Whither BP-2020

Last week’s entry provided an overview of the president’s budget proposal (published on March 11), which projected a 10-year deficit reduction of $2.8 trillion. This improvement was to be achieved primarily by reducing projected outlays (see table below), with no significant revenue increases. The annual deficit was shown as being reduced from $1.1 trillion in FY 2020 to $0.2 trillion in FY 2029.

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The current fiscal picture is less favorable than that reflected in the president’s first budget proposal (BP-2018, published in May 2017), which showed budget balance being achieved within 10 years (then by FY 2027). Deficit levels are higher now, and they are expected to persist until FY 2034.

BP-2020 claims credit for “more proposed spending reductions than any previous administration in history," yet the president’s opening statement places the onus for making the cuts on Congress.

My 2020 Budget builds on the tremendous progress we have made and provides a clear roadmap for the Congress to bring Federal spending and debt under control. We must protect future generations from Washington’s habitual deficit spending.

SAFE had previously suggested that the president should take the congressional budget committees to task for failing to heed the spending cut recommendations that the Office of Management and Budget (OMB) has been coming up with. SAFE letter,
2/25/19.

Congratulations to your budget staff for proposing so many well-supported spending cuts; we are urging Congress to give them serious consideration. Perhaps this point should be emphasized in the opening section of your FY 2020 budget proposal.

Major Savings and Reforms (MSR) for FY 2020 wasn’t published on March 11, but it’s available now along with the other budget documents. President’s budget for FY 2020, omb.com,
3/11/19 (download PDFs).

Perhaps reflecting our suggestion, the introduction to the new MSR includes a comment about congressional inaction that didn’t appear in last year’s MSR.

Most of the eliminations and reductions in this volume reflect a continuation of policies proposed in the 2018 and 2019 President's Budgets that have not yet been enacted by the Congress and highlight the Administration’s efforts to eliminate wasteful or unnecessary spending.

In sum, BP-2020 may represent a step in the right direction if Congress is in a listening mood, but it doesn’t go nearly far enough. We’d like to see some serious discussion of the fiscal problem in the 2020 election campaigns, and to that end will be urging all of the presidential candidates to commit to balancing the budget within four years if they are elected and explain how they would propose to get it done.

Maybe that represents wishful thinking, but what’s the point of asking for very little and getting essentially nothing? We think it behooves conservatives to push aggressively for corrective action instead of writing off the idea of balancing the budget as a lost cause.

A. Hearings – Since Mick Mulvaney became the acting White House chief of staff in December, Russell Vought – formerly the Deputy Director – has been the acting head of the OMB. As such, he appeared before both the House and Senate Budget Committees last week to answer questions on BP-2020.

The scheduling of the reviews was rushed (the MSR volume wasn’t available yet, and the budget committee members hadn’t had time to review BP-2020 thoroughly) and there was no unifying focus for the discussion. It seemed abundantly clear, however, that the Democratic members of these committees didn’t regard BP-2020 as a meritorious proposal and had no intention of taking it seriously. Republican members were generally supportive, but didn’t seem to have high hopes for reaching a constructive budget deal.

#HOUSE (March 12) – There are 30 members on the House Budget Committee and most of them were on hand for this hearing. Each member had five minutes to ask questions, and the session ran nearly 3 hours. Hearings on budget proposal, House Budget Committee,
video (3 hr., 7 min, starts at 16 min).

Chairman John Yarmuth (D-KY) and Ranking Member Steve Womack (R-AR) gave opening statements, the witness was given five minutes to preview his presentation, and then committee members were called in turn for five minutes of questions.

Rep. Yarmuth expressed disappointment with the president’s earlier budget proposals and characterized BP-2020 as a “recipe for American decline.” The nondefense spending cuts were bad enough, and a shameless accounting gimmick - Overseas Contingency Operations (OCO) - had been used to supercharge military spending while seeking to avoid negotiations on all (including nondefense) discretionary spending caps.

The fiscal problem may not be a crisis yet, suggested Rep. Womack, but there’s a lot of smoldering going on that could easily lead to a fire. The Budget Committee must lead by example and make tough choices. The president’s proposal isn’t perfect, but it’s a vast improvement over the baseline projections. Mandatory spending cannot keep growing as it has been, and if the proposed cuts aren’t popular then “what is your plan?”

Ensuing members alternated between Democrats and Republicans, of whom only the latter seemed inclined to take the fiscal problem seriously. Some of the Democratic members faulted the administration for failing to balance the budget, after all hadn’t President Trump said in 2016 that he would have the fiscal problem under control in 8 years, yet also took the occasion to complain about spending cuts that were being proposed – both big and small.

Your faithful scribe ran out of time and only watched part of this session, but here’s a recap that seems pretty solid. House Democrats attack Trump budget, Nate Maden, conservativereview.com,
3/13/19.

Bottom line: Until there’s a bipartisan consensus that we shouldn’t try to spend more taxpayer money than we bring in, this conversation will remain just as broken as it was Tuesday morning.

At the end, of the session, ranking member Steve Womack asked Vought what he know about the weaning of calves. The point of this question, based on Womack’s experience, is that calves react with great distress when deprived of their mothers’ milk. He suggested that beneficiaries of government welfare programs react in similar fashion when policies to limit benefits are under discussion.

Rep. Yarmuth had departed by this time, but
Vice-Chair Seth Moulton (D-MA) observed in his closing remarks that the weaning of calves analogy might equally well apply to the bawling of wealthy individuals when their tax breaks are threatened.

#SENATE (March 13) – There are 21 members on the Senate Budget Committee, of whom only 9 participated in the March 13 session.
Chair Mike Enzi (R-WY) allowed several members to ask second round questions, and even so the session only ran 75 minutes. Hearings on president’s budget proposal, Senate Budget Committee, video (1 hr., 29 min, starts at 14:30).

Sen. Enzi complained of continuing pressure to convert discretionary spending programs into mandatory spending programs, with the result that less and less of the total budget is subject to regular budget review. In his view, no spending program should be classed as mandatory unless it has a built-in revenue source to cover the costs involved. He also dismissed claims being made that deficits don’t matter, citing Federal Reserve Chair Jerome Powell and former Treasury Secretary Larry Summers as authorities on how the economy actually works.

Sen. Bernie Sanders (D-VT), the ranking minority member, said BP-2020 was an “absolute disaster” and an “insult to working class families,” which exposes the president as a charlatan. So the idea is to slash Medicaid and Medicare, while giving tax cuts to the 1%? And the government pays for 2/3 of all nursing care, so where will Granny go when the Medicaid budget gets slashed? Let’s discard this document immediately and do a serious budget.

Acting Budget Director Russell Vought gave an overview of BP-2020, reading essentially the same statement he had used with the House Budget Committee. Congress had ignored previous requests from the administration for fiscal restraint, and the bottom line was clear. Americans aren’t taxed too little; the government spends too much.

Sen. Enzi questioned the use of the OCO to circumvent the cap on defense spending. He also criticized the infrastructure presentation, which essentially involved offsetting the proposed infrastructure initiative by slashing expenses charged to the dwindling highway trust fund.

Sen. Debbie Stabenow (D-MI) slammed cuts to healthcare when there is a maternal and infant care crisis in this country and “junk” healthcare plans don’t cover maternity benefits. Are you telling me that money is more important than human health? And remember that the big surge in budget deficits was caused by tax cuts. Vought wasn’t able to rebut all of these points, but he did state that there was no aim to cut Medicaid, the aim was simply to convert the program to block grants and let the states run the program.

Sen. David Perdue (R-GA) – The fiscal problem has been building up for years; it didn’t start with the tax cuts (which are already paying off in improved economic results). And whatever the president may think, Social Security and Medicare will go bankrupt if the outlays aren’t limited in some manner. So, is this budget proposal a lead-in to a real conversation about cutting entitlements? To this last, Vought said OMB had made a good faith effort to lower mandatory spending.

Sen. Ron Wyden (D-OR) called BP-2020 “a big bunch of bad ideas,” suggesting that the inclusion of healthcare proposals modeled after the Graham-Cassidy bill was pointless as Republicans had been unable to pass this legislation while they had control of both houses of Congress and it certainly wasn’t going anywhere now. He also questioned a proposal to sell off assets of the Bonneville Power Administration on the Columbia River, saying that this proposal would raise power costs for working families in Oregon who he happened to represent.

Sen. Ron Johnson (R-WI) questioned planned delays to the biggest ecosystem project in the budget, the Everglades restoration project in Florida. Vought said there were “some tradeoffs” involved with other projects, but “we’ll work with you.”

Sen. Chris Van Hollen (D-MD) said waiting 15 years to balance the budget showed that the president wasn’t fiscally responsible. Also, how could we afford to cut all those educational programs? And funding the Education Freedom Scholarships with a dollar-for-dollar tax credit wasn’t appropriate because it took “generosity” out of the equation and was just a giveaway to elite private schools.

Sen. John Kennedy (R-LA) – How long would a family last if they bought whatever they wanted and charged it on credit cards? Isn’t that essentially what the government is doing today? And as for not cutting discretionary spending, everyone knows there’s a lot of waste in the budget.

Sen. Sheldon Whitehouse (D-RI) – Cutting real waste is fine, and we shouldn’t allow profitable big companies to pay no income taxes at all. But what are the effects on the economy of the proposed Corps of Engineers cuts? And if programs to fight climate change are eliminated, how will that affect the costs of operating low-lying defense bases and the FEMA natural disasters budget?

Sen. Van Hollen – You say that you want to cut the budget for programs that haven’t been shown to work, yet the Pentagon has never passed an audit (it failed the first one in history recently) and it’s getting more money. Also, making government employees contribute more of the cost of their pensions is effectively a pay cut.

Sen. Sanders – How many people will die as a result of proposed healthcare cuts? Did you even consider studies showing this is a fact? Also, don’t forget that healthcare inflation is higher than general economic inflation. Your argument that you aren’t cutting spending, but simply reflecting some savings, is nonsense. Here’s the code in use: Savings = cuts; Reforms = massive cuts. Fortunately, very few people – even Republicans – will vote for this terrible budget.

Sen. Enzi indicated that members who had missed the meeting could submit questions in writing for OMB.

In the course of two days of questioning, Acting Director Russell Vought had taken a pretty good pounding. And now, having heard what at best were considered “suggestions,” the members of Congress were going to work on their own budget resolution, which – if it was ultimately passed – probably wouldn’t look much like BP-2020.

B. Opening gambit – With all the excitement about the Mueller report, a budget resolution put forward by Senate Republicans last Friday didn’t attract much attention, e.g., a relatively short story buried in the inside pages of the weekend edition of the Wall Street Journal. Senate Republicans issue five-year plan to rein in budget deficit, Kristina Peterson, Wall Street Journal, 3/22/19.

Sen. Enzi’s package provides for a 5-year (versus 10-year) budget window, which in our opinion should be the standard for annual budgets anyway (fewer numbers, less clutter). There are numerous deviations from BP-2020, notably a dialing back of the administration’s use of the OCO to juice the defense budget (this point was raised by Sen. Enzi at the March 13 hearing). Overall, it’s projected that more deficit reduction would be achieved over the FY 2020-24 period than is called for by the president’s proposal – see table below. Enzi unveils 5-year deficit reduction plan, budget.senate.gov,
3/22/19.

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It’s been suggested that the main thrust of this proposal is not to establish a budget for the government per se, but rather to set the stage for renegotiation of the spending caps that are currently on the books and would slash discretionary spending for both defense and non-defense programs. Senate Republicans make opening bid on negotiating spending caps, Erik Wasson, bloomberg.com,
3/22/19.

Under current law, the $716 billion defense budget cap would fall to $576 billion in fiscal 2020 and the $597 billion non-defense cap would fall to $543 billion.

Lifting of these caps would have to be offset, however, by increases in the mandatory spending cuts that are currently reflected in the projection.

Enzi’s budget contains language that would allow the caps to be adjusted, if the spending increases are offset by spending cuts on the mandatory entitlement side of the budget over 10 years.

Politically, we suspect that this plan is more likely to win acceptance than BP-2020. Too bad, because there are some ideas in the president’s budget proposal (generally well documented in MSR) that deserve serious consideration. In particular, we’ll have more to say about the proposed healthcare policy changes in a future entry.

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