Monday, February 13, 2012

GOP War On Budgeting Update

The big budget news today (other than the president's submitted FY 2013 budget) is that Republicans have apparently surrendered on the big extenders bill. They'll apparently (yes, I said it twice, there's at least a fair amount of uncertainty still) allow the payroll tax cut, the unemployment benefits extension, and the Doc Fix to go through for the rest of the year unfunded, rather than compromise on taxes or otherwise find offsets that both sides can live with.

I wrote this up over at Plum Line in the context of the GOP war on budgeting, but what I should add is that this is almost certainly a preview of what eventually happens on the military spending cuts in the scheduled sequester under the debt limit deal. Recall that the Budget Control Act set up a "Supercommittee" to come up with deficit reductions, and when that (predictably) failed, the next step is a future sequestration that would take all of the deficit reductions out of the spending side, very much including military spending. Already, hawkish Republicans have suggested trading in those defense cuts for something else. Eventually, they'll do there what they did today: they'll propose just eliminating the defense cuts with no offset. The question then will be whether Democrats have the leverage (and the inclination) to trade cuts to Democratic priorities for cuts in defense. I'm not going to predict at all how it will turn out. I could picture a GOP bill to restore the defense cuts (not offset, and therefore less deficit reduction) passing Congress and getting signed. I could picture that GOP bill getting blocked in the Senate. I could picture a negotiated lowering of all proposed cuts, or even a negotiated agreement to get rid of the sequester entirely (presumably with some window dressing, perhaps another commission or another process reform).What I can't imagine is Republicans agreeing to sacrifice other GOP priorities, especially on taxes, to fund the military spending they want. They would almost certainly prefer a larger deficit to that.

Of course, all of that is assuming we still have divided government in some form when it all gets worked out; if either party captures Congress and the presidency, things will be different.

23 comments:

  1. Nice post. Typo in line one: it's the FY2013 budget.

    m

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  2. Thanks, fixed (is it really 2012 already?).

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  3. And yet there are many commentators pushing the notion that ARRA was the one and only stimulus bill (a fiction which serves many different purposes, which I suppose explains its popularity with the commentariat).

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  4. Looking at the Speaker's statement, they appear to have only agreed to extend the payroll tax cut clean.

    "House Republicans will introduce a backup plan that would simply extend the payroll tax holiday for the remainder of the year while the conference negotiations continue regarding offsets, unemployment insurance, and the ‘doc fix.’"

    Which gets rid of the one item they know is a clear loser, and gives them better leverage to extend the other provisions. (Although I'd say that leaving the 'doc fix' open will make it hard to entirely stonewall an eventual agreement.)

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  5. What I can't imagine is Republicans agreeing to sacrifice other GOP priorities, especially on taxes, to fund the military spending they want. They would almost certainly prefer a larger deficit to that.

    Delete "especially on taxes", change "Republicans" to "Democrats" and "military" to "entitlement", and this statement loses none of its truth value. This is why we deficit hawks are hawks; partisans inevitably fail to see the scope of the problem, preferring instead to use it as a bludgeon for ideological ends.

    Did you see what was included in the (mentioned-in-passing) "President's FY 2013 budget", complete with $3.8 T of new spending, well north of $1 T more than revenues, a staggering deficit in the face of a precarious debt load? Money for community colleges! Job training programs! Other Democratic talking points that are allegedly economy-savers, on paper, which have a tenuous connection to economic growth in real life. I bet this liberal blog, and others like it, would claim with serious straight faces that the $3.8 T is all money well spent to revive our morbid economy, since, after all, their guys are serious about spending. (Just, you know, next year. Or maybe the year after. Like quitting smoking, they're gonna do it, surely someday soon, not like that other smoker down the street, who allegedly doesn't even want to quit!)

    In a certain sense, those three years of 50% increase in revenues, due to the unexpected internet-bubble of the late 90s, were a terrible curse in this country, as the mirage of balanced budgets they created has been clung to by the left as evidence of their side's commitment to fiscal responsibility. Yes, Democrats are the fiscally responsible ones. All they need is an unexpected additional $1 T of revenues from frenzied tech trading, and voila! They're budget balancers!

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  6. CSH,

    As you know, I'm not a deficit hawk at all, so I'm not knocking the GOP or praising the Dems for this...but your first paragraph is definitely wrong. Consider the Medicare cuts in ACA. Or the deal that Obama reportedly offered to Boehner. There certainly are some Dems who opposed Obama on those things, but AFAIK none of them claim to be deficit hawks.

    The actual liberal deficit hawks, indeed, say that the time for austerity is after the economy recovers. You certainly can disagree with them, but you can't prove that they don't mean it until, well, after the economy recovers. And they do have a proven track record of supporting the 1990 and 1993 deficit-reduction deals.

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  7. Jonathan, thanks for taking up my argument, I apologize that my prior comment was a bit on the inflammatory side. Two thoughts about your last:

    1) No doubt there are Medicare cuts in the ACA, but from this deficit hawk's perch, those seem precariously similar to the defense cuts in the trigger; that is, they haven't happened yet, and what's to stop self-motivated politicians from finding a "fix" for them? Re: Obama's deal, Congressman Ryan had a Medicare cutting proposal/deal too... (In fairness, its possible that Obama offered in good faith and Boehner stonewalled in bad faith. I honestly don't know).

    2) How many of those congesspeople who supported the 1990 and 1993 deals are still in DC? At my most pessimistic, I fear that beltway insiders have lately come to learn that the big-revenue years of the late Clinton presidency are quite an effective sop for the masses.

    If we did a quick trip around the intertubes, searching for references to Clinton's balanced budgets, I bet we'd find 1,000 praising Clinton's management for every one that notices the odd spike in revenues in those years. Anyone could notice that spike; its easily available on the CBO website, and its not hard to figure where it came from, but virtually no one does.

    Surely the insiders know where that spike came from, and they also notice how readily we the masses eat that stuff up, how easily we say "If only DC could be more like the Clinton years, everything would be fine".

    And so we've had 10 years of historically loose monetary policy, and a rapid-fire succession of tax-generating bubbles...you know, so Washington can be more like the Clinton years. If it worked anywhere near as well for others as it did Clinton, and if people were tuned in, the whole thing might almost be strangely charming - tax increases with bubble entertainment baked in!

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    1. CSH, you are simply lying when you say that Democrats are as unwilling to touch entitlements as Republicans are to touch military spending or marginal tax rates.

      "Partisans inevitably fail to see the scope of the problem, preferring instead to use it as a bludgeon for ideological ends." Indeed.

      And your hand-waving dismissal of the Medicare cuts enacted as part of the ACA (which, let's not forget led to the successful 2010 GOP Mediscare campaign) is just laughable. Under your logic, policymakers are NEVER to be given credit for cutting spending because future lawmakers can undo them. That's disingenuous horseshit, and you know it. Keep it out of this comments section.

      I get that it may be difficult for some simple-minded, uneducated people to intellectually grasp how bigger deficits in the short-term can lead to smaller deficits in the long-term, and vice versa. I don't think you are simple-minded or uneducated, CSH. But I see how it must be tough for someone who identifies as a conservative to accept the brutal truth that Jonathan has laid out in this post.

      Meanwhile... of course people gave Clinton a certain amount of undeserved credit for the booming '90s economy. If there's anything we know about the American electorate, it's that they treat presidents like quarterbacks - giving them too much credit when times are good, and too much blame when things go bad.

      Here's the thing: that does nothing to obscure the central truth that the 90s tech boom happened after Dems passed deficit reduction measures that the GOP unanimously opposed, leading to broadly shared prosperity and a relatively mild bubble-pop; whereas the housing boom and massive tax cuts of the early 2000s led only to skyrocketing inequality and financial catastrophe.

      Causation is impossible to prove; but the evidence is there for all to see, and it doesn't reflect well on the GOP's instincts.

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    2. Andrew --

      I happen to agree with you on the substance of this one, but: watch your language, please. Comments can be wrong for lots of reasons, but accusing someone of lying isn't appropriate in normal circumstances around here, and I will enforce by zapping comments if necessary.

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    3. Andrew,

      Not sure if you have been following the discussion about the Medicare "Doc Fix", but the proposed payfors intended to prevent physician pay cuts do not augur well for future Medicare savings. This is because they pretty much all take pain from the doctors and push it on some other stakeholder in the system - I admit I am not knowledgeable about the ACA specifics, but its hard to imagine how the Medicare cuts won't run into the same difficulties.

      And anyway, isn't the thing you decry as "horseshit" exactly what the open of this thread accuses the Republicans of doing wrt defense spending? You could be right of course, but what your argument reduces to is "Of course the Republicans are way less trustworthy than the Democrats on the deficit cause the Republicans will in the future do something Democrats would never do in the future". Maybe? Not a great empirical argument, though.

      I suppose I'd have a hard time convincing you of this, but my intent has never been to promote conservative ideology in a mostly-liberal forum; certainly where deficit spending is concerned my argument is not a backhanded way to say Republicans are good because Democrats are worse than you think. Rather it is to say, simply, Democrats are worse than you think, which is a big part of the problem (for this community, over at a place like NRO, its the other problem).

      So, for example, in the last three years of Clinton's Presidency, government revenues skyrocketed 50% over the three years prior (I looked briefly for the link at CBO; couldn't find it, if you're interested you can look yourself). Your interpretation of this historic, one-time, 50% increase in government revenues was "a direct result of Clinton's policies".

      Forgive me. Which policies, exactly? Why did no other President in history have similarly successful policies? If a President has an agenda that is directly responsible for a 50% increase in government revenues, shouldn't we be able to point our finger at it, and name it, for the benefit of future generations, rather than say "You know...Clinton's policies..."

      The reality is that no policy of Clinton's, no policy of any President's causes the type of massive short-term increases in revenues at the end of the 20th century. Its clearly a one-time thing, and you can certainly disagree about what that thing is, but I doubt you'd get very far.

      Finally, when you made the reference to a "hand-waving dismissal", that prompted a bit of an insight re: why we are so screwed wrt the deficit. In the face of one-time, dramatic increases in revenues, Clintonistas fondly reference "his policies", "the Democratic agenda" without reconciling to the odd truth that others have had relatively similar policies, relatively similar agendas, and yet they never saw 50% short-term increases in government revenues.

      Faith in Clinton's policies = hand waving. I'm not picking on you, everyone does it, across the political spectrum. But deficits are made of numbers, real, live, increasingly Greece-like numbers. As a result of which, all the handwaving may end up being so much waving goodbye to American prosperity.

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    4. To suggest that Dems are to entitlement cuts as Republicans are to tax hikes is, in my view, an out-an-out lie. Sorry if my language was too blunt, but I call 'em like I see 'em. (And yeah, I suffer from potty-mouth on occasion; this is the Internet, after all, not a college classroom. But the bloghost is the boss, so I'll tone it down.)

      If you look at my post, I specifically state that it is impossible to directly attribute the end-of-the-90s balanced budget to any particular policy. In fact, if you want, you can disregard all the economic ups-and-downs. What we're left with is this: Dems passed deficit-reducing laws over united GOP opposition when they had control of DC in the early 90s; the GOP passed deficit-exploding tax cuts in the early 2000s when they had total control.

      Now, I do give credit to the GOP for agreeing to the defense cuts in the Budget Control Act, even if those cuts are susceptible to being reversed in the future. The problem is, unlike the Dems who supported the ACA Medicare cuts, the GOP has already sought to reverse the defense cuts they previously agreed to!

      So, while in theory all spending cuts can be ratcheted back up by a future Congress, in practice it's been only the GOP who has had the ba--- I mean, the chutzpah - to do so.

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    5. And yeah, I'm aware of the doc fix. It's evidence that spending cuts can always be ratcheted back up. It's not evidence that either party is more or less committed to fiscal responsibility.

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    6. CSH -- the following can both be true:

      1. WJC's (et al.) policies contributed little or nothing to the economic boom of the 1990s.
      2. WJC's (et al.) policies contributed somewhat (or even substantially) to the gigantic revenue increases of the 1990s.

      Here's how I'm thinking about it: I'm comparing it with the revenue results of our more recent bubble. Policy clearly made a difference in how much revenue was reaped from each of the booms. Like for instance the policy of not repeatedly cutting taxes massively for rich people.

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    7. classicist - nice to see you on this thread. I agree with you in principle, but I'm not sure the data does in this particular case. Fortunately, I found the file with historic US revenue and expense data. I doubt anyone would dig into it, so here's the takeaway, seen on page 26:

      If we compare the last three full years under Clinton's control (1998-2000) with - arguably - the first three (1994-1996), we find that revenues increased from an average of $1.35 T (1994-1996) to $1.86 T (1998-2000), a dramatic 37% increase. Expenses went up from an average of $1.51 T (94-96) to an average of $1.71 T (98-2000), or a 13% increase. Net, we went from a deficit of $158 B (avg) to an average surplus of $144 B.

      To be fair to Clinton, a 13% increase in spending over 4 years isn't terrible, other Presidents have done worse, and these days we'd dream of only jacking up spending 13% over four years. Still, that 13%/4 years still works out to several basis points above inflation, so in the long term it isn't a strategy you'd want to follow.

      Trying to tie this together: we could - very accurately - describe Clinton's surplus as "the surplus arising from staggering increases in revenues more than offsetting meh/below average spending increases".

      Words matter, no? If people conventionally described Clinton's surplus as in the above paragraph - a description that fairly objectively fits the data - might more people feel alarm about our current budgetary predictament? Would the soothing tones of "if only things were more Clinton-ish" be less soothing cause, actually, Clinton wasn't all that great on spending either?

      Words matter. People don't say the right ones often enough, it seems to me.

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    8. I'll sign onto "the surplus arising from staggering revenue increases more than offsetting below-average spending increases," for sure.

      I miss spending more time on the Internet, too. < tmi > My husband has been going through some pretty harrowing health issues that have worn me down, but hopefully after kicking us around since OCTOBER the hospital will at least start treatment soon ... < /tmi >

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    9. Hope all goes well. My thoughts are with you, and I know all of us are greedy, wanting you to have more time to comment here.

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    10. I second Jonathan's thoughts. Your contribution to this forum is highly valued, but pretty obviously, the importance of these enjoyable discussions totally pales in comparison to your family. Thoughts and prayers and all the best.

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    11. Thanks, guys. I'm still lurking, at least once every few days, even when I don't comment, so thanks too for so often making me smile ;)

      (this goes for Jeff too if by some chance he is still reading this thread!)

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  8. I agree with JB that the austerity has to wait; otherwise, it will just undermine the recovery and probably undermine deficit reduction as well. Just look at Europe, which is currently taking the austerity train back to recession. The problem in the future will be getting people to agree on when the recovery is strong enough to take it off life support.

    By the way, I don't think Boehner was operating in bad faith. It may be no more than a hunch, but he seems to be relatively willing to negotiate a deal, more so than his rhetoric would suggest. But while I see that as a positive, it just makes him "inauthentic" and a "turncoat" to his own party's rightwing faction, and he's unable or unwilling to stand up to them.

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    1. If goosing the economy always takes a backseat to budget discipline, we're going to need an economic miracle to get our debt in balance with our GDP. That's like counting on winning the lottery--in other words, a bad idea.

      You delay austerity (cutting back) at the peril of even worse austerity in the future. That's what Greece did. I applaud the European governments that are honestly facing their budget woes now, and not waiting any longer.

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    2. That's not true. The current (or recent, whatever) recession is unusually long, but there are far more good times than bad, historically. Even if you're very slow to change policy after a recession and quick to change when a recession starts, you're still going to have 1983-1990, 1993-2000, and 2003-2007 for deficit reduction, give or take a few months.

      Which gets back to: almost all of the medium-term deficit problem right now has to do with the effects of 2001-2006 policy. The short-term deficit "problem" is a more-or-less deliberate and reversible effect of the recession. The long-term deficit problem is mostly health care, which I don't consider primarily a federal budget deficit problem, but that's a longer discussion, of course.

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    3. Economic stimulus (as opposed to austerity) is only analogous to playing the lottery if you consider that you can buy a whole lot of lottery tickets with $800 billion!

      That is to say, this is not really about chance. This is about decades of economic scholarship and experience showing that economies readily respond to liberal fiscal policy, especially when interest rates are close to zero; whereas, real examples of expansionary austerity are almost impossible to find.

      Either way, we'll need an economic miracle to eliminate our debt. The question is how do you maximize your chances of getting there.

      It is very appealing, intuitively and morally, to think of the government's finances the same way as household finances. That way of thinking may be appropriate if you're Greece and you don't control the printing of your own currency. If you're the U.S., though, and you control your money supply, and your money is still the world's dominant reserve currency.... that way of thinking will only cause more suffering.

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  9. After World War II we had a tremendous debt, as I'm sure you can imagine. As I understand it, instead of paying it off, we basically just let the debt:GDP ratio shrink by growing the economy. I don't know if that's good economic policy or bad economic policy, but it suggests that there are more possibilities out there than most of the popular scenarios imply.

    With regard to Medicare, the problem we should be concentrating on is the rising cost of health care. If we can rein in the cost of health care, then the cost of paying for it with a government program resolves itself (or at least the situation improves). If we address the problem simply by cutting government payments devoted to health care, then society may have improved the government's balance sheet but society will still have a problem with unaffordable health care and no way to pay for it. I don't see how that's a solution.

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