December 20, 2014

Budget Plans Can Provide Basis for Negotiations

  • The federal budget is an expression of our country's values. Where we choose to spend and at what levels, how and who we tax, and the borrowing we...

Senate Democrats and House Republicans this week put their opening budget bids on the table, and there are substantial differences between them. The key question is whether the two parties are now prepared to start serious negotiations that could lead to an agreement to put the country on a more sustainable path.

The proposals that have been put forth on both sides should be debated through the regular budget process this year. The goal should be adopting a compromise that will at least stop the federal debt from growing faster than the economy in the years ahead.

Elected officials should face this challenge without creating any more artificial crises, including a possible default on government obligations later this summer.

There are some encouraging signs that both parties are open to the possibility of cooperation and compromise. President Obama has been meeting with lawmakers this week on Capitol Hill, and House Budget Chairman Paul Ryan has described the Republicans’ budget plan as an “invitation” to further discussions.

Senate Budget Committee Chairman Patty Murray released her budget blueprint on Wednesday, calling for a mix of spending cuts and tax increases that would reduce the deficit to $566 billion by 2023. Debt held by the public would slowly but steadily fall from 78.5 percent of GDP in 2014 to 70.4 percent by 2023.

“These are important goals, but whether the favorable trend shown on paper would continue beyond the 10-year window depends on the specific policies adopted by the relevant congressional committees in implementing the plan,” Concord Coalition Executive Director Robert L. Bixby said.

“As with any budget resolution, policy details are omitted,” he added. “Yet the details that are available suggest that the plan avoids the type of reforms that would allow debt levels to continue to decline beyond the budget window -- the time period most crucial when looking at the nation’s real fiscal challenges.”

Murray’s proposed cuts in discretionary spending outweigh the health care savings by $100 billion. And total mandatory outlays show no reduction at all over the coming decade relative to the CBO baseline – even though mandatory programs represent a much larger fiscal challenge than discretionary spending.

On the revenue side, Murray’s budget claims to raise $975 billion over 10 years through cuts in tax expenditures. “Identifying the problems with large and proliferating tax expenditures is on the mark,” Bixby says. But he notes that there is no discussion in the budget plan of which tax expenditures might be cut, and by how much.

Ryan’s plan, introduced Tuesday, promises to balance the budget in 10 years but it relies on some dubious assumptions to reach that goal.

“Any plan to put the federal budget on a more responsible and sustainable track must be based on sound assumptions for both spending and revenue” Bixby said.  The Ryan plan falls short on both counts.

“It assumes a level of restraint on domestic discretionary spending and means-tested programs that does not seem likely to hold up over time,” Bixby said. “Moreover, the plan’s tax reform and revenue assumptions are too vague to be adequately assessed.”

The Republican plan calls for deficits to drop from $845 billion this year to $54 billion in 2018, and to disappear by 2023. But in addition to more steep cuts in domestic discretionary spending, the Ryan budget envisions $1.8 trillion in savings through the implausible repeal of Obamacare.

Ryan’s plan for Medicare includes increased cost-sharing for higher earning seniors, a credible way to adjust benefit promises as many more baby boomers retire. Medicare premium support also has the potential to help control health care spending. Ryan is too vague, however, on how the “backup” limit on spending would operate.

Both the House and Senate plans take the fiscally responsible step of including reconciliation instructions that could be used to consider deficit-reduction legislation using expedited procedures.  

The House Budget Committee approved the Ryan plan last night and the Senate Budget Committee considered the Murray proposal today. The two plans are expected to be considered on the House and Senate floors next week.