’t think the recent legislative debt did “enormous damage to our economy and the world’s.” I think the debt limit threat was undesirable, necessary, and effective.
Undesirable, yes. Enormous damage, no.
Congressional Republicans’ legislative tactic created temporary liquidity risk that is now gone. That threat was undesirable but unavoidable, given their policy goal and the inaction of other policymakers.
The U.S. economy was weak before the debt limit battle, throughout that battle, and still is weak today. The past few months’ legislative tactics did not cause March’s big drop in consumer confidence. These tactics did not cause U.S. GDP to grow by only 0.4% in the first quarter of this year.
The increased liquidity risk that resulted from those tactics was resolved last Tuesday when the President signed the new law. Problems in Europe, S&P’s downgrade and future solvency risk, and fears of a double-dip recession are better explanations for current market turmoil, not fear of liquidity risk that was eliminated six days ago.
The President is trying to attribute everything bad in the economy and financial markets to a temporary legislative tactic of the opposing party. While this is politically clever, I cannot see how he can back up this claim. Does the President think that 8-12 weeks of fear of a possible bad outcome that came not to pass caused “enormous damage to our economy and the world’s?”
Necessary
The President’s key implicit and false assumption is that deficit reduction would have been enacted without this legislative threat. He argues that, since both sides agree on the need to reduce the deficit, the threat was unnecessary.
Let’s review recent history:
- In January the President’s State of the Union address focused on increasing government “investment.”
- The President offered his second budget speech only after House Republicans passed the Ryan budget. He claimed to match Republicans’ $4T of deficit reduction, but later conceded that he was proposing $2.7 T over the same timeframe. He still has not provided scorable policy specifics.
- The Senate Democratic majority never began the budget process, providing no venue for negotiations with the House Republicans.
- The President began his negotiations with the Speaker only after Republican leaders made clear that a debt limit increase must be accompanied by equal or greater spending cuts.
Had Congressional Republicans not taken a clean debt limit increase hostage, there is no way Washington would have
The legislative threat was necessary to achieve spending cuts and deficit reduction.
Effective
The $2.1 T of deficit reduction just enacted into law results directly from Speaker Boehner’s insistence that a debt limit increase be matched dollar-for-dollar with spending cuts. The Speaker’s principle implemented a less focused but intense refusal by freshman and other conservative House Republicans to support the clean debt limit increase requested by the President. Congressional Republicans increased liquidity risk to make progress on reducing solvency risk.
While conservatives did not achieve their ultimate fiscal goals, the threat was effective both in reframing the policy debate and making progress toward those goals. The tactic worked.
Since the tactic was both necessary and effective, the cost of that tactic must be weighed against the benefits of the result. The President exaggerates the cost and ignores the benefit.
Painful but constructive
I disagree with the President when he says “the gridlock in Washington over the last several months has not been constructive.” That at times raucous battle resulted in a new law that promises to cut government spending and deficits by $2.1 T over the next decade. That battle resulted in a negotiating structure and a fallback sequester to achieve at least another $1.2 T of deficit reduction. That battle resulted in a negotiated list of hundreds of billions of dollars of additional entitlement spending cuts that I presume will form the foundation of that second stage process. That battle resulted in the President sticking his fiscal toe in the water on Medicare spending and CPI. That battle caused the President to start talking positively about the Bowles-Simpson recommendations that he had previously ignored.
These results are big for Washington but small relative to the remaining underlying problem left to be solved. Had everyone gone along quietly and politely with a clean debt limit increase, even this limited progress would be absent.
It would be great if policymakers in Washington could make hard choices without someone acting aggressively to force them to do so. It would have been great if the President had proposed specific and scorable deficit reduction policies, if Senate Budget Committee Chairman Conrad had proposed and marked up a budget in his committee, and if Senate Majority Leader Reid had brought a budget to the Senate floor for debate and votes. It would have been a far better process if deficit reduction had come through structured negotiations between the House and Senate on budget plans passed by each body. There would then have been no need to attach spending cuts to a debt limit.
Alas, the only way to make progress was for those most fiercely committed to spending cuts and deficit reduction to use an aggressive legislative tactic. I’m glad they did.
(photo credit: Cyberslayer)
How to prevent spending cut backsliding
The big risk to the Debt Control Act is that policymakers might believe that the back-end threat will be undone just before it bites.
The Joint Committee has a deficit reduction target: a range of $1.2 T – $1.8 T over 10 years. Because Committee membership is split evenly between the parties, and because Congressional Leaders have a structural incentive to appoint less flexible Members, the Joint Committee’s chance of success is not high to start.
If the Joint Committee fails, an across-the-board sequester will be triggered, automatically cutting spending by $1.2 T, cutting some programs (defense and nondefense discretionary, Medicare, farm programs, some ObamaCare spending) while exempting others (Social Security, veterans’ benefits, Medicaid and welfare programs, civilian and military retirement). The programs on the chopping block could be cut as much as 10% for defense, 8% for nondefense and ObamaCare, and 2% for Medicare.
The fear of these spending cuts creates an incentive for the Joint Committee to reach agreement. If the trigger is going to bite, then the pain is certain and the only question is whether the Committee can find an alternative distribution of that pain which is preferable to the automatically triggered spending cuts.
The problem is that the first triggered spending cuts wouldn’t happen until January 2013, after a Presidential and Congressional election. The risk is that the Joint Committee fails to reach agreement and the election happens. With or without a new political configuration in DC, policymakers in both parties might look at the now-looming spending cuts and agree, “We can’t allow a 10% cut in defense, an 8% cut in education and health research spending, and a 2% cut in Medicare to take effect next month. That’s too sharp and severe of a cut. Let’s renegotiate a new 10-year budget deal and change the law. This new deal will reduce the deficit even more than current law would over the next ten years, but it will phase it in more gradually, so that we cut little to nothing in early 2013. We’ll turn off, reduce, or delay the triggered spending cuts, and in exchange deficit hawks and spending cutters will get even more promised reductions in the future.”
This risk exists independently of the election, but the intervening election exacerbates it. If there is sufficient agreement, a future Congress and the President can unwind any hard choice made by their predecessors.
As we look now at the Joint Committee before it begins, it matters less whether this post-election cop-out will happen, then whether the negotiators on that Committee and other elected policymakers think it will happen. If they think Congress will renegotiate post-election, then the pain threatened by the sequester is diminished. This reduces the expected cost of a Joint Committee failure and makes it even more difficult for them to reach agreement.
Here’s the irony. What we need from the Joint Committee is for the parties to agree on a solution. They may not reach agreement now on a hard choice, because one or both sides anticipate they will instead reach agreement 15-16 months later on a mutually agreed upon cop-out.
You can already see signs of this. Washington insiders are expressing skepticism about the sequester and Congress’ and the President’s willingness to enforce it later. They argue “Don’t worry, we can always renegotiate the X cuts we oppose after the next election.”
This is the right strategy if your top priority is spending taxpayer dollars on X. This behavior undermines the limited progress in cutting spending and reducing deficits that was just achieved.
There is a simple counter-strategy if your goal is to cut spending and/or reduce deficits. Now, while the public is focused more on the need to cut spending and reduce deficits than on the imminent pain of deep cuts in popular programs, citizens can force elected officials to pre-commit not to undo the sequester. A late 2012 cop-out requires a new law, and it’s hard to enact a new law if a large enough group of Members oppose doing so.
If a significant enough block of Members of Congress were to pre-commit now that they will, if necessary, block any legislation that would undo in any way the 2013 discretionary spending cuts that might be triggered, then the trigger gains credibility and the Joint Committee has a greater chance of succeeding. The more credible the threat of triggered cuts, the less likely the trigger will be needed.
The recently enacted spending cuts were a small first step toward a much bigger goal. The challenge is not just enacting the next step, but also making sure Washington doesn’t backslide on the step it just took.
(photo credit: Sean McGrath)
If the Joint Committee fails, some ObamaCare spending will be cut
If you have been following my posts you understand that the Budget Control Act creates a new 12-Member Congressional Joint Select Committee to negotiate and agree to at least $1.2 T in deficit reduction by November 23rd. If the Committee fails or if it makes recommendations but they don’t become law, then plan B is triggered.
Plan B is an automatic sequester that cuts $1.2 T over the nine-year period 2013-2021 from all discretionary and some mandatory spending programs.
Monday I wrote that the bulk of the mandatory spending covered was Medicare. I flagged farm subsidies and unspecified “other smaller entitlements” as also being on the triggered sequester’s chopping block.
Many big entitlements are exempted from this sequester, including Social Security, Medicaid, most welfare programs, refundable tax credits, veterans benefits, and civilian and military retirement benefits. This is because the Budget Control Act did not write its own new set of exemptions from the mandatory sequester. It instead referenced an exemption list in an earlier law.
On Monday I missed the new Affordable Care Act (ObamaCare) mandatory spending. While the biggest spending components of this law would be exempt from the sequester, significant parts of it would be subject to cuts if the Joint Committee fails.
I am fairly confident that the premium subsidies, the Medicaid expansion and other Medicaid-related spending increases, and the SCHIP reauthorization would be exempt from the new sequester, because they expand programs that were explicitly exempted in that earlier referenced law. Those are the biggest dollar components of ObamaCare.
But the Affordable Care Act was enacted after that earlier law, so any new spending programs should be on the sequester’s chopping block if the Joint Committee fails. As best I can tell, this includes:
- Cost-sharing Subsidies (Section 1402): Approximately $111 billion from 2014-2021.
- Risk Adjustment (Section 1342): More than $100 billion from 2014-2021.
- Prevention and Public Health Fund (Section 4002): A total of $16.75 billion from 2013-2021.
- Rate Review Grants (Section 1003): Funds from the initial $250 million that remain available in 2014.
- High-Risk Pool Funding (Section 1101): Funds from the initial $5 billion that remain in 2013 and 2014.
- Health Insurance Cooperatives (Section 1322): $3.8 billion.
- Re-insurance for Early Retirees (Section 1102): $5 billion, but likely that the funds will be obligated before 2013.
- Health Insurance Exchange Administrative Grants (Section 1311): Unspecified amounts in FY2013 and FY 2014.
- Community Health Centers Fund (Section 10503(b)(1)): A total of $7.3 billion for FY2013 through 2015.
- Health Center Construction and Renovation (Section 10503 (c)): Funds remaining from the initial $1.5 billion remain available until FY 2015.
- National Health Service Corps (Section 10503 (b)(2)): A total of $900 million in mandatory funding for 2013, 2014, and 2015.
- Maternal, Infant, and Early Childhood Home Visiting Program (Section 2951): A total of $800 million in mandatory spending in 2013 and 2014.
- Personal Responsibility Education Programs (Section 2953): A total of $150 million for 2013 and 2014.
- School Based Health Centers (Section 4101): $50 million in FY 2013.
- Patient Centered Outcomes Research Trust Fund: A total of $1.05 billion between 2013 and 2019.
I am unsure whether the CLASS Act spending is vulnerable, and I’m not certain on the risk adjustment money listed above, either.
Remember that “vulnerable to sequester” means “will be cut somewhat,” rather than “will be wiped out.” In an earlier example I said that if the Joint Committee failed completely, a $1.2 T spending cut would cut nondefense discretionary and other mandatory programs 8%. So think of this in the roughly 6-8% cut range if the Committee fails.
Consequences
I see seven big consequences of this:
- Elements of ObamaCare spending are now in the mix to be cut. I like this; liberals will hate it.
- This injects ObamaCare spending squarely into the Joint Committee negotiations, and not just the vulnerable parts. I hope Republicans appointed to the Joint Committee will argue for repeal of these big new entitlements. I think Congressional Republicans erred by leaving it out of the last battle.
- It also brings ObamaCare back into the broader fiscal policy and election debate.
- Nondefense appropriations would bear a slightly smaller share of any triggered cut. Democratic appropriators may actually like this news, though I can’t imagine they’d say so publicly.
- This shifts leverage in the Joint Committee negotiations toward Republicans. How much of a shift depends on how substantively and politically valuable these programs are to Congressional Democrats and the White House. Democrats now have one more reason to avoid the triggered sequester, increasing leverage for Republicans in those negotiations and making it a bit easier for them to push back on demands for tax increases.
- While the core spending of ObamaCare would be exempt, the cost-sharing subsidies and risk adjustment payments would (I think) be subject to cuts. Beneficiaries and insurers would be harmed. Those are big policy consequences. I don’t know whether cuts in risk adjustment payments would be big enough to mess with the complex insurance regulatory structure in the Affordable Care Act. Insurers argue that risk adjustment payments are essential to making guaranteed issue and community rating work.
- Senior White House officials had to know that components of ObamaCare would be subject to triggered cuts if the Joint Committee fails. There is no way they could have missed this. I wonder if they told their Democratic allies in Congress about this risk before the vote? Even if you want to argue that these aren’t the biggest spending components of ObamaCare, the effects on leverage within the Joint Committee negotiations could be a huge deal.
Two Joint Committee structures that could succeed
The Budget Control Act creates a Joint Committee whose goal is to recommend legislation that will reduce the deficit by $1.8 T over the next ten years.
Many are predicting that, like many other special fiscal committees and commissions before them, this one will deadlock, resulting in triggered automatic spending cuts in discretionary spending and Medicare.
This reasonable prediction results from the structure of the Committee:
- Speaker Boehner and Leaders Pelosi, Reid, and McConnell each appoint 3 Members (of the House or Senate) for a total of 12 on the Committee;
- you need a majority (7 of 12) to make recommendations.
Each of the four leaders represents a partisan caucus. Each caucus has a political center of gravity that leans toward its wing. If “the other side” can pick off just one of the six appointees of your party, they can run the table. These factors create an incentive for each leader to choose reliable Members who are closer to the wing of the party than the middle, and thereby decrease the chance for a negotiated agreement.
I can think of two other structures for a Joint Committee that could have been written into law and would have a much greater chance of reaching a solution. There may be others.
At this point it’s too late to enact a law implementing a new structure. But since the deficit reduction goal is woefully insufficient compared to the problem to be solved, there will be additional opportunities in the future.
I won’t go so far as to say I am recommending either of these structures, but if possible I would like at least to inject the ideas into the public debate.
A center-out structure
- Speaker Boehner and Leaders Pelosi, Reid, and McConnell each get 4 Members (of the House or Senate) for a total of 16 on the Committee;
- Two of each leader’s selections must be from the other party;
- you need a majority (9 of 16) to make recommendations.
In this structure you might expect Leader McConnell to pick two reliable conservatives along with Senators Lieberman and Ben Nelson. (Lieberman is an independent but caucuses with Democrats.) Leader Reid would likely pick two reliable liberals along with one of the Maine Republican Senators or maybe one of the Republicans in the Gang of Six.
This structure would likely result in three rough groupings: a center of 8, a liberal block of 4, and a conservative block of 4. With nine votes needed for a majority it’s easy to imagine several different winning coalitions. The chance of a majority recommendation would go way up.
This structure would be likely to lead to a roughly centrist or at least politically balanced solution.
A gamble structure
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This structure will make many insiders catch their breath. This is, in effect, an all-or-nothing gamble. It is guaranteed to solve the Committee’s defined problem, since each Committee Member has an incentive to form a coalition and get an option on the table for the next President.
It would also flush people out. You’d have to make a CBO-certified proposal for it to be available to the President. Democrats could no longer do what they have been doing for a while, attacking Republican plans without offering their own solution.
While the center-out structure is likely to produce a centrist bargain/compromise, the gamble structure could result in a very liberal or quite conservative outcome. You could have an all-tax increase recommendation, or one which cuts only liberal spending priorities, as well as more balanced or compromise proposals. In this structure I think the 2012 election would become entirely about the choices presented by the Committee.
Would you be willing to take this gamble? The alternative is likely a continued stalemate.
(photo credit: Rob)
Their strong suit?
Sen. Charles Schumer (D-N.Y.) told reporters minutes after the debt-ceiling deal passed: “It is now time for Congress to get back to our regularly scheduled program, and that means jobs.”
“With this debt-reduction package completed, the decks are now clear for a single-minded focus on jobs in September,” Schumer said. “We now have the chance to pivot away from budget battles to jobs. … The jobs issue won’t have to play second fiddle to the deficit issue anymore.”
Schumer said that for Democrats, job creation is their “strong suit.”
Unemployment rate:
- January 2009: 7.8%
- June 2011: 9.2%
- Change: +1.4 percentage points
(This is people employed rather than jobs. Some people have more than one job.)
- January 2009: 142,201,000
- June 2011: 139,334,000
- Change: -2,867,000 people
Taxes in the Joint Committee, simplified
Charles Blahous was able to simplify two points about how the new Joint Committee will deal with taxes in the Budget Control Act. I thank him for these examples.
Both the following conversations are hypothetical, designed to illustrate concepts. These are not quotes from actual Administration officials.
Question 1: What does a current law baseline mean for hypothetical tax increase proposals in the Joint Committee?
Administration: We want to let current rates expire for those earning more than $250 K.
Joint Committee: Sorry, that doesn’t score as reducing the deficit. Under current law, those rates would expire for everyone. You can include it if you want, but it won’t help you meet your deficit reduction target.
Administration: OK, then, we want to impose a new surtax on sugary breakfast cereals.
Committee: OK, that counts as reducing the deficit.
The Administration is claiming the new Budget Control Act does not “require” the Joint Committee to use a current law baseline, I think because they’re getting blowback from their Left for agreeing to it. After reexamining the legislative language, I agree with House Budget Chairman Paul Ryan that this claim is absurd.
Question 2: Is the Joint Committee required to use a current law tax baseline?
Administration: We want to score a tax proposal in relation to a different baseline. Nothing prevents you from requesting that.
Committee: Well, nothing prevents us from requesting that or anything else from CBO, but the law says our proposals must be scored relative to the current law baseline, and that we must vote on a report that includes that score relative to the current law baseline. So, scoring by other baselines has no value to us.
(photo credit: misocrazy)
Can the Joint Committee get credit for raising tax rates?
Yesterday I explained my understanding of how the Joint Committee would treat tax increases. The President’s NEC Director, Gene Sperling, has a perplexing description that conflicts with mine. I’ll examine that in a separate post. Here I’ll try to respond to a question from Mickey Kaus. I’ll make his example even simpler.
The top individual income tax rate this year is 35%. Under current law it will increase to 39.6% on January 1, 2013.
Yes, the Joint Committee could start their $1.5 T deficit reduction effort by extending the 35% rate for two more years. That would score as a revenue loss (since they’ll use a current law baseline, despite what Mr. Sperling suggests) and therefore a deficit increase relative to current law, let’s say of $150 B.
Since they started by increasing the deficit relative to current law, the Committee would need to find $1.65 T of deficit reduction pain to hit its target, since it starts out $150 B in the hole.
If the Committee produces a $1.65 T deficit reduction package, then dials it back under interest group pressure to $1.5 T, yes, they can get “scored” with $150 B of deficit reduction by “increasing” that top marginal rate back up to 39.6%.
In this example the Committee gaveth to the the rich, and then it taketh away from them. I think the Committee can only get scored with deficit reduction for raising tax rates if:
- it starts its process by “cutting” those rates and makes its deficit reduction job harder, then later undoes that all or part of that decision;
- or it proposes to raise rates before 2013 or above the current law rates for 2013 and later.
The second bullet means Committee would get scored with deficit reduction if they “repeal tax cuts for the rich” effective in 2012, or if they raised the top rate to 45% in 2013, above the current law 2013 and Clinton-era 39.6% rate.
Other than that you’re just going in a circle.
Mr. Kaus also wonders what good is this Joint Committee process is if we can expect other deficit-increasing legislation outside of it, like a separate bill to extend the Bush-Obama tax rates in late 2012. It looks like the President and Senate Democrats may also be preparing a deficit-increasing we-used-to-call-this-a-stimulus bill.
I see the Joint Committee as operating like a traditional reconciliation process rather than as a substitute for a budget resolution. The Committee has been set up to produce incremental deficit reduction, not to lock in an entire budget framework. So Mr. Kaus is right, depending on how you measure deficit reduction, a successful Joint Committee process could see its work “undone” by later legislation to keep tax rates low, patch the AMT or Medicare doctors’ payment rates, or ready more shovels. But those separate legislative efforts will happen with or without the Joint Committee, right? So a deficit hawk should like having such a committee, no?
p.s. I think I explained that the Committee would get scored with deficit reduction for recommending other non-rate tax increases. That’s a slightly different characterization than provided by Mr. Kaus:
as Hennessey admits, the SuperCongress committee would have an incentive to recommend “new” taxes
This is, however, only a quibble. I’m a regular reader and fan of Mr. Kaus, especially when I disagree with him.
Correction: The Committee’s deficit reduction target is $1.8 T, not $1.5 T as I wrote above. The logic still holds and I’m not going to go back and edit what’s above for fear of sowing even greater confusion. This is difficult enough.