April 23, 2014

New House Rules Clear Path for New Deficits

After John Boehner (R-OH) was formally elected speaker of the House of Representatives last week, the first order of business was approving rules to govern the House during the 112th Congress. The House quickly adopted a rules package making several changes to the budget process. Included in the new rules are several budget enforcement mechanisms that restrict spending but exempt tax cuts from the same rules.

Restricting spending must be a key component of any credible and successful deficit reduction effort. However, even the strictest limits on spending will be ineffective if the next item on the agenda is hundreds of billions of dollars of deficit-financed tax cuts.  Restricting spending but ignoring the budgetary effects of tax cuts is fiscally irresponsible and abandons the Pay-As-You-Go (PAYGO) principles that proved successful in the 1990s.

The new House rules will also further complicate a budget process that is already confusing and ineffective. Approving budget enforcement mechanisms that directly contradict many rules already in place in the Senate could delay the legislative process as House and Senate negotiators are forced to decide which budget rules to follow for each bill.

Below are the specific rule changes that will affect the budget process:

Modifying House PAYGO Rule to Exclude Revenue

The rules replace the House Pay-As-You-Go (PAYGO) rule with a new Cut-As-You-Go (CUTGO) rule. Subject to some exceptions, the previous House PAYGO rule required offsets for direct spending and revenue provisions that increase the on-budget deficit or reduce an on-budget surplus over the time periods covered by the rule. The new CUTGO rule applies only to direct spending, and excludes revenue effects from the offset requirement. It would also prevent revenue increases from being used to offset spending.

By excluding revenues, CUTGO could increase deficits and make it more difficult to enact the proposal from the President's bipartisan fiscal commission to rely on savings from closing tax loopholes. The rule will also add confusion to the budget process by requiring lawmakers to navigate the implications of three separate PAYGO rules that could affect each bill: The House CUTGO rule,  the statutory PAYGO law, and the Senate's PAYGO rule.

In recent years, both parties have weakened PAYGO with trillions of dollars of exemptions for spending and revenue priorities. The PAYGO law signed by President Obama included exemptions such as an alternative minimum tax (AMT) fix through the end of 2011, adjustments to Medicare physician reimbursement rates (known as the "doc fix") through 2014, estate tax relief through 2011, and the extension of the 2001/2003 middle-class tax cuts. The Republican CUTGO rule broadens the exemptions by including all of the 2001/2003 tax cuts, the proposed repeal of the Obama health care law, AMT relief, estate tax relief, trade agreements, and small business tax relief. With annual federal deficits that exceed a trillion dollars, the time has come for both parties to abandon exemptions for their favored priorities and return to a classic PAYGO rule that simply pays as you go.

Allowing Reconciliation to be Used to Increase the Deficit

Reconciliation is an optional procedure intended to allow Congress to consider deficit reduction legislation using an expedited process.  It is particularly important in the Senate, where reconciliation bills cannot be filibustered and are protected by points of order restricting the amendments that can be offered.  It is less significant in the House, where the Rules Committee already has the authority to expedite consideration of legislation by limiting debate and amendments.

During the last Congress, the House rules included a provision prohibiting the reconciliation process from being used for legislation that would increase the deficit.   A Senate budget point of order also currently includes a similar prohibition. In the new House rules, this provision was replaced with language that would only prohibit reconciliation bills that increase direct spending. This would permit the House to return to the fiscally irresponsible practice of using reconciliation for tax cuts that add to the deficit--an approach that was used to pass the Bush tax cuts.

The Concord Coalition has long argued that the reconciliation process should only be used for the purpose it was intended—deficit reduction.   While the new rule is fiscally irresponsible, the practical impact is likely to be small given that reconciliation primarily benefits the Senate, and the Senate has not adopted the new House rule.  Unless the Senate changes its rule, there will still be a Senate point of order against reconciliation bills that add to the deficit.

Expanding Budget Committee Chair's Authority Over FY 2011 Budget Allocations

The rules require the House Budget Committee chairman (currently Rep. Paul Ryan) to include the allocations and aggregates required by the Budget Act in the Congressional Record.  Once the allocations and aggregates are submitted, they will be enforceable as if they were included in a completed FY 2011 budget resolution, despite the fact that Congress never passed one. This is a significant departure from the traditional budget process, which requires allocations to be included in a budget resolution, reported by the budget committees, and approved by the House and Senate.

Under the new rule, Ryan will skip the budget process by simply placing the allocations in the Congressional Record.  Ryan has said that he will not release the allocations until the Congressional Budget Office's new estimates are released--typically toward the end of January.  While this certainly is an easier process, it is also less transparent and deprives the House of the opportunity to debate, amend and approve the actual allocations.

Ryan argued that this authority will only apply to the FY 2011 budget resolution and is necessary because Congress failed to pass a budget resolution with the necessary allocations. Democrats argued that giving Ryan the power to unilaterally impose budget allocations without first disclosing them or subjecting them to a vote is an abuse of power.

Both parties raise valid points, though neither party is innocent of abusing the budget process.  Whether it is the new Republican rule or the Democratic decision to entirely skip the budget process last year, both parties have routinely ignored and abused the budget process.  Since FY 2000, Congress has not once completed appropriations bills prior to the start of the new fiscal year, and budget resolutions have been skipped four times.  Last year Congress did not enact a single one of the twelve appropriations bills and resorted instead to a series of continuing resolutions to prevent a government shutdown.

In the current fiscal environment, a return to a more responsible budget process is long overdue.  The fiscal challenges facing our nation require a real budget resolution that will set fiscally responsible revenue, spending and deficit-reduction targets and include the credible budget enforcement mechanisms needed to meet them.  In the months ahead, both parties should abandon deeming resolutions and other gimmicks. Instead, they should make a commitment to work together on a fiscally responsible budget resolution.

Adding a Spending Reduction Account to Appropriations Bills

The House rules add a requirement  that each appropriations bill include a "spending reduction account" designed to ensure that savings from amendments and the bill would be used to reduce spending.  The rules also require that amendments to increase spending in appropriations bills include offsets.

The spending reduction accounts could result in some savings within the appropriations process and affect debate over amendments.  The savings might even carry through all the appropriations bills for the year. However, they are unlikely to have a significant effect on the deficit because it is virtually impossible to guarantee that the savings will actually be used for deficit reduction.  Any savings could easily be used in subsequent legislation.  In fact, if the next bill happened to be a trillion-dollar tax cut, the House rules stipulate that no offset would be required at all.  Even if the spending reduction accounts proved to be remarkably successful and included 100 per cent of all discretionary spending, that would still only account for slightly over a third of the entire federal budget.

A spending reduction account is not necessary to reduce the cost of appropriations bills.  If the chairman of the Budget Committee or the House leadership is determined to reduce the cost of appropriations bills in the House, this can be accomplished by reducing the Appropriations Committee's budget allocation and effectively enforcing it.  The House Rules Committee also already has existing authority to restrict amendments that can be offered to appropriations bills.  If the House were serious about reducing appropriations, a statutory cap on discretionary spending is another option that would be more effective than a spending reduction account.

Requiring a House Vote on Increasing the Debt Limit

The House rules strike a provision known as the "Gephardt rule" (named after former House Democratic leader Richard Gephardt), which provided for the automatic passage of a debt limit increase after Congress approved a budget resolution. The "Gephardt rule" was created to avoid a separate House vote on raising the debt limit.  The new House rules strike the rule to require a separate vote.  This change is likely to have little practical effect on House procedure this year.  Since Congress did not pass a budget resolution last year and the Senate has no "Gephardt rule," separate votes on the debt limit would have already been required.

Raising the debt limit is a decision to pay the bills and is necessary to maintain the full faith and credit of the United States government.   Failure to approve an increase would have dire consequences for government finances and financial markets. Political leaders should rise above partisan gamesmanship and increase the debt limit to avoid a damaging and unnecessary debt crisis.  If members of Congress find it embarrassing or distasteful to vote on a debt limit increase, the remedy is to enact more responsible fiscal policies. Rather than risking default by opposing a debt limit increase, policymakers should use the need for action on the debt limit as an opportunity to develop a specific and realistic plan to put the country on a sustainable fiscal path. For example, they could consider spending caps or the other recommendations that fiscal commissions have made.

Limitation on Long-Term Spending

The House rules prohibit the consideration of legislation that increases net direct spending above $5 billion during any 10-year period for the 40 years after the traditional 10-year budget window.  The point of order applies to spending, but does not apply to deficits.  Because of this, a bill that cuts taxes without increasing spending will be exempt from the provision even if it were to increase deficits by trillions of dollars.

A Senate budget point of order currently in effect applies to legislation causing a net increase in deficits-- not just spending. Over the long-term, revenues and spending both contribute to deficits and both must be addressed.  The House rule's exclusion of revenue from the provisions is a fiscally irresponsible approach to addressing our long-term fiscal challenges. The Senate provision is a more effective budget enforcement mechanism.

Transportation Spending from the Highway Trust Fund

The new House rules eliminate a provision that addressed transportation spending from the highway trust fund. The previous rule prohibited the House from considering legislation providing transportation funding below the levels included in the most recent authorization bill.  The new rule eliminates this restriction and replaces it with a point of order against bills that would divert spending from the highway trust fund or use it for purposes other than activities authorized for the highway and mass transit programs.  In recent years, revenues in the highway trust fund have declined and Congress has been forced to borrow from the general fund to meet transportation obligations.

The new rule should make it easier for policymakers to conduct an honest assessment of transportation spending in light of the fiscal challenges facing our nation.  Every program should be on the table, and no program should be exempt from the difficult choices facing policymakers.  This should include transportation spending.

Conclusion

The new House rules include many examples of budget enforcement mechanisms that could effectively be used to restrain spending.  However, spending is only part of the problem. Restricting spending but pretending that tax cuts do not add to the deficit has been tried before, and has not proven to be an effective deficit reduction strategy. We do not need to repeat that mistake.

Several fiscal commissions recently released recommendations that include a wide range of options for reducing budget deficits.  The commissions represented views on the left, the right, and everything in-between, but virtually all of them acknowledged that a credible plan requires that everything be on the table, including revenues.  The House should heed the warnings of the fiscal commissions and pay for any proposal that will significantly add to the deficits over the long term, whether it is revenue or spending, Democratic or Republican.  The exemptions in the House rules have already been approved, but this does not require them to be used.

Read More: