Beltway insiders are praising the just announced budget deal between the Democrats and the Republicans. For example, a news analysis in today’s Wall Street Journal, “Accord Is Departure for Capitol”, suggests that budget politics may be changing, getting any deal is very hard, that perhaps bipartisanship isn’t dead in Washington but that there is still unfinished business. This is a purely euphemistic assessment. All this deal really does is to let the big spenders off the hook.
What it does is to relax the sequester by $63 billion for the next two years for very little in return. The $84 billion in new fees over ten years “officially” reduces the deficit by $21 billion but two year’s worth of new fees is just $16.8 billion. This means that the deficit will actually increase by $46 billion over the next two years.
But the real problem is that the leverage represented by the sequester is being thrown away for the next two years and this sets a bad precedent for the future. For example, we can now assume that the debt limit will also be raised for two more years in February 2014 because there will no longer be any leverage for bargaining for any other changes.
This in turn means that entitlement reform is for all practical purposes dead for the next two years. This is the really hard problem to solve. Big spenders will do anything to avoid dealing with it. Responsible fiscal conservatives know it must be addressed and need all the help they can muster to get something done.
What happens if the budget deal is not passed by Congress? It simply means that the sequester remains in effect and that discretionary spending will be $43 billion lower this current budget year than otherwise. The value of the sequester is to force action on the really thorny issue of reducing entitlement spending. Let’s preserve it for this purpose and not throw it away for nothing significant in return.
Leaders are supposed to address issues, not walk away from them!
The New York Times has a story today, “A Dirty Secret Lurks in the Struggle Over a Fiscal ‘Grand Bargain’”, suggesting that there are really two reasons why the House-Senate Budget Conference Committee, chaired by Representative Paul Ryan and Senator Patty Murray, is unlikely to accomplish very much. The simple reason is that the Republicans will not support tax increases, on which the Democrats insist, and the Democrats will not support major changes to entitlement programs, on which the Republicans insist.
But the “dirty secret” (according to the NYT) is that Republicans don’t really want to trim either Social Security or Medicare, which many Tea Partiers receive, and Democrats don’t really want to raise taxes on the upper income individuals who support them. Furthermore, the deficit for 2013 was “only” $680 billion, and is expected to drop further in the next few years, while interest rates are so low that borrowing hundreds of billions of dollars each year is not expensive. In other words, just kick the can down the road. Let somebody else worry about the problem in the future.
My previous post “Nowhere to Cut”, based on the report from the Congressional Budget Office, “Options for Reducing the Deficit: 2014 – 2023”, picks 14 possible budget cuts or revenue enhancements out of a total of 103 such items listed. Just these 14 items alone amount to a savings of $566 billion over ten years, more than enough to offset half of the entire sequester amount.
For example, raising the eligibility age for Medicare to 67 would save $23 billion (over 10 years), using the ‘chained’ CPI to measure inflation for all mandatory programs would save $162 billion, tightening eligibility for food stamps would save $50 billion, taxing carried interest as ordinary income would save $17 billion, limiting highway funding to expected highway revenues would save $65 billion, reducing the size of the federal workforce through attrition would save $43 billion, limiting medical malpractice torts would save $57 billion, and modifying Tricare fees for working-age military retirees would save $71 billion. Just these eight savings total $456 billion and would offset almost half of the entire sequester.
What is so difficult about making a tradeoff deal like this? Isn’t this what we send people to Washington to do?
The mainstream media are uniformly agreed that the Democrats and President Obama “won” the latest debt ceiling and shutdown standoff and that the Republicans “lost”. For example, New York Times, reporter Jeremy Peters gives the GOP a rebuke in “Losing a Lot to Get Little”. “For the Republicans who despise President Obama’s health care law, the last few weeks should have been a singular moment to turn its botched rollout into an argument against it. Instead, in a futile campaign to strip the law of federal money, the party focused harsh scrutiny on its own divisions, hurt its national standing, and undermined its ability to win concessions from Democrats.”
This is all true and, in addition, the twenty or twenty-five Tea Party stalwarts made fools of themselves by being so intransigent. And 145 House Republicans ran away by voting against the final deal.
But look at the broader picture. The federal government has been reopened for just three months, until January 15, 2014, and at current funding levels which include the 2013 sequester spending cuts. On January 1, the more stringent 2014 sequester cuts take effect. In other words the pressure is growing on the big spenders in Congress to deal seriously with our ongoing debt and deficit crises.
The big spenders have two options. They can continue to kick the can down the road (i.e. refuse to bargain and force additional continuing resolutions to keep the government open) as discretionary spending continues to shrink more each year. Or they can agree to make significant adjustments to entitlements to slow down their rate of growth, in return for easing the sequester cuts.
In a more rational world, the big spenders would understand that cutbacks must be made and the two sides would bargain in good faith and reach agreement. But fiscal conservatives continue to have the necessary leverage to force compromise, and are unlikely to give it up.
Conclusion: the Tea Party “lost” and fiscal conservatives broke even. The big spenders didn’t “win” but they got a temporary pass because the Tea Party overreacted and was shot down.
An editorial in yesterday’s Wall Street Journal, “A GOP Shutdown Strategy”, offers good advice to the House Republicans for how to proceed in the shutdown stalemate. “ …the best chance to move Democrats is Louisiana Senator David Vitter’s amendment that would annul the exemption from Obama-Care that the White House carved out for Congressmen and their staff. These professionals will receive special subsidies unavailable to everybody else on the insurance exchanges, and preserving this deeply unpopular privilege would be a brutal vote for Democrats.” The House Republican Caucus should attempt to line up 218 votes to attach this provision to a continuing resolution to fund the government for all or part of the new fiscal year at the current level. If 218 votes to support this approach cannot be found, then the House should pass a clean funding resolution. Nothing else has a chance of succeeding (the idea of trying to defund Obama-Care for even one year is absurd) and the American people will grow increasingly impatient. The bigger issue by far is the need to raise the debt limit by October 17th at the latest. Here the Republicans have major leverage, namely the sequester, which takes a bigger bite out of discretionary spending each year for nine more years. The Republican House can give the Democratic Senate a choice: either agree to a sensible long range plan for spending restraint (including entitlements), or else we’ll agree to raise the debt limit for six months or so, into early 2014, and then revisit the debt limit issue after the 2014 tighter sequester limits take effect. This is what I suggest. Now we’ll wait and see what happens!
On the eve of its implementation, the Affordable Care Act (aka Obama Care) is more unpopular than ever amongst the general public. But the House Republican strategy of trying to defund the ACA as part of a continuing resolution to fund the government for the new fiscal year is a very poor idea. It will never pass both houses of Congress and be signed by the President. All it can possibly do is lead to a temporary shutdown of the government and therefore cause mass confusion.
The Wall Street Journal recently suggested a much more effective way for the House Republicans to proceed in “Carve-0uts for Congress”. The legislation establishing the ACA contains a provision requiring all members of Congress and their staffs (11,000 people in all) to purchase their own health insurance on the new exchanges which are being set up to enroll uninsured Americans. The idea behind this provision is to insure that members of Congress and their staffs and their families will obtain their insurance just like everyone else so that they will fully experience how healthcare reform actually works in practice.
But just a month ago the Administration personnel team issued a regulation exempting all Members and aides from the requirement to use the exchanges. A recent poll taken by Independent Women’s Voice shows that 92% of likely voters, regardless of their views of the ACA, think that this exemption is unfair.
The implication is clear. Republicans should show their dissatisfaction with the ACA by attaching the repeal of this exemption, which is contrary to law, as well as highly unpopular, to the continuing resolution to fund the government for the next fiscal year. Let the Democratic Senate defend this exemption if it wants too. It’s an opportunity for the House Republicans to do the right thing and also to stand with the “little guy” against the Washington elite.
An editorial in yesterday’s New York Times, “Republican No-Shows in the Budget Wars”, ridicules House Republican leadership for having the temerity to propose $4 billion in cuts from this year’s budgets for transportation and housing, and expecting Republican representatives to support such “draconian” cuts. “But the House’s skittishness at the decidedly unpopular costs of some of the party’s budget strictures presented a revealing tableau of both hypocrisy and weakness: Republicans could not pass their own cramped vision of the future.”
The underlying problem is that the House Budget for discretionary spending for 2014, at $967 billion, is almost $100 billion less than the Senate’s $1058 billion budget. The House insists on continuing the sequester cuts for the full ten years agreed upon when the sequester mechanism was set up two years ago. The Senate is ignoring the sequester agreement because it wants to replace it by a combination of milder cuts and tax increases. The Republicans would prefer to replace the across-the-board sequester cuts by a more rational budget cutting plan but the Democrats are unwilling to negotiate such a plan.
The Democratic Party, and its media supporters such as the New York Times, simply refuses to acknowledge that the United States has a fiscal problem. $6 trillion in deficit spending in the last five years apparently does not make a serious impression. The mantra is that we’ll worry about our enormous deficits, and exploding national debt, later, after the economy more fully recovers from the Great Recession. But after four years of recovery such an argument makes no sense. There are lots of effective ways to boost the economy but continued artificial stimulus (deficit spending) is not one of them.
Wake up, Keynesians! We need to turn things around and the sooner the better. Stop ridiculing the mostly Republican fiscal conservatives who are valiantly striving to accomplish this herculean task under the most trying circumstances.