December 17, 2014

Moving On From the Budget Fantasy League

Opening Day for the baseball season has come and gone in Washington but for the budget season it comes on Wednesday, when the President officially unveils his Fiscal Year 2014 proposals. Will he get a hit or be sent back to the bench?

Early indications are that he will at least put the ball in play, and that’s a promising start.

Some Republican leaders in Congress have already declared, in effect, that the President’s budget is a whiff or a foul ball at best. Even among Democrats, there are those who seem to regard the forthcoming budget as a sacrifice bunt because of its apparent concessions to Republicans on entitlement cuts.

Clearly, there will be a vigorous debate. However, there is reason to be optimistic that the President’s budget may help move budget discussions in the right direction.

If preliminary reports are correct, the budget will include a mix of spending cuts and revenue increases that would bring the deficit down to 1.7 percent of GDP by 2023. That’s higher, but more realistic, than the House Republicans’ balanced budget goal and more ambitious than the Senate Democrats’ goal of bringing the deficit down to 2.2 percent of GDP.

 In other words, it aims for a compromise, albeit one closer to the Senate Democrats’ goal, which is hardly surprising.

The key, of course, is whether the policies in the President’s budget would keep the deficit on a downward track. Will new initiatives be paid for in a credible and sustainable way? Will the savings build over time to meet the growing pressures from an aging population? Are there large assumed but unspecified savings? Are the economic assumptions realistic? To make those assessments, we’ll have to see the details.

From what has been officially leaked, however, the President’s budget will at a minimum have the building blocks of a substantial deal on deficit reduction, if not the “grand bargain” many have advocated. Elements of the plan will certainly test the seriousness of those in Congress who say they want a bipartisan compromise, which cannot happen without cuts in projected entitlement spending and higher revenues.

The President’s plan will apparently have both. If so, it will break with the tradition of fantasy budgets recently embraced by the two congressional plans adopted in March.

The House Republican plan is a theoretical exercise in reducing the deficit through spending cuts only, although it would accept the level of higher revenues that has already been enacted. The resulting cuts to domestic programs and the assumption that Obamacare spending will be repealed, while all the savings are somehow preserved, are not grounded in political reality.

The Senate Democrats’ budget relies on a level of tax increases that Republicans will never accept in return for the minimal level of entitlement cuts it offers. Moreover, its deficit reduction policies seem geared toward preserving the status quo over the next 10 years rather than achieving long-term sustainability. A disproportionate share of the spending cuts come from discretionary programs.

This week will help determine whether the President is serious about trying to reach a bipartisan compromise, and if so whether it will garner much support from either side in Congress. If the willingness to compromise is missing, no plan will have much of an impact.