Let's hear it for the SAFE budget

Fiscal issues will come to the fore when Congress returns to Washington. Raise the debt limit – pass a budget resolution – pass a spending resolution to keep the government going until the appropriation bills (late as usual) are wrapped up – take up the administration’s tax reform proposal (which has yet to be unveiled). Hmm, sounds straightforward, but these items are interrelated, political parties/factions will be jockeying for advantage, and only twelve working days are scheduled in September.

This week’s entry will begin an update on the foregoing by comparing three budget proposals for fiscal year 2018; other fiscal issues will be covered next week.

I. A New Foundation for American Greatness: The budget of the U.S. Government – We previously reviewed the president’s budget proposal, which was put on the table in May. See highlights below. Pluses and minuses: assessing the president’s budget proposal, 6/5/17.

Under the AG budget, deficit spending would continue for another decade. Most of the key players will be out of office by 2027; one might wish our political leaders would demonstrate a greater sense of urgency about solving the fiscal problem.

Defense spending would be boosted in the short term (but arguably not enough in later years), with sharp reductions in nondefense discretionary spending. Many proposed spending cuts are enumerated.

It’s our sense that these proposals have been well researched and merit thoughtful consideration. Quite a contrast to the airy promises (typically not kept) of the previous administration that government spending would be rigorously scrutinized as time permitted.

There is no realistic way to solve the fiscal problem without slowing the growth of “entitlement” programs, which constitute some 2/3 of the total budget. The AG budget would not significantly affect Social Security or Medicare outlays. Major savings are proposed from an overhaul of GovCare and Medicaid, but such an overhaul now seems unlikely. And there would be a new entitlement program for parental leave; the indicated cost is relatively modest, but would predictably grow once the program was set up.

Finally, critics challenged the assumed economic growth rate of 2.8% per year as overly optimistic. Trump budget would not balance in 10 years, CBO says, Kate Davidson, Wall Street Journal,

• Under the Trump budget, the federal deficit would total $720 billion in fiscal 2027, compared with a $16 billion surplus estimated by the White House, the CBO said in an analysis of the proposal.

•The White House estimates economic output will expand at an average annual rate of 2.8% over the next decade—implying more federal revenue and less spending on safety-net programs like unemployment insurance—while the CBO projects 1.9% growth a year on average under the Trump budget [only a modest improvement over the 1.8% growth rate assumed in the CBO’s baseline projection].

Oh well, Congress hadn’t approved the president’s budget proposal in ages; it’s typically considered “dead on arrival.” Perhaps our legislative leaders would develop a better plan.

II. Building a Better America: A Plan for Fiscal Responsibility - The House Budget Committee approved this plan in mid-July (download PDF for “Blueprint”).

A companion budget resolution was introduced on
July 21 (search for H.Con.Res.71) and is awaiting action by the full House in September. Assuming approval, it will be sent to the Senate (but no presidential action is required).

Like the AG budget, the BA budget projects a balanced budget without tax increases, but – despite some fine rhetoric about the urgency of addressing the fiscal problem - this wouldn’t happen until 2027. GOP budget: Deficit spending “a sin;” we’ll do it 9 more years, Terry Jeffrey, Townhall,

Given its own dire -- and correct -- analysis, does the committee call for spending cuts? No. Does it call for a spending freeze? No. It calls for gradually decreasing the increase in federal spending. As described by the committee itself, Congress is driving America over a cliff. But instead of bringing the bus to a stop, it advocates tapping the [brakes].

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Overall, the AG and BA budgets provide for essentially the same amount of deficit reduction versus the projected results under existing law.

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# REVENUES - The indicated reduction of about $1 trillion in both budgets is principally due to the assumed repeal of tax increases provided for in the Affordable Care Act; at this point, such repeal seems unlikely to happen. On the other hand, it is assumed that the contemplated “tax reform” would be revenue neutral, i.e., tax rate cuts would be offset by other tax law changes, which may also be unrealistic (even on a dynamic scoring basis).

#OUTLAYS – Although the projected reduction in outlays is similar for the two budgets, the AG budget sets more stringent targets for discretionary spending while the BA budget calls for greater savings in mandatory spending (including savings from the Medicare changes it proposes, but without any changes to Social Security). Thus, the respective outlay reduction data for FY 2027 compare as follows:

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#MACROECONOMIC ADJUSTMENT - The BA budget assumes a speedup in the economic growth rate to 2.6% per year, which would increase tax revenue (without raising rates), reduce outlays (e.g., for unemployment compensation), and reduce overall deficits by $1.5 trillion over the 10-year projection period.

We estimate that the pro-growth policies of health care reform, tax reform, welfare reform, and deficit reduction assumed in our budget will yield economic growth of 2.6 percent on average over the 10-year budget window, resulting in $1.5 trillion in deficit reduction.”

However, a market-based overhaul of GovCare now appears unlikely; easing of regulatory burden (notably, a proposed overhaul of Dodd-Frank) is lagging; and details of the administration’s tax reform plan remain under wraps (the plan will probably be unveiled in September).

Having already challenged the assumption of a 2.8% growth rate in the AG budget (see section I), the CBO is likely to take a similar tack in scoring the BA budget.

Republicans are hoping to engineer an exemption from the Senate filibuster rule (a minimum of 60 votes required for passage of most legislation). Provided all the requirements of the budget reconciliation process are met, the tax bill could be passed with 51 Republican votes.

To this end, the House resolution approving the BA budget will include reconciliation instructions to consider (1) mandatory spending reductions totaling a minimum of $203 billion over the next 10 years (with designated savings targets for 11 House committees), and (2) a plan for revenue neutral tax reform to be offered by the House Ways and Means Committee. House Republican budget proposal paves way for tax reform, another intraparty battle, Seth McLaughlin, Washington Times,

Rep. Kevin Brady, Texas Republican and chairman of House Ways and Means Committee, called the plan a “crucial vehicle that will drive permanent, pro-growth tax reform over the finish line this year. This budget resolution gives us the green light to move forward with tax reform legislation that will improve the lives of workers, families and job creators for generations to come.”

Overall, the BA budget is about on a par with the AG budget. Neither budget would attack the fiscal problem aggressively enough to suit us, and the reason is unwillingness to cut spending for wasteful or unnecessary government programs.

Now how can this be, when Republicans are currently in the majority and the GOP is known to be the party of limited government and fiscal responsibility? The reason, says one astute observer, is that Republicans toe the fiscal responsibility line with greater enthusiasm when it doesn’t matter than when they are in power. Oops, Republicans did it again, Veronique de Rugy, townhall.com,

Donald Trump was elected, and the GOP was once again in charge. Almost immediately, Republicans began touting increased military and infrastructure spending to create jobs and spur the economy -- the very Keynesian-inspired policies they attacked when advocated by Democrats. Even the small number of federal program terminations proposed by the Trump administration were too much for congressional Republicans. Nope -- when it comes to the federal budget and yet another looming brush-up against the federal debt ceiling, Republicans reveal that they're content to maintain an untenable status quo, despite all the lip service paid to the dangers of big government over the years.

III. Securing America’s Future Economy: Fiscal year 2018 budget – The SAFE budget was published by the Republican Study Committee about the same time as the official House budget. Kind of a catchy title (although we had nothing to do with it), don’t you think! RSC, News, 7/20/17 (download PDF).

The budget begins by describing the RSC as a “caucus of conservatives in the House of Representatives,” founded in 1973, which has “grown to include more than 150 members in the 115th Congress.” As that would represent a majority of the House Republican caucus, one would suspect that many participants are keeping tabs on what the RSC is doing without actually supporting its conservative goals. In contrast, the staunchly conservative House Freedom Caucus is understood to have about 40 members.

Unlike the AG and BA budgets, the SAFE budget is unabashedly conservative. It calls for significant cuts in discretionary spending and for restructuring of all entitlement programs (including Social Security). A balanced budget is projected in 6 years (by FY 2023), after which budget surpluses would become the norm and the federal debt would begin to be repaid. This conservative budget proposal is a real solution to America’s debt situation, Justin Bogle, dailysignal.com,

Typical of the no nonsense approach, there would be a dramatic cut in nondefense discretionary spending in fiscal year 2018.

This budget proposes reducing total regular discretionary spending to $1.062 trillion in Fiscal Year 2018, with defense spending increased to $668 billion and non-defense cut to $394 billion [versus some $624 billion in 2017]. Over the next decade, non-defense discretionary would be reduced by more than $1.5 trillion below the CBO baseline.

As another example, a series of ways to shore up Social Security are suggested, e.g., gradually raising the normal retirement age for future retirees, adjusting the formula for calculating retirement benefits to the benefit of low income retirees, less generously indexing retirement benefits for inflation, and allowing younger workers to opt out of the Social Security program in some fashion. The only idea rejected is raising taxes to bail the program out.

Realistically, no one expects the SAFE budget to gain traction. Most House Republicans will vote for the BA budget in September, and the holdouts will be “making a statement” or seeking some kind of concession. So what’s the value of the exercise? Here’s how the RSC answers that question in its budget:

The RSC budget aims to go well beyond the least common denominator of politics to reflect the American people’s desire to see a more responsible and accountable government. As with any proposal that dares to suggest what ought to be done, rather than just what is easy to do, this budget will inevitably be attacked as too conservative, too bold, too sudden, or too difficult to achieve. However, the measure of success for ideas is not their ease, but their persistence and effectiveness. Over time, ideas first espoused in RSC budgets are incorporated into the House budgets, the president’s budget, and into law.

As members of a group that has been advocating smaller, more focused, less costly government for over 20 years, we can relate to those sentiments. Let’s hope that the final sentence will come true!

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