March 27th, 2013
For those who like to look for silver linings, there are at least two events in the past few weeks that could provide a glimmer of hope. First, both the Budget Committee in the Republican controlled House has passed a budget and, for the first time in four years, the budget committee in the Democratic controlled Senate has also passed a budget. Both the House and the Senate have passed their budgets. The Senate’s budget passed by a slim 50 to 49 vote margin. And for a short time, there had been some uncertainty whether the House would approve its budget because it doesn’t eliminate the deficit fast enough for some House conservatives – some indication of the pressure the right is putting on the leadership.
The second glimmer of hope is that the President has been reaching out to Congressional Republicans in a way that he had not done during his first term–taking a group of Senate Republicans to dinner and meeting with the House Republican leadership on their home turf. However, as Mitch McConnell (R KY) was quick to point out, meeting with Republicans is far different than finding common ground or strategies for compromise.
To no great surprise, the budget documents themselves suggest two very different and divergent views of the country’s future–differences that will make finding a compromise a serious challenge.
The Ryan Proposal
Ryan’s budget would reduce spending by $5.7 trillion over the next ten years relative to CBO’s current baseline. At the end of the ten-year budget window, the deficit would be eliminated and federal spending as a share of the economy would approximate the 60-year, post-WWII average of 19.5 percent.
While much of the details regarding the specific changes that would have to occur will be left with the various authorizing committees, the general parameters have been specified. These include the following: an increase in defense spending of about $500 billion over 10 years, $1.5 trillion in discretionary spending cuts, about $1 trillion dollars in “other mandatory” spending cuts and $1.8 trillion in savings achieved by repealing the Affordable Care Act (although not the payment reductions in Medicare that had been used to fund two-thirds of the coverage expansion).
As in last year’s budget, programmatic changes include making Medicaid into a block grant and making Medicare into a premium support program for everyone currently 55 years old or younger. Pell grants for education would be capped, funding for elementary school education programs and job training would be reduced and funding for Fannie Mae and Freddie Mac would be eliminated.
In addition, the highest income tax rate would be reduced from 39.6 percent to 25 percent with a second rate of 10 percent for those with lower incomes. In return, a variety of unspecified tax breaks would be eliminated.
The Murray Budget
The Murray budget cuts $650 billion from the current CBO baseline. She claimed it cut $1.85 trillion but that ignores the cost of eliminating the sequester cuts which she is also proposing and also includes $240 billion in interest savings. The budget does not eliminate the deficit. Instead it projects a $566 billion deficit in 2023, down from the current year deficit of $891 billion.
The budget cuts $240 billion from defense spending. It also cuts $142 billion in non-defense spending by extending the existing ceiling on spending for another two years. It cuts $23 billion from farm payments and another $53 billion from “other mandatory” spending. $10 billion is cut from Medicaid by selling off government property and reducing “improper payments”.
The largest contributor to deficit reduction comes from $975 billion in additional revenue that would come from “reforms in the tax code”. Aside from saying that the code should remain as progressive as it is now, in terms of rate differences, there is no indication of what changes to the code would be included.
Unlike the Ryan budget, the Murray budget contains $100 billion of new economic stimulus spending. This includes money for high priority infrastructure repairs, technology infrastructure and worker training.
For those of us focused on health care, there is another important difference between the Ryan Budget and the Murray budget. In addition to removing the 2 percent reductions in payments to providers that was part of the sequester, Murray’s budget assumes the repeal of the SGR and contains a reserve fund for replacing the SGR with another payment arrangement. While it is not explicit, budget experts have indicated that there is an implied savings in health care spending of $275 billion over ten years to offset these costs. The Ryan budget assumes both the sequester cuts and the SGR continue although there is an “intent to repeal” provision regarding the SGR, as long as it doesn’t increase the deficit.
Room for Compromise?
The president has again raised the potential for reaching a “grand bargain” some time this summer but the basis of a compromise remains pretty elusive.
Republicans are clearly focused on reducing the deficit without explicit concern about how the strategies to do so might hurt what is clearly a struggling economy in the short run. Democrats say they are concerned about reducing the deficit but leave a large deficit 10 years out and a government sector that is several percentage points larger than the 60-year post-WWII average of 19.5 percent. The public, of course, is not exactly giving clear guidance to these camps since it wants both deficit reduction and a stronger economy.
But what is most frustrating to me is the lack of a serious discussion of what the country is willing to do to make entitlement programs viable for the baby boomers–the true driver of future government spending. Republicans have proposed making Medicare into a premium support program starting in the next decade and converting Medicaid to a block grant but know that Democrats are not going to accept either proposal in anything like its present form.
Democrats don’t want to talk about entitlement reform of any kind. The President has indicated a willingness to discuss alternative ways to index Social Security but has not indicated any strategies regarding Medicare reform–the more challenging of the entitlement programs.
Hard to find the seedlings of a “grand bargain” in these tea leaves.
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