One of the things you'll hear -- for example, from Ross Douthat today -- is about the difference between projected deficits based on current law, and much lower deficits based on an "alternate" version. This gives rise to the claim that if only Congress would do absolutely nothing, the deficit problem would melt away.
Perhaps I'm only nitpicking, but I really think this is misleading.
There are four things (or at least four significant things) that CBO puts into it's long-term budget scenario, the one that shows Congress acting (and therefore making the deficit situation worse. But these things are not all alike. Two are, I think, absolutely consensus policy: the doc fix, and the alternate minimum tax. As far as we know, both parties are fully committed to doctor reimbursement rates higher than those in current law, and to prevent middle-class taxpayers from the reach of the AMT. The only reason the law differs from the clear policy of both parties is an artifact of budget rules; those rules impose costs for permanently changing the law that can be ducked by year-to-year fixes.
The other two items, however, are very different. CBO's calculated scenario assumes that (contrary to current law) the 2001 and 2003 Bush tax cuts will continue to be renewed, while the taxes included in ACA will not survive beyond 2020. Unlike the first two items, there's no consensus at all on these two. Republicans would make the Bush cuts permanent, and repeal ACA (entirely, and immediately); most Democrats, however, would preserve the ACA taxes, and virtually all Democrats would modify or eliminate the Bush tax cuts.
I'm not really sure how CBO goes about choosing which things to put in the alternate scenario, and which not to. The common-sense reason to include something would be if current policy deviates from current law, and there's good reason to believe that the law will get changed to match policy. But I'm not sure I believe that's the case with regard to at least some of the 2001 and 2003 tax cuts, and I don't at all think it's the case with ACA taxes. Those are contested, not current, policy; it seems to me that CBO is guessing the outcome.
Regardless, it's the first two items above that are problems for those who claim that "if only Congress doesn't act" the deficit problems will clear up. Because in either of those cases, Congressional inaction would be a significant policy change, one that there's apparently no appetite for in Congress (nor, as far as I know, among the pundits who suggest it.
Now, one can qualify this a bit...Ezra Klein is correct when he points out that Congress could continue, say, AMT policy and pay for it (either through spending cuts or tax increases), thereby keeping the deficit in check. But I'd argue that paying for either the doc fix or the AMT fix would be policy changes, not policy status quo -- the (fixed) AMT is just as much a part of everyone's real-world calculations going forward as any other portion of the budget. Projecting it to continue is no different than projecting discretionary spending (which also must be passed by future Congresses). After all, if Congress stops passing appropriations bills the deficit would be reduced (well, sort of, if it didn't destroy the economy).
Add all that up, and I think it's just unhelpful and misleading to say that inaction is a plausible route to fiscal control.
Friday, June 24, 2011
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True, nobody really expects Congress to fail to pass the doc fix or AMT changes as they are needed. That is to say, doing nothing on those fronts would be a drastic (and highly improbable) change in policy.
ReplyDeleteBut, if I'm not mistaken, the further extension of 2001/2003 tax cuts makes up the vast majority of the extra red ink in the CBO's alternate scenario. And this is, as you note, an issue where there is no settled policy; it's in dispute; the parties disagree (mostly).
So, if you just consider the tax cuts, then it is perfectly reasonable (and not misleading at all) to say that doing nothing is a plausible solution. It accomplishes the Democrats' goal of returning to Clinton-era marginal tax rates. It doesn't require 60 votes.
And (AMT and doc fixes aside) "doing nothing" is one thing that Congress does really well!
Jonathan I you got your terms reversed. CBO's two scenarios are 'Extended Baseline' and 'Alternative Fiscal'. It is the former that assumes current law (hence 'extended') and produces dramatically lower deficits: "Under this scenario, the expiration of the tax cuts enacted since 2001 and most recently extended in 2010, the growing reach of the alternative minimum tax, the tax provisions of the recent health care legislation, and the way in which the tax system interacts with economic growth would result in steadily higher revenues relative to GDP."
ReplyDeleteIt is Extended Baseline that assumes 'Congress would do absolutely nothing' and it is Extended Baseline that has been the official 'calculated' 'long term budget scenario'. Indeed to my knowledge the first use of the 'Alternative Fiscal' came with the scoring of ACA and seemed designed to low-ball the substantial improvements shown using 'Extended Baseline' particularly in regards to Medicare Part A (where 75% of the 75 year actuarial gap in HI simply vanished under the new Act). Previously the only outlook CBO would present would be 'Extended Baseline'.
Which makes the following exactly reversed:
"One of the things you'll hear -- for example, from Ross Douthat today -- is about the difference between projected deficits based on current law, and much lower deficits based on an "alternate" version."
That is ACA IS current law. The confusion gets redoubled with this:
"There are four things (or at least four significant things) that CBO puts into it's long-term budget scenario, the one that shows Congress acting (and therefore making the deficit situation worse."
Well it is 'Extended Baseline' that qualifies as "it's long term budget scenario", with 'Alternative Fiscal' being as its name suggests the Alternative. So in order to begin fixing this you would need to replace "Long term budget outlook" (which in context is ambiguous) to "Alternative Fiscal" in paragraph 3 and likewise "Calculated scenario" with "Alternative Fiscal Scenario" in para 4.
But this only gets us part way. Because paras 5 & 6 seem to assume that is somehow CBO's assigned role to make assumptions about policy outcomes when instead it is exactly this that is the innovation (and among budget policy people I know very controversial), instead CBO's traditional role has been to assume current law on the basis that they are scorekeepers and not policy players as such, indeed properly considered it is not their job to pass any kind of judgement on "current policy" one way or the other. Instead they are supposed to assume "do nothing".
Which makes your conclusion in para 7 wrong and Ezra correct, the probability of Congress offsetting the Doc fix and/or AMT in some manner is irrelevant to the "do nothing" argument being advanced by some of the commentariat, it is no part of CBO's charge to do the kind of probability analysis of future policy that you suggest.
On substance I think your analysis is much more right than wrong, unfortunately the upside down nature of your opening sentence guides you on the wrong path, at least definitionally. "Alternate fiscal" does not produce "much lower deficits" and indeed assumes the direct opposite of "do nothing". And this initial confusion is near fatal to your post.
And while I didn't read the Douhat piece I did read Ezra and other bloggers making this same point over the last couple of days and I didn't see any of them arguing that "do nothing" was "plausible", because you are certainly right that SOMETHING will have to be done about AMT and the Doc Fix, instead they were pointing out something to the "nothing is not a plan" "we are doomed" mantra of the Republicans. On the deficit and long-term debt as well as Social Security 'Nothing' is a perfectly fine plan on paper. At least it pencils out fine and Democrats are certainly not being negligent by suggesting we START with 'Extended Baseline' and THEN suggest offsets for proposed policy (along the lines Ezra suggests).
ReplyDeleteAccording to the CBO, AMT+Doc fix amount to a little over a trillion dollars over ten years, which is a lot of money, but is dwarfed by 4 trillion for the Bush tax cuts.
ReplyDeleteI first read about this "do nothing plan" in an article in Slate by Annie Lowrey back in April. http://www.slate.com/id/2291054/ I think the point of people bringing up the do nothing plan is to be illustrative not prescriptive. Its designed to dispel the deficit hysteria coming from some on the right by sketching out a relatively painless strategy to fiscal solvency that doesn't involve pushing grandma over the cliff.
ReplyDeleteRepublicans say the sky is falling and we must end the Medicare guarantee? Why do that when we could just re-institute pay-go, let the tax cuts expire, don't repeal the ACA, and we'll have a nominal surplus by 2018. A few more tweaks and we could have a real surplus. It makes the point that entitlements didn't get us into this mess and don't have to get us out.
Bruce,
ReplyDeleteThanks for your thorough corrective. I too thought that CBO's primary projections don't involve political guesswork but assume that the direction one is moving without policy changes will just continue as is. Jonathan is of course right that the four sensitive / primary issues that there's a significant drive to address is on the AMT, doc fix, ACA, and the Bush tax cuts.
What makes the "do-nothing" approach important is that here pure obstruction is not entirely in the Republican's interests. If Obama had the political clout and was willing to bet his presidency on true deficit reduction that could get around the Republican's recklessness, if he was willing to give up on raising taxes for those making less than $250K, obstructionism would all of a sudden be his friend if he were to occupy the White House for 4 more years.
Thus the Republican insistence that they're so budgetary courageous when doing nothing would put us in better fiscal shape without touching Medicare is pretty far fetched. That has both important political and policy implications.