GOP budgets face uphill battle

In early February, the president sent a proposed budget for fiscal year 2016 to Congress. Our assessment was negative. Reverse engineering the president’s budget, 2/9/15.

Basically, the plan is to hike taxes on the well to do and big business, fritter away the resulting revenue increases, and continue running annual deficits in the $0.5T+ range indefinitely. Not exactly what we were hoping to see.

Congressional Republicans had their turn last week. Both the House and Senate budget committees put plans on the table, which projected similar results – balance the budget in 10 years without raising taxes, primarily by reducing projected entitlement program outlays – but differed as to how these results should be achieved.

The House plan was somewhat specific as to where and how spending would be reduced, while the Senate plan seemed designed to set up a process that would force various Senate committees to incorporate spending reductions in the legislative measures they would be working on in coming months.

As we understand it, the GOP hopes to review these plans in the House and the Senate, respectively, reconcile the plans passed by the two houses, and adopt a final budget resolution by mid-April. The president’s support won’t be needed for that, but it would have to be sought later for appropriation bills, etc.

The Senate Rules exempt budgeting from a super-majority voting requirement, and Republicans are hoping to connect numerous legislative proposals to the budget resolution, which would otherwise be blocked by filibusters. For example: repeal GovCare, pass revenue neutral tax reform, and clip the wings of certain regulatory agencies (e.g., end the Consumer Financial Protection Bureau’s access to Federal Reserve revenues, forcing the CFPB to ask Congress for funds like other agencies). While the president could still veto bills that reached his desk, he and his party might pay a political price if this power was used too freely.

Our guess is that the Republicans’ plan of attack will falter – even though many of their ideas seem commendable. The public will never understand the arcane details of the reconciliation process, we’re pretty fuzzy on this subject ourselves, and the national conversation will turn to the familiar theme of blaming the GOP for any government “shutdowns” that occur.

As for reasoned debate and logical decision-making, the political stakes are too high. Some of the principals have stopped listening to the other side, if they were ever doing so, as was demonstrated last week when the GOP budget plans were unveiled.

A. The rollout – It would be fair to say, we think, that Republicans gave the back of their hand to the president’s budget proposal in offering their own plans. Such treatment may have been merited, but it was probably not appreciated by the other side.

Here are a few zingers from the House plan (a layman’s language pamphlet, with the legislative resolution packaged separately). A balanced budget for a stronger America, House Budget Committee,
March 2015 (download “the plan”).

•President Obama announced a new “middle class economics” agenda during his State of the Union address, but it is his policies that have hurt America’s middle class the most.

•President Obama has presided over nearly $2 trillion in tax increases in the past six years. These tax hikes are sold as a way to ensure the wealthy “pay their fair share,” but it is the middle class that is paying the price.

•Obamacare is not working for America’s families, doctors or employers. It is imperative that the president’s healthcare law be repealed . . .

•For his part, the president’s budget is an unserious proposal that ignores current law and requests a defense budget that exceeds the current law and caps on spending without a real plan to avoid a guaranteed, across-the-board, indiscriminate sequester cut.

•Since President Obama took office in January 2009, the federal government has issued more than 468,500 pages of regulations. The overwhelming amount and complex nature of these regulations is hurting our economy.


The Senate plan slammed the president’s proposal even more pointedly, e.g., by displaying this chart on the first page. A balanced budget that supports economic growth and expands opportunity for hardworking families,
March 2015.

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B. Cleveland speech – In short order, the president was firing back. He spoke at the City Club of Cleveland, before an apparently youthful and receptive audience. Transcript, 3/18/15.

The president began with a familiar litany (State of the Union address missed the mark,
1/26/15). The economy had been collapsing when he took office in 2009, and now things were on the mend – “12 million new jobs, a stock market that has more than doubled, deficits that have been cut by two-thirds, healthcare inflation at the lowest rate in nearly 50 years, manufacturing coming back, auto industry coming back, clean energy doubled.” Much work remained to be done, of course, but this was a promising start.

Then there was a new segment about the Republican budget plan (the president didn’t mention the Senate plan), which was said to represent the latest example of the trickledown economics the GOP kept peddling in a never-ending effort to please the rich and well connected.

. . . look at the budget that House Republicans put forward just yesterday. It’s a budget that doesn’t just fail to embrace middle-class economics; it’s the opposite of middle-class economics -- doubles down on trickle-down.

The president’s first criticism deserves special mention. Not being factually supportable, it raised doubts as to what he could be thinking about.

Under the Republican budget, millionaires and billionaires would get an average tax cut of more than $50,000 per year. Translation: The average millionaire would take home about as much in tax cuts as the average middle-class American makes in an entire year. Now, they say they’ll also close high income tax loopholes for folks at the top, which I’ve put some very specific proposals for how we can do that. Their budget does not name a single loophole it would close. Not one.

OK, but where in the House budget plan was anything said about a tax cut for millionaires and billionaires? The 10-year budget projection showed zero change in tax revenues, i.e., no increases or decreases. And while there was a pitch for comprehensive tax reform, to be achieved by eliminating tax preferences and offsetting these changes by cutting tax rates, the stated goal was making the tax system simpler and fairer, not helping some particular social class.

Furthermore, there was nothing in the accompanying statement on tax reform to suggest that the upper crust would benefit at the expense of everyone else. A balanced budget for a stronger America,
March 2015 (download “legislative text”).

•Over the past decade alone, there have been 4,107 changes to the tax code, more than one per day. Many of the major changes over the years have involved carving out special preferences, exclusions, or deductions for various activities or groups. These loopholes add up to more than $1 trillion per year and make the code unfair, inefficient, and highly complex. In addition, these tax preferences are disproportionately used by upper-income individuals.

•As for individual income tax rates, it is proposed to “substantially lower” them and consolidate “the current seven individual income tax brackets into fewer brackets.”

More details would be needed to assess the effects of the GOP tax reform proposal, of course, but there was no basis for instantly characterizing it as a tax cut for millionaires and billionaires. Was the president saying, in effect, that the tax increases on the well to do in his budget proposal should be viewed as establishing a new baseline – compared to which the GOP proposals would represent a cut? Consider that the idea of raising taxes by executive action had been floated earlier, as will be discussed under the next heading, and that he was said to be interested in the idea.

The president went on to complain about proposed spending cuts in the GOP budget, including stripping healthcare insurance for millions of Americans, taking away Medicaid coverage for millions more, and cutting “our core national security funding to its lowest level in a decade” while “those at the top aren’t asked to sacrifice a single dime.”

These claim were debatable. Re the defense budget, for example, the Republicans were proposing a slightly higher level of spending than the president had – although their numbers were packaged differently (maintain sequestration budget caps, higher allowance for “overseas contingency operations”). House budget plan.

Our budget allocates funding for the Department of Defense’s (DoD) Overseas Contingency Operations fund in 2016 which when coupled with our base defense spending levels brings our FY 2016 budget for national defense to $613 billion in total – higher than the President’s budget request for the fiscal year.

As for bringing down projected deficits, the president noted twice that the deficit had been reduced by 2/3 since the extraordinarily high deficit in 2009 and suggested that there was no need for the GOP’s “budget cut at all cost” approach.

I think we should bring down our deficits; my budget would keep our deficits below 3 percent of GDP. That’s a rate that most economists agree protects our fiscal help [sic].

At the conclusion of his remarks, the president took questions from the audience. Most of the questions were supportive and open-ended, eliciting some interesting responses. He regretted not closing Guantanamo Bay on his first day in office, it would be transformative to make voting mandatory and thereby undermine the power of money in politics, etc.

The president’s answer to “since you’ve been in office, what has surprised you the most” was “the continued difficulties in Congress getting stuff done that shouldn’t be controversial.” For example, everyone agreed that it would be a nice idea to fund $2 trillion in infrastructure so why not go ahead and do it?

Or take the budgets he had talked about. None of them would actually be implemented, but they could serve to inform Americans about the values and ideas of the two parties.

•Now, the Republican budget will not end up getting passed. My budget won’t be passed, given I’ve got to work with a Republican Congress. But it is a reflection of what our priorities are.

•If we know what the issues are and who is taking what positions, then I think our democracy functions well. Right now, what happens is people just hear, there’s a mess, there’s an argument, they’re at it again -- and then oftentimes people just withdraw and don’t vote. And then people are cynical and dissatisfied, and that actually empowers special interests and the status quo, which we want to discourage.

Fair enough, but one had to wonder how the people in this audience – and their fellow Americans – were supposed to determine “what the issues are.”

Following media reports wasn’t the answer, at least according to the president.

. . . the media is so splintered up. If you’re watching FOX News, you get an entirely different reality than if you’re watching MSNBC. So everything is just like an opinion. But there are hard, cold facts about how things work and who is being responsible and who’s not.

And as he had said earlier, it wasn’t necessary to do anything really tough like, say, reading and assessing the competing budget proposals.

“I don’t expect you, by the way, to read the budget -- theirs or mine -- but you can do some fact-checking on this.”

Perhaps the idea was to listen to him, or visit the White House website for “the hard, cold facts” and a running update on “who is being responsible and who’s not.” The president didn’t offer these suggestions, however, so the conclusion was left to one’s imagination.

C. A shot across the bow – On the same day as the president’s speech in Cleveland, two Republican tax leaders (Representative Paul Ryan and Senator Orrin Hatch) were reported to have warned that the president lacked authority to change the tax law and should not attempt to do so. Don’t even think about it: GOP warns Obama not to try executive fiat-tax hikes, Stephen Dinan, Washington Times, 3/18/15.

“This would be a mistake, both constitutionally and politically,” the two lawmakers said, adding that if the president pressed ahead, it would make it much tougher for him to reach a deal with Congress on simplifying the tax code and permanently eliminating tax breaks.

Why make such a statement, which seemingly belabored the obvious? The starting point was a letter from Senator Bernie Sanders (I-VT), urging the administration to close six corporate tax “loopholes” that could raise $100 billion over 10 years rather than relying on Congress to take action. Sanders to Obama: Don’t wait for Congress on tax overhauls, Nick Timiraos, wsj.com,
3/1/15.

In ensuing discussion, this suggestion was generalized to such an extent as to potentially include tax changes for individual taxpayers as well. Obama “very interested” in raising taxes through executive action, Conn Carroll, Townhall.com,
3/2/15.

"The president certainly has not indicated any reticence in using his executive authority to try and advance an agenda that benefits middle class Americans," [White House Press Secretary Josh] Earnest said. Although there was no “imminent announcement” that Earnest knew of, “the president has asked his team to examine the array of executive authorities that are available to him to try to make progress on his goals. So I am not in a position to talk in any detail at this point, but the president is very interested in this avenue generally.”

Were Ryan and Hatch being unduly alarmist? Given the extent of fuzzy thinking about the limits on executive power these days, maybe not. Thus, consider one law professor’s claim that the president could simply ignore an adverse decision from the US Supreme Court in the King v. Burwell challenge to GovCare (which we wrote about last week). “Intellectual” in America, Laura Hollis, Townhall.com,
3/20/15.

William Baude, assistant professor of law at the University of Chicago, wrote a New York Times op-ed this week, in which he suggested that President Obama can "bypass" the Supreme Court (in the event of an adverse ruling in King v. Burwell) by simply ignoring the decision. *** Professor Baude describes such an approach as having "a strong legal pedigree." One wonders what he thinks about the "pedigree" of the entire common law system, of which the American legal system has been a part for nearly 400 years. (Yes, I am counting the early colonies.)

In a somewhat similar vein, a Princeton professor was recently quoted as characterizing a federal judge’s order for the administration to stop implementing its executive orders concerning five million illegal immigrants as “nonsense,” albeit admitting that he was not “a lawyer or legal scholar.” [Woodrow Wilson School] reacts: The consequences of postponing Obama’s immigration policy, Rose Huber, Princeton.edu,
2/18/15.

D. Path forward - Standing up for fiscal discipline is never easy, and with the president and his party fighting the GOP budget plan (presumably a hybrid version of the House and Senate plans) at every step, Republicans will have their hands full. The back and forth last week was merely the first skirmish, with much more action to follow.

The Republicans may have erred by attacking too many targets at once without making clear what they really hope to accomplish. It also doesn’t help that a good many of them – especially defense hawks who think military spending needs to be bolstered – would be relieved if the budget caps put in place in 2011 were lifted. Beyond budget plan, lawmakers aim to eliminate sequester, Susan Ferrechio, Washington Examiner,
3/21/15.

•Republicans and Democrats are hoping for a deal that mirrors a 2013 agreement that lifted the sequester caps for two years. It was struck by then-Senate Budget Committee Chairman Patty Murray, D-Wash., and then-House Budget Committee Chairman Paul Ryan, R-Wis.

•Congress may have no choice but to find a way to eliminate the sequester cuts, which were implemented with the intention of cutting $1 trillion in federal spending over a decade. Brian Deese, senior adviser to President Obama, told reporters Friday at a Christian Science Monitor Breakfast that the president will not sign into law any spending bill that keeps the domestic spending caps in place.


While support for fiscal discipline may be “a mile wide,” in other words (paraphrasing an old saying, “it’s only an inch deep.”

As matters develop, we hope to be able to offer some suggestions on how to achieve the best possible outcome. Readers, if you have ideas on that score, please let us know!

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