July 25, 2014

With Budget Plans on the Table, Time for Serious Negotiations

Today the Senate Budget Committee considered the budget resolution that Chairman Patty Murray released yesterday. The blueprint calls for a mix of spending cuts and tax increases to reduce the deficit and lower the debt-to-GDP ratio. Under Murray’s plan, the deficit would fall to $566 billion (2.2 percent of GDP) by 2023. Debt held by the public would slowly but steadily fall from 78.5 percent 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. As with any budget resolution, policy details are omitted. 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.

For example, the proposed cuts in discretionary spending outweigh the health care savings by $100 billion. Moreover, total mandatory outlays show no reduction at all over the 10-year period relative to the CBO baseline despite the fact that mandatory programs represent a much larger fiscal challenge than discretionary programs. Murray’s budget thus continues the recent pattern of placing an undue burden on discretionary spending in the search for savings. It is important to be realistic about cuts in discretionary spending, which is already projected to hit historic lows relative to the size of the economy. Washington needs to move forward on other parts of the budget as well – particularly in entitlement and tax reform.

For Medicare, the budget plan assumes savings of $275 billion in addition to assumed savings intended to offset the cost of annual doc fixes. Yet there is no accounting for the policy proposals required to get there.

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. However, there is no discussion in the budget of how the targeted savings might be achieved -- i.e., which tax expenditures would be cut, and to what extent. The lack of specifics is particularly problematic given Murray’s assertion that the revenue will be raised ”by closing loopholes and eliminating wasteful spending in the tax code that benefits the wealthiest Americans and biggest corporations.”

It is important for both sides to be clear not just about the benefits of their proposals but about the trade-offs and sacrifices as well. The tendency to highlight politically advantageous initiatives while obscuring the difficult choices necessary to make the budget numbers add up is not unique to the Senate document.

In fact, the budget resolution proposed by Paul Ryan and approved by the House Budget Committee last night, suffers from the same problem. The potential disconnect between lofty rhetoric and granular policy choices makes it more difficult to assess whether the budget’s goals can be reached, and the seriousness of purpose behind the effort to reach them.

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 legislative procedures.  

The House provision instructs six separate committees to reduce spending by at least $1 billion over 10 years. The Senate provision instructs the Senate Finance Committee to produce legislation that increases revenue by $975 billion over 10 years. Unfortunately, it does not provide reconciliation for spending cuts, making it less likely that they would ever be enacted.

After the partisan speeches are over and each chamber has passed their budgets, both parties should work toward a compromise that uses the reconciliation process for deficit-reduction legislation that affects both spending and revenues.

Introduction of a Senate Budget Committee plan, with an overall goal of stabilizing the debt-to-GDP ratio, is a positive step forward in what can hopefully be seen as a new pathway towards a comprehensive, bipartisan budget plan. Ironically, this “new pathway” is actually the return of “regular order” through the use of the budget process.

Senate Democrats and House Republicans now have their opening budget bids on the table. There are substantial differences between them, however, and 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 opportunity to do so is available through the regular budget process this year, with the goal of 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 also some encouraging signs that both parties are open to the possibility of cooperation and compromise. President Obama is meeting with lawmakers this week on Capitol Hill, and House Budget Chairman Paul Ryan has described the House Republicans’ budget plan as an “invitation” to further discussions.