The President’s offer is left of Bowles-Simpson
Popular storyline: In an attempt to get a Grand Bargain, President Obama proposed a centrist deficit reduction package. Congressional Republicans rejected that package only because it raised taxes, and were unreasonable for doing so. Like his fiscal commission cochairs Bowles & Simpson, the President proposed a responsible and balanced package of tax increases and long-term spending cuts that would solve our Nation’s fiscal problems. Because they are unwilling to consider tax increases, Republicans are therefore to blame for the failure of a Grand Bargain and for future fiscal collapse.
The problem with this storyline is that eight months ago three prominent Senate Republicans supported the Bowles-Simpson recommendations, which contained a net tax increase. The House Republicans on the commission did not support those recommendations, but Senators Coburn, Crapo, and Gregg did. No one would call any of these three men moderates – all are clearly conservative.
The President has stressed his willingness to include long-term entitlement reforms, including raising Medicare’s eligibility age to 67 and, reportedly, a correction to the CPI. Both are good policy changes, and both are elements of Bowles-Simpson. The President argues that Republicans should, in exchange, be willing to agree to the tax increases he proposes – both a significant increase in total tax revenues, and specific policies like higher marginal rates for “the rich.”
But the effects on beneficiaries of the Medicare eligibility increase, and the budget savings that would result from such a policy change, are significantly mitigated by the existence of ObamaCare subsidies for near retirees. This is nowhere nearly as big of a “give” as it would have been before the new health laws. A CPI change would both reduce entitlement spending and raise tax revenues, so the political pain is bipartisan.
More broadly, these changes would only temporarily slow spending growth. While they are politically significant, they fall far short of the size and type of changes that you need to make to solve our entitlement spending growth problem. At best they kick the can down the road several years.
Let’s look at a few of the other provisions that conservatives would support in the Bowles-Simpson package that are not in the President’s proposed Grand Bargain. Parenthetical references are to the Bowles-Simpson recommendations.
Health reforms in Bowles-Simpson that are not in the President’s proposal:
- Reform or Repeal the CLASS Act; (recommendation 3.2)
- Medical malpractice reform; (recommendation 3.3.12)
- Pilot a “premium support through the FEHB program” for Medicare; (similar to Ryan’s reform)
- Establish a long-term global budget for total health care spending. (rec. 3.3.13)
Social Security reforms in Bowles-Simpson that are not in the President’s proposal:
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Tax provisions in Bowles-Simpson that are not in the President’s proposal:
- Cut rates across the board, and reduce the top rate to between 23 and 29 percent; (rec. 2.1.1)
- Example: Three brackets: 12% | 22% | 28%; (figure 7)
- Establish single corporate tax rate between 23 percent and 29 percent; (rec. 2.2.1)
- Move to a competitive territorial tax system. (rec. 2.2.3)
This is far from an exhaustive list. Other items from Bowles-Simpson are a part of the ongoing negotiations between the White House and Congress. Bowles-Simpson also included other provisions that most Republicans wouldn’t like, such as a 15¢ increase in the gas tax.
In 1997, to get a deal with Speaker Gingrich and Leader Lott, President Clinton had to cut spending enough to balance the budget and cut taxes. In 2010, Commission Chairman Bowles had to make fundamental changes to entitlement spending growth and to the structure of these programs to get some Republican support for a package that raised taxes.
Chairman Bowles found that, to get three Senate Republicans to support a net tax increase, he needed to repeal an expensive new health program, tick off the trial lawyers with malpractice reform, establish a pilot program for Ryan-Rivlin style Medicare reform, and place a cap on total health spending. He needed to increase the eligibility age not just for Medicare, but also for Social Security, and he needed to slow Social Security spending growth through changes to the benefit formula. He needed to tick off government worker unions by prospectively repealing their special exemption from Social Security. And he needed to agree to tax reform that would raise total revenues while dramatically lowering top individual and corporate rates.
President Obama has been unwilling to make any of these changes, and yet suggests Republicans are being unreasonable for not agreeing to net tax increases. The President refuses to discuss changes to the trillion dollar new health entitlement he and Congress created last year. He refuses to discuss changes to Social Security beyond a CPI correction. He insists that top tax rates go up. He attacked Paul Ryan for his long-term Medicare reform and refuses to consider it.
At least as important, Bowles & Simpson offered a long-term fiscal solution in exchange for this net tax increase, under which spending would never have exceeded 22% of GDP and deficits would have quickly dropped below 2% of GDP and eventually reached balance. That’s too much spending (and too high taxes) for my taste, but it’s qualitatively different from and far superior to the President’s proposal, which is to trade permanent tax increases for only a temporary slowdown in government spending growth and budget deficits.
Congressional Republicans are being castigated for opposing the President’s proposal. Many of those Republicans will reject any tax increase in any package, but some will consider the offer as a whole, and will weigh the spending control and reform they’re being offered in exchange for higher taxes.
And unlike the Bowles-Simpson package, the deal they’re being offered by the President is such a bad one that it’s not really a tough call.
(photo credit: The White House)
The President’s trillion dollar sacred cow
The President repeats that both parties must abandon their sacred cows in budget negotiations. Republicans, he argues, will have to agree to tax increases as part of a deficit reduction package. Republicans are being characterized as intransigent and extreme for refusing to do so.
What, then, should we conclude about the President’s unwillingness to consider reductions to the trillion dollars of health spending increases enacted in last year’s health laws?
I understand that in the Biden-led negotiations, Leader Cantor suggested cutting this new spending. The VP and Congressional Democrats said no, as did Leader Cantor and Senator Kyl when Democrats proposed tax increases. I also understand the White House refused to consider any cuts to this trillion dollars of new spending. The White House may agree to a few billion dollars of tweaks to some of the marginal programs created in those laws, but the President has ruled out any changes to the core new entitlement spending.
Yes, I understand that CBO scored the Affordable Care Acts as a slight net deficit reduction (setting aside certain gimmicks). That does not, however preclude negotiating revisions which leave the spending cuts and tax increases from that law in place and cut or even repeal the new spending.
Here’s the President today:
THE PRESIDENT: And it is possible for us to construct a package that would be balanced, would share sacrifice, would involve both parties taking on their sacred cows, …
We have agreed to a series of spending cuts that will make the government leaner, meaner, more effective, more efficient, and give taxpayers a greater bang for their buck. That includes defense spending. That includes health spending. It includes some programs that I like very much, and we — be nice to have, but that we can’t afford right now.
Yet the President has been unwilling to negotiate cuts in the massive new increase in health entitlement spending enacted last year.
How, then, is this different from Republicans refusing to negotiate on tax increases?
(photo credit: Markku Åkerfelt)
The 1997 Bipartisan Budget Agreement cut spending and cut taxes
In 1993 President Bill Clinton worked with Speaker Tom Foley (D) and Senate Majority Leader George Mitchell (D) to enact a law that reduced the deficit by cutting entitlement spending and raising taxes. At the time Democrats labeled this a “deficit reduction law,” while Republicans labeled it a “tax increase law.” The law passed Congress with only Democratic votes – all Republicans voted no.
A little more than a year later, Republicans won the 1994 elections and took the majorities in the House and Senate. In 1995 Republicans passed a spending cut bill that would have balanced the budget, and another bill that cut taxes. President Clinton vetoed both.
On May 15, 1997, after months of intense negotiations, President Clinton reached a bipartisan budget agreement with Speaker Newt Gingrich (R), Senate Majority Leader Trent Lott (R), and Senate Minority Leader Tom Daschle (D). House Minority Leader Dick Gephardt (D) did not sign on.
I was Senator Lott’s budget staffer at the time. In addition to aiding him in those negotiations, I assembled the 1997 agreement document. While it was widely circulated then, that was 14 years ago, and I haven’t seen the 24-page document or that agreement discussed anywhere recently.
Here it is: Bipartisan Budget Agreement (May 15, 1997).
Of particular relevance to the current negotiation is the table on page 4, titled “SUMMARY OF DEFICIT REDUCTION IN BUDGET RESOLUTION MARK.” From this table you can see that President Clinton (and Senator Daschle) agreed with Leader Lott and Speaker Gingrich to a deal that cut spending, reduced the deficit enough to balance the budget, and cut taxes.
That’s right. The 1997 Clinton-Gingrich-Lott bipartisan budget agreement cut spending enough to balance the budget and cut taxes.
You can see from this table that over a five year period (1998-2002) the agreement:
- cut defense discretionary spending by $77 billion and cut nondefense discretionary spending by $61 billion;
- “cut” (reduced the growth rate of) Medicare spending by $115 billion;
- “cut” Medicaid spending by $14 billion;
- cut other mandatory spending by $40 billion;
- contained new “Presidential [spending] initiatives” that increased spending by $31 billion; and
- cut taxes by a net $85 billion (and a gross $135 billion, $50 billion of which was offset by other tax increases).
The net result of this agreement was $204 billion of net deficit reduction over five years, and a projected balanced budget in 2002. That $204 billion accounts for the deficit-increasing effects of both the President’s new spending and the Republicans’ net tax cuts. The gross deficit reduction was about $320 billion over five years.
Not mentioned in this document is that the deal also included an agreed-upon downward adjustment, made by the Clinton Administration administratively, to the Consumer Price Index.
At the time:
- President Clinton’s negotiators were his budget director, Leon Panetta, and his White House Chief of Staff, Erskine Bowles.
- Jack Lew was #3 in President Clinton’s OMB and ran OMB legislative affairs.
- Gene Sperling was Deputy Director of President Clinton’s National Economic Council.
- Tim Geithner was a Deputy Assistant Secretary in President Clinton’s Treasury Department.
A “grand bargain” between President Obama and Republican Leaders has now broken down, apparently both because the President wouldn’t agree to deep enough long-term entitlement spending cuts, and because Speaker Boehner and Leader McConnell wouldn’t agree to net tax increases.
For the past week the Obama White House and their allies have been setting up the argument that a Republican refusal to raise net taxes as part of a deficit reduction deal is “extreme.” But if we compare President Obama’s position to both the 1993 Democrat-only reconciliation law and to the 1997 bipartisan budget agreement, we should not be surprised.
President Obama is insisting Republicans sign onto a deal like that which Democrats passed by themselves in 1993, and which Republicans unanimously opposed.
As you try to understand why a grand bargain is not happening in 2011, please consider the successful bipartisan grand bargain of 1997. Republican Leaders are now insisting only that taxes not go up, while President Obama is to the left of where President Clinton was when he successfully negotiated a bipartisan agreement.
Redefining “balance”
In a budget context, balance has a well understood meaning. A balanced budget is one in which total spending equals total revenues.
President Obama and his team have been working hard to redefine balance in the context of the current budget negotiations. In an attempt to gain rhetorical leverage and frame the negotiations, Team Obama is trying to impute two new apparently objective but absurd definitions to the word balance.
First, the President tells us we need a “balanced approach” to deficit reduction that involves “shared sacrifice” and which requires that there be “no sacred cows.” Yet the President also insists that taxes not be raised on anyone who is not rich. His balanced approach to deficit reduction includes deficit-increasing spending hikes for infrastructure, clean energy, scientific research, and education, as well as a deficit-increasing payroll tax cut. His language suggests that pain must be distributed widely, while his policy positions in the negotiations dictate the opposite.
Yes, he is reportedly considering deficit-reducing policy changes that he would rather not, including some as yet unknown changes to entitlement spending. But that by itself doesn’t override the exclusion from shared sacrifice of significant components of government spending and tax collections, nor the deficit-increasing policies he proposes in other areas.
I’m not actually debating his policy preferences here, just pointing out that they are inconsistent with any intellectually honest definition of “balance” that means “broad-based shared sacrifice.” If he included all government spending and all taxable income in the negotiations, that would be balanced by this definition. Instead, he and his team are using balanced to mean “meets the President’s policy preferences” while trying to fool you into thinking they mean something fair and equitable.
Second, Team Obama talks about the need for “balance between spending cuts and tax increases.” But numeric ratios of spending cuts to tax increases are absurd, for three reasons.
- As I explained yesterday, how you measure a spending cut depends on how you define the starting point for that measurement. If you begin by assuming no change in troop presence in Afghanistan and Iraq for the next 10 years, then you can claim credit for a roughly $1 trillion spending cut merely by implementing policies that have already been decided. This allows Team Obama to inflate their “spending cut” numbers in their ratio calculations, just as it allows them to make the entire deficit reduction package look bigger.
- Eliminating a tax deduction is a tax increase. In many cases it can be good tax policy, but it’s still a tax increase and needs to be included on that side of the ledger. Team Obama relabels this as “cutting spending [through the tax code].” Somewhat ironically, in the 2009 stimulus they relabeled in the other direction, calling new refundable tax credits “tax cuts” when they’re actually spending increases.
- In their ratio Team Obama counts reduced spending for interest as a spending cut, even when it results from a tax increase. Imagine a deficit reduction package that consists of only one policy change, a $1 trillion tax increase. Lower interest payments that would result would reduce the deficit by an additional $200 billion. The Administration would label this package, which only raises taxes, as a “5:1 ratio of tax increases to spending cuts.” If you buy into the ratio concept at all, then reduced interest payments should be excluded from the ratio or allocated proportionally based on the nature of the policy changes.
When you hear “balance” over the next few weeks, you should instead think of legislative balance. What Team Obama actually means is, “We get something we want, Republicans get something they want.” The President and his team want to raise taxes on “the rich,” while Republicans want entitlement spending cuts, so a package is “balanced” only if both sides get what they want.
Unlike the two previous definitions, this is a perfectly appropriate use of the word. I may dislike the policy consequences of this kind of balance, but it’s not language manipulation.
Over the next few weeks, you should be skeptical of anyone’s attempt to claim an objective measure of a particular deficit reduction package as balanced or unbalanced. You’re almost certainly being spun.
Beware measures of deficit reduction
If a budget deal is reached, officials will undoubtedly boast about how much their deal “reduces the deficit.” They will use numbers like $1 trillion, $2 trillion, or even $4 trillion of deficit reduction. You should be wary of such numbers, which are easily gimmicked.
In theory it seems easy to calculate such a number:
- If there is no deal, over the next 10 years total deficits will be X.
- With a deal, over the same timeframe total deficits will be Y.
- Therefore, the deal will reduce deficits by X-Y.
The trick is that X is not well defined, and so X-Y is suspect.
- Does X assume that troops in Iraq and Afghanistan will be drawn down rapidly as the President has decided, or instead continue at current levels? The deficit difference over ten years is about $1.1 trillion.
- Does X assume the “Bush tax cuts” will expire at the end of 2012? Does it assume that Congress will, once again, change the law so the Alternative Minimum Tax does not suddenly bite millions more taxpayers, as it would under current law? The deficit difference of both policies combined is about $3.8 trillion.
- Does X assume that Medicare payments per service to doctors will suddenly be cut, as they will under current law a few years from now? The deficit difference over ten years is about $250 billion.
CBO says budget deficits under current law will total $7 trillion over the next ten years. But by making certain assumptions about how the realistic future (without a deal) will differ from current law, one can redefine the starting point for measurement, X, to be as high as $12 trillion over that same timeframe. For any given resulting level of deficits Y, the bigger your starting point X is, the bigger your claimed deficit reduction X-Y appears to be.
It’s pretty clear the White House is doing this aggressively at the moment, as they try to make the deficit reduction effects of the policy changes being discussed look large.
Suppose, for instance, that a budget deal would result in $5 trillion of total deficits over the next decade (Y = $5 trillion). If we compare that to current law, then the deal will “reduce future deficits by $2 trillion.” If, however, we compare it to a starting point in which taxes don’t increase, troops aren’t reduced, and Medicare payments to doctors aren’t cut, then that same deal, those same policies, and that same $5 trillion of deficits will “reduce future deficits by $7 trillion.” By changing the baseline, we can make the same deficit reduction package look $5 trillion bigger.
It is far better to evaluate a deal by looking only at Y, the deficits that would result from the deal, rather than at X-Y, the change in those deficits from an arbitrarily defined starting point. In the first example, instead of asking “Is $2 or $7 trillion of deficit reduction the right amount,” we should ask “Is a policy resulting in $5 trillion of deficits over the next decade an acceptable outcome, or do we need to do more?”
Looking only at Y is better for two reasons. It’s harder to gimmick Y than to gimmick X. Also, Y measures the results, which is what we should care about. Washington instead wants to measure itself for changes they propose relative to the status quo, even while they disagree on what the status quo is.
Policymakers will say “Our deal (or proposal) reduces the deficit by
Let’s be a little more precise. We will be looking at deficits over a fairly long time frame (10 years), and we are talking about huge dollar amounts. The best way to evaluate the deficit impact of a budget deal, if one occurs, is to look at the budget deficits that would result over the next decade, measured as a share of the economy. Then evaluate that result with a three-pronged test:
- How do the resulting deficits compare to the historic average of 2% of GDP?
- How do the resulting deficits compare to the level you’d need to hold debt/GDP constant, about 3% of GDP?
- What does the path of those resulting deficits look like over the next decade? Are deficits growing, flat, or shrinking over time?
We should care not just about deficits, but also about levels of taxes and spending. I will write about that soon.
(photo credit: Leslie Duss)
Secretary Geithner’s budget speech, part 2
Yesterday I praised Treasury Secretary Geithner for three elements of the fiscal policy speech he gave at the Harvard Club of New York this past Tuesday.
- Future budget deficits are caused in part by both demographics and rising health costs. (I would strike “in part.”)
- We can’t wait to address our fiscal problems. The markets will at some point force action but we don’t know when. If we wait until they do, the solutions will be much more painful.
- Higher interest payments are a cost of inaction that will squeeze out other policy priorities.
Today I will provide a few areas of disagreement, with more to follow in future posts.
In the first two points below my goal is not to prove Secretary Geithner wrong, but to show a set of reasonable conclusions that differ from his.
All quotes below are from Secretary Geithner’s speech.
4. I think the Administration’s proposed deficit and debt reduction is too little and too slow.
If we put our deficits on a path to get them below 3 percent of GDP by 2015 and hold them there, with reforms that politicians commit to sustain, then the federal debt held by the public will peak in the range of 70 to 80 percent of GDP, and then start to fall.
- A 3%-3.1% deficit is the break-even point for a constant debt/GDP ratio. So with a 3% target, “start to fall” actually means “basically hold steady, and start to fall by only the slightest amount.”
- There is a huge difference between 70 and 80 percent of GDP. The President and the Secretary are leaving themselves a lot of wiggle room ($1.5 trillion if we measure it relative to this year’s GDP).
- The maximum deficit I would prefer would be 2% of GDP (roughly the historic average over the past 50 years), and I’d be happy to support lower. I am uncomfortable with debt/GDP that high and would want to lock in a sharper decline in that ratio. To do that, at a minimum you need smaller deficits. I remember fondly when balance was the goal, and would still support that goal and the spending cuts needed to meet it.
- The biggest problem with this weak deficit goal is “with reforms that politicians commit to sustain.” Unlike in business where you can sign a binding contract, Congress by definition has the ability to change the rules in the future. You need to be more aggressive in your initial fiscal goal precisely because you have to allow for the likelihood that future Congresses will make things worse rather than better. If you only minimally satisfy your fiscal goals, then any future bad event or unwise action immediately puts you in bad territory again. Given Congress’ track record, this is a risk not worth taking.
Of course, it’s easy to say “I’m for more deficit reduction” if you don’t specify how you’d get there. For the time being I will say that I support the Ryan budget, plus I would slow the growth of (“cut”) Medicare spending in the short run as much as is needed to hit my more aggressive deficit target. I would prefer repealing the new health care spending from last year’s two laws. If I couldn’t get that, I would increase cost-sharing in Medicare. If I couldn’t get that, I would cut all Medicare provider payment rates. I would also make explicit changes to slow Social Security spending growth, although those effects would be outside of this budget window.
5. I have a two part goal, one part of which is deficit/debt reduction.
The Secretary (and the President) defines the fiscal goal as follows:
For the United States, this means a deficit below 3 percent of GDP. Achieving this is the essential test of fiscal sustainability.
A deficit/GDP target is one essential test of fiscal sustainability. The other essential test is that government not perpetually expand to consume an ever-greater portion of society’s resources. If we have budget deficits of 3% but spending and taxes grow to 25%, then 30%, then 35% of GDP, then individuals, families, and businesses will have ever fewer resources to address their own needs and to solve problems they face.
I would instead say, “The essential test of fiscal sustainability has two parts. Budget deficits should be no more than 2% of GDP, and preferably less. Government spending should stay stable as a share of GDP, so that the benefits of an expanding economy are controlled by private citizens rather than by the government.”
To read more of this argument, please see my earlier post: Deficits are an important but incomplete metric.
6. I don’t think the President’s new budget proposal is credible.
Secretary Geithner puts the best face on a proposal that I think in most respects lacks credibility because it lacks detail. I also disagree with several of the President’s proposals where he has provided detail, but my complaint here is claiming you have a proposal when you don’t. Rather than rehash this argument, please see my earlier (long) post: Understanding the President’s new budget proposal.
Note for instance how Secretary Geithner finesses a trillion dollar deficit gap between the President’s outline and the Ryan plan:
The fiscal plans that are on the table include roughly $4 trillion in deficit reduction over the next 10 to 12 years so there is broad agreement on the ultimate goal and timeline.
As I explained earlier, there is about a trillion dollar deficit difference between using 10 years and using 12 years. There is not broad agreement on either the ultimate goal or the timeline. The Administration (implicitly) confirmed this, and it invalidates this claim by Secretary Geithner.
I will respond to more points from the Secretary’s speech in future posts.
(photo credit: Wikipedia)
Secretary Geithner’s budget speech, part 1
There have been three important recent fiscal policy speeches:
- Speaker Boehner’s May 9th speech to the New York Economic Club;
- House Budget Committee Chairman Paul Ryan’s May 16th speech to the Chicago Economic Club; and
- Treasury Secretary Geithner’s May 17th speech to the Harvard Club of New York.
Washington relies too much on off-the-cuff comments and tweets to drive policy debates. Serious policy addresses like these three provide depth that is essential to the national dialogue. I also wish we had more frequent serious policy speeches on the House and Senate floors.
Today I will begin to respond to the Geithner speech, which is the most effective presentation of the Administration’s fiscal policy argument I have seen. It’s a long speech with a lot that deserves analysis and response. Since the partisan policy battle is already fairly heated, and since I haven’t written in a while, I’ll start today with a reach-across-the-aisle post. Here are three important points where I agree with the Secretary. Disagreements will follow in future posts.
All quotes below are from Secretary Geithner’s speech.
1. The causes of future budget deficits
And we face unsustainable future fiscal deficits caused, in part, by the dramatic rise in the number of Americans who will turn 65 in the next decade, combined with the fact that we now live longer and will spend more on health care.
This is a fantastic statement. I’d fix it only by striking “in part.” Secretary Geithner is reflecting the conclusions of the Social Security and Medicare Trustees, issued last Friday, and he is saying something different from the Washington Consensus, which focuses only on health care cost growth. In fact demographics is a bigger deficit driver over the next 10-20 years than health care. Kudos to the Secretary for emphasizing both. He also correctly identifies the two subcomponents of an aging population: more Baby Boomers becoming retirees and longer lifespans. The first of these is big but temporary (one generation), the second is gradual and permanent.
2. We can’t wait.
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blockquote>We do not have the option of leaving this problem to another day, another Congress, another President. …
Bravo in all respects. Secretary Geithner is right that the ultimate forcing action will be when investors lose confidence in American fiscal policy and take their funds elsewhere. He is right that, if this happens, it can happen suddenly and without warning. He is right that this would be extremely painful and costly to stop. And he is right that it is unpredictable. We may not know the market-imposed deadline until it has already passed.
This last point is an important intellectual gap between Washington and Wall Street. Washington needs strict and clear deadlines to force action. In this case, the market-imposed deadline is impossible to predict. And because severe market discipline (a flight from Treasuries and the $) could happen sharply and without warning, policymakers are in a bad spot. They lack the clear deadline they need to force decisions, and are instead wrestling at the edge of a crumbling cliff.
3. Higher interest payments are a cost of inaction that will squeeze out other policy priorities.
Every dollar in interest payments means a dollar in higher future taxes or a dollar we can’t spend on more productive investments like education, our national security, or programs for the poor, the elderly or those with disabilities.
Secretary Geithner is absolutely right. To the extent these higher interest rates result from elected officials making difficult but unavoidable choices, we will see real policy costs resulting from political inaction.
There is a lot within Secretary Geithner’s speech with which I disagree, but I wanted to start on a constructive note. These are three important policy points where I think the Secretary deserves credit.
The budget battlegrounds of 2011
There are 7-8 budget battlegrounds this year. The press focuses on only one at a time. You should understand all of them as this year’s components of a multi-year struggle.
1. FY11 appropriations – Just concluded. This one happened this year because last year Congress didn’t get their work done.
2. Early-ish 2011 debt limit extension – This struggle begins now. Like FY11 appropriations, the debt limit extension is a must pass bill. Unlike appropriations, the back-end date is somewhat flexible.
3. FY12 budget resolution – This is a Congressional-only document that does not involve the President. The recently House-passed Ryan budget was the House version. Senate Budget Committee Chairman has done nothing (visible) so far on this. In theory the House-passed and Senate-passed versions should have been conferenced and the conference report passed in both Houses by April 15th. This deadline often slips, but the Senate majority appears completely AWOL this year. Maybe Chairman Conrad is waiting to see what happens in the Gang of Six?
4. The Gang of Six – Democratic Senators Durbin, Conrad, and Warner have been negotiating with Republican Senators Coburn, Chambliss, and Crapo for a few months. Expectations are high that they might construct a Grand Bargain, maybe along the lines of the Simpson-Bowles recommendations.
Part 1 is whether they agree and if so, on what. Part 2 is what happens if they do.
If they do, it matters a lot how the leaders react. Does Budget Committee Chairman Conrad mark up a Senate budget resolution based on it? If so, it could be the first bipartisan budget resolution in many, many years. If not, then how does a bipartisan core grow? Do other Senators start signing on? Does a House counterpart appear? Does the President endorse it? Or does everyone just retreat to their corners, attack the parts they don’t like, and watch/help it implode?
5. FY12 appropriations – If the House and Senate agree on a budget resolution conference report (highly unlikely), or even if they agree only on an appropriations total for FY12, then the FY12 appropriations battle could split into 12 smaller appropriations bills. Some of these 12 could be resolved amicably or with little conflict, while others (like Labor-HHS) would undoubtedly be large struggles. This is the way the process is supposed to work.
If instead the House and Senate cannot agree on a topline appropriations number, then FY12 appropriations will be a mess, and will likely lead to another omnibus/CR struggle beginning in the second half of September. Midnight September 30 is the initial hard deadline.
6. The Biden negotiations – These are getting lots of press attention and yet are probably the forum least likely to lead to legislation.
7. AMT tax extension – Sometime before April 15, 2012, Congress will need to pass a bill that once again “patches” the Alternative Minimum Tax for yet another year. All concerned would prefer to get this done before the end of the year. This bill could become a battleground, but it’s not inherently likely by itself to create a conflict.
8. Another debt limit extension (possible) – Watch how much the spring 2011 debt limit extension law increases the debt limit. From that we can figure out roughly when the next debt limit battle will occur. Congressional Republicans might want to tee up another battleground, maybe even before 2011 ends.
Hey, let’s put this in a handy table!
| Timeframe | Must pass? | Major players | Comments | |
| FY11 approps | just concluded | yes | POTUS, Boehner, Reid | Should have been done last year |
| Debt limit #1 | May-July | yes | POTUS, Boehner | no hard drop-dead date |
| FY12 budget resolution | March-May | should pass | Ryan, Conrad | Conrad/Senate AWOL so far. Will they act? |
| Gang of Six | May? | no | Durbin, Warner, Conrad Coburn, Chambliss, Crapo |
Uncertain effect even if they agree |
| FY12 approps | now-Fall | yes, by October 1 | Hal Rogers (House R) Dan Inouye (Senate D) |
Will House and Senate agree on a topline total? |
| Biden negotiations | May—? | no | VP, Cantor, Kyl | Don’t bet on it |
| AMT extension | Nov-Dec | eventually | Camp, Baucus | Might not be a battleground. |
| Debt limit #2 | late 11 / early 12? |
yes, depending on #1 | POTUS, Boehner | Depends on how #1 goes |
Should Congress raise the debt limit?
National Review Online asked several people if Congress should raise the debt ceiling.
Here’s the article. My answer is the last of the group.
Two for three
I have made some doozy prediction errors on this blog, the most notable of which was incorrectly declaring ObamaCare “dead” after the Scott Brown election in January 2010.
I therefore want to catch up on a few of my recent predictions/analyses and compare them with subsequent events. My recent track record is a bit better.
First is a recent one I sort of got wrong. In early February I analyzed the President’s trade message and the signals he was sending about the Panama and Colombia Free Trade Agreements (FTAs). While I didn’t make a concrete prediction, the point of my post was to be skeptical that the President would ever move these two FTAs forward. It appeared that he was setting himself up to do the Korea FTA only, and to allow the Colombia and Panama FTAs to languish indefinitely.
Since then the President has begun to move forward on all three FTAs. This is great news, and I’m happy that my skeptical lean from early February was incorrect. Kudos to the President for moving all three FTAs.
Second is my March 4th prediction for the final spending level in the FY11 appropriations battle. The day after negotiations began I wrote:
I predict a final enacted non-emergency discretionary spending level of $1,052 B.
The final enacted level was $1,050 B. I missed the mark by only $2 B.
Third is my simple analysis from three days ago, when I wrote of the President’s new budget outline:
In this scenario, $4 trillion of deficit reduction over 12 years translates into about $2.8 trillion over 10 years.
As with the FY11 appropriations prediction, I calculated this number from a simple back-of-the-envelope calculation.
Today Lori Montgomery reports:
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blockquote>“Under the Administration’s estimates, the president’s framework saves $2.9 trillion over 10 years and $4 trillion over 12 years,”
So my $2.8 trillion estimate was off by only $100 B (or less, depending on the second decimal place) over 10, and my conclusion that the President’s new budget outline contained “$3 trillion or less of deficit reduction over 10 years” was correct.
Having patted myself on the back, I’ll remind you of my most recent guess, which will take some time to evaluate. On Tuesday I wrote:
There is a high probability of incremental spending cuts being enacted this year and next as part of debt limit legislative struggles. I’ll make a wild guess of $100B – $300B over 10 year range.
There is a moderate chance (1 in 3) of an incremental, slightly bigger (maybe $300B – $500B over 10 years) deficit reduction deal before the 2012 election. The President would trumpet such a deal as a good first step, but it appears this would fall far short of what S&P says is needed.
Given the President’s apparent budget strategy, there is at the moment a vanishingly small chance of a big medium-term or long-term deal like that described by S&P as necessary to avoid a possible downgrade, ($3-4 trillion over 10 years, with even bigger long-term changes to Social Security, Medicare, and Medicaid).
If you think these latest predictions are wildly off, please let me know how and why, either in the comments or by email.
(photo credit: Jeff Seeger)