Last week, House Speaker John Boehner reportedly floated the idea that the government shutdown and debt-ceiling crisis could be resolved with a "grand bargain" that would reduce the long-term budget deficit. Whispers of such a deal continue, but few people put much stock in it: We've seen this episode before.
Republicans and Democrats talked about a grand bargain during the last debt-ceiling crisis, in 2011, but talks broke down after the GOP refused to budge on additional revenue. There's no reason to think that's changed. But at some point soon, Republicans and Democrats are going to start negotiating over fiscal priorities again. And if it doesn't happen in the context of a government shutdown and debt ceiling crisis, it will probably happen near the end of the year, when next year's cuts from budget sequestration are about to become reality.
When those talks start, who will be asking for what? We can't know exactly. But we can know what the parties to this debate—the White House, Senate, and House—wanted the last time they committed their priorities to paper: their most recent budget proposals. These are grand, long-term, idealized visions of what the country’s fiscal policy should look like. Here's what they asked for.
Anyone putting together a budget has a few starting points. One is the spending caps set by the 2011 Budget Control Act (BCA). But more immediate is that oft-cited bogeyman, sequestration. The sequester is a litany of cuts aimed to dramatically curtail spending when Congress couldn’t agree on a better way to reduce the deficit. The sequester went into effect automatically this spring, in accordance with the 2011 BCA, and it deepened cuts in an effort to reduce the deficit beyond what the BCA levels could do. And, unless it is replaced, the sequester will remain in effect.
For the most part, the White House budget follows a principle articulated by the Bowles-Simpson commission, a bipartisan force Obama created to work on fiscal policy and reform. The basic principle, as Robert Greenstein and Joel Friedman of the Center on Budget and Policy Priorities put it, is that “deficit reduction should not increase poverty or harm the disadvantaged.” Or, in the words of a February report by the Bowles-Simpson commission: “Broad-based entitlement reforms should either include protections for vulnerable populations or be coupled with changes designed to strengthen the safety net for those who rely on it the most.”
The White House budget is divided into two sections: the deficit reduction package, and everything else. The two components of the president’s budget can be treated independently; negotiations about one need not affect the other. The package calls for a deficit reduction of $1.8 trillion over ten years, an offer President Barack Obama made to Boehner (who rejected it) during pre-sequester negotiations in December 2012. That makes this proposal unusual among White House budgets, which normally reflect a purer, more idealized position.
The president’s deficit reduction package includes cuts in farm subsidies, $371 billion in savings on Medicare, and better IRS enforcement. Federal employees would also have to pay more towards their retirement, and the upper echelons of taxpayers would find fewer loopholes and tax deductions.
The package also calls for a change in the measure of inflation: a chained Consumer Price Index, which would change how Social Security benefits are calculated, reducing benefits for seniors. Some Democrats are angry about the change, but it would save the government about $130 billion over ten years.
Apart from the deficit reduction package, the budget includes a host of other proposals that offset each other. For example, it calls for additional spending on education but also increased taxes on tobacco products.
One of the hottest topics in budget negotiations is non-defense discretionary spending—spending that has to be approved by Congress annually, and is not for defense. This category includes money for education, infrastructure, welfare, research, and lots more. The 2011 BCA set caps for this sort of spending, and the White House budget would cut an additional $200 billion beyond those levels. Some liberals have decried these cuts as too dramatic—but they’re still a far cry from the austerity imposed by sequestration.
The Senate budget for fiscal year 2014 is largely based on the same philosophy the White House subscribes to. As a Senate Budget Committee summary explains, the budget is based on the notion that “trickle-down economics has failed as an economic policy.” Written by Senate Budget Committee Chairman Patty Murray, the proposal aims to undo sequestration, using both cuts and revenues to do so. The White House budget is much more specific than the Senate budget, so we’ll keep this discussion short. The main difference between the Senate and White House proposals is that the Senate accounts for more total savings, because it assumes the war will end sooner than the president does, and thus that the war will require less money. The Senate proposal stabilizes the debt—it keeps it from growing larger—but falls far short of eliminating it.
The House budget, drafted by Congressman Paul Ryan, aims to balance the budget in ten years, a Herculean effort that requires dramatic cuts. Unlike the White House or Senate, the House keeps the sequester’s cuts but rearranges where they’re coming from, shifting non-defense dollars to defense.
Ryan’s budget is based on a firm opposition to big government, and he uses the goal of balancing the budget to justify a broader vision of a dramatically scaled back role for the feds. As the budget’s introduction puts it: “Today, our communities—our families, in particular—face many dangers: rising health-care costs, a stagnant economy, a massive debt, an uncertain world. These dangers require a lean, dynamic government—one that can protect its people and keep its word. They also require government to respect its limits—to understand it plays a role in our lives, but not the leading one.”
The proposal hits non-defense discretionary spending especially hard; those numbers would reach historic lows. And it makes significant cuts in health care, repealing the individual mandate and the expansion of Medicaid provided by the Affordable Care Act.
But Ryan also claims to save money on defense spending, despite the fact that his budget actually adds $50 billion for defense, raising spending from post-sequestration levels back to the levels set by the original BCA cap. How does he get away with saving and increasing at once? Well, he doesn’t. He just uses some tricky oversight to make it look that way. Ryan claims $100 billion in defense savings over the course of ten years. What the budget actually does is save that much money in defense funding. But funding—the amount of money allocated to defense by the budget—is different from spending. Outlays—the actual amount of money agencies spend—do not fall perfectly in line with funding, and their effects can show up with a few years’ delay. The Congressional Budget Office’s forecast for defense outlays does not corroborate Ryan’s predicted savings. It’s possible Ryan didn’t run those numbers carefully enough, or it’s possible he didn’t think anyone would notice the discrepancy and the phantom savings it entails.
The Ryan proposal actually isn’t very specific on what needs to be done. A congressional budget designates spending totals in various broad categories—for example, education, or health, or labor. It can provide for cuts in any of those categories, or it can denote them in the less specific category of “allowances.” Those are items left unspecified, to be dealt with later in an appropriations bill. Ryan’s budget offers a lot of cuts in the allowances category. It’s a good way to save a lot of money without having to figure out just how you’re going to go about saving it. And when committees have taken to the task of allocating those cuts in the past, even members of Ryan’s own party have balked. When you get to the details of taking such a large amount of money away from real policies, it becomes clearer just how extreme the cuts are, and that such large cuts cannot be made without hurting policies a lot of people deem important.
Joel Friedman and Richard Kogan of the CBPP compared Ryan’s budget to a new year’s resolution to lose 25 pounds: It sounds great, until you learn what needs to be done to accomplish the goal.