With the media
awash in stories claiming that this week’s budget deal is a dramatic turning
point in fiscal policy, setting out what it does and does not do seems
worthwhile.
From a fiscal
point of view, the Democrats achieved a surprisingly large increase in
non-defense discretionary spending, albeit starting from a very negative
base. For the current fiscal year and
the one that starts this coming fall, the agreement would erase one of the two
major rounds of reductions in defense and non-defense spending that Republicans
extracted in the Budget Control Act of 2011.
The full implications will not be clear until Congress passes final
spending legislation next month.
A bit of
background is necessary here. Republicans
forced President Obama and congressional Democrats to agree to the Budget
Control Act as the price of their agreeing to raise the debt limit. It dramatically lowered the annual ceilings
on defense and non-defense discretionary appropriations for the next ten
years. It also established a bipartisan
commission to find means of achieving further deficit reduction. The Act provided that if the commission
failed to agree on a plan for further deficit reduction, or if Congress failed
to enact a commission recommendation, further deep across-the-board cuts would
occur automatically. This second round
of reductions to the discretionary spending caps, known as sequestration, was
to cut defense and non-defense spending to a roughly equal degree.
President Obama’s
staff argued that the threat of defense spending being sequestered would force
Republicans to agree to a balanced plan of tax increases and entitlement cuts
to achieve the additional savings required to prevent sequestration. In practice, Republicans held firm to their
“no new taxes” mantra, and the commission deadlocked. When sequestration took effect, considerable
chaos ensued, including huge lines at airports for security screenings.
Instead of
prompting Congress to revoke sequestration, as some had hoped, these problems
only caused Congress to shift money around to avoid the highest-profile
problems. The result has been chronic
underfunding of numerous governmental functions. Administrators cut corners and took risky
chances to function with inadequate funding; when the inevitable failures
caught the public’s attention, they typically were attributed to incompetence
or stupidity rather than chronic underfunding.
This enabled a new round of attacks on the Obama Administration in
particular and government in general.
For example, with chronic underfunding having thinned
the ranks of officials performing environmental assessments, Republicans
and industry have complained (with little
empirical support) that these reviews are holding up important projects and
must be curtailed. The real scandal of
the attack in Benghazi was that protection for diplomats in war-torn areas had
been cut back so severely that Ambassador Stevens could only do his job by gambling
with his life.
The Budget Control
Act’s defense cuts have been moderated consistently with “emergency”
appropriations outside the caps for “Overseas Combat Operations (OCO)”. In practice, the Pentagon has stretched the
definition of what is needed to support our wars in Afghanistan and Iraq to
supplement its basic operating budget.
Democrats have tried, with far less success, to achieve similar ends
with proposals for “emergency” funding outside of the caps for various domestic
crises.
The spending caps
resulting from the Budget Control Act made annual appropriations bills all but
impossible to enact. The caps
necessitated such low funding for domestic programs that Democrats did not want
to be associated with these bills, and Republicans were uncomfortable taking
sole blame for these unpopular cuts. The
House Republican Freedom Caucus and similar factions also refused to support
appropriations bills, demanding ever-deeper cuts.
As a result,
Congress has enacted a series of bipartisan agreements raising the
discretionary spending caps for one or two years with the cost offset through cuts
to entitlement programs and extensions of the Budget Control Act beyond its originally
scheduled expiration. This past week’s Bipartisan
Budget Act of 2018 (Public
Law No. 115-123) is the latest of these temporary cap-raising bills.
The Bipartisan
Budget Act raises the caps on discretionary spending more during its two-year
life than prior cap-raising agreements have.
The levels it sets for the caps fully eliminate the effects of the
Budget Control Act’s sequestration cuts but not the Budget Control Act’s initial
cuts to discretionary appropriations caps.
As a result, non-defense
discretionary spending in the two years covered by this agreement will be 5.3%
below 2010 levels adjusted for inflation and 11.0% below 2010 levels adjusted
for inflation and population growth.
Previous cap-raising bills did significantly less.
Republicans
demanded that the defense caps rise more than the non-defense caps; that did not
happen to any great degree, although the OCO escape valve has made the defense
caps much less onerous even before the legislation. Republicans also demanded that the domestic
spending increases, but not the defense ones, be offset with cuts to entitlement
programs. The final legislation includes
a package of offsets that Republicans can claim pay for some of the non-defense
spending and that Democrats can claim pay for part of both the defense and the
non-defense increases. Some of the
offsets are real, some are less so, but none of them appear to be deeply
destructive.
Left unanswered by
this legislation is just how the additional spending will be allocated. In the past, after raising the discretionary
spending caps with the help of Democratic votes, Republican appropriators have
shut Democrats out of the process of distributing these funds, allocating
relatively little to Democrats high-priority programs, leading some to question
whether the deals were worth it. Having
been burned in this manner before, Democrats surely obtained side deals about
how the restored funding will be spent, but we will not see evidence of them
until an omnibus appropriations act for the rest of the current fiscal year
moves through Congress next month.
The Bipartisan
Budget Act contains significant emergency funding for disaster-stricken areas,
including Puerto Rico and the U.S. Virgin Islands. This includes additional money to supplement
the grossly
inadequate Medicaid block grants for the island territories. (This experience should provide a powerful
warning of the dangers of proposals to block-grant other important programs
nationwide.) The Act also includes a
relatively small amount of supplemental appropriations to respond to various
problems, real and political, and renews funding for community health
centers.
Finally, the
Bipartisan Budget Act suspends the statutory debt limit for the remainder of
this calendar year. The debt limit
serves no independent fiscal purpose and has long outlived whatever utility it
might once have had. Members of Congress
who believe they can credibly threaten to refuse to raise it nonetheless have
been attracted to it as a vehicle for extorting others who fear disastrous
economic consequences if the limit is exceeded.
The Budget Control Act of 2011 shows just how powerful and enduring the
fruits of such extortion can be.
Prior to the
Bipartisan Budget Act, the federal government was due to breach the debt limit
by mid-March. Many or most Republicans
were expected to oppose a freestanding debt limit bill, making it difficult
for their leadership to bring such a bill to the floor. Most Republicans would vote for a debt limit
bill with severe spending cuts, but some would not even then and Democrats were
unlikely to provide the necessary votes for such a package. Rolling the debt limit in with legislation
raising the appropriations caps offered Members of both parties a way to avoid
a crisis while not casting a vote specifically on the debt limit.
The budget deal
does not include any extension of Deferred Action for Childhood Arrivals
(DACA). With congressional Republicans
split and the President continually increasing his demands for a DACA deal,
congressional Democrats simply did not have the leverage to insist on its
inclusion in this package. Polling
showed that much of the electorate opposed provoking a government shutdown over
DACA. Although Democratic leaders
insisted that last month’s shutdown was over other issues, so many Democrats
were demanding a shutdown over DACA that the media largely ignored leaders’
denials. Presidents Clinton and Obama
managed to trigger government shutdowns purportedly over one set of issues to
gain leverage over a very different set of concerns. But it is far easier for Administrations to
control public perceptions in such crises than it is for congressional parties
with many voices, especially those in the minority, to speak with a unified
voice. The Democrats may have means of forcing
votes on DACA, but a government shutdown is not it.
The big picture is
that this deal is relatively small potatoes substantively. In particular, it is almost trivial relative
to the massive tax cut legislation enacted late last year: it increases the deficit far less and is
largely limited to two fiscal years (and does not change the long-term baseline). It also moves the nation’s finances part-way
back toward historic levels, in contrast to the tax bill’s movement away from
historical norms. The commentators
insisting that this legislation makes the Republicans the party of spiraling
deficits are one bill too late.