Another Day, Another Budget…

April 10th, 2013 at 8:55 am

Up early, amply caffeinated, and already mixed it up with Joe Kernan on CNBC on the President’s budget due out later today, though details are trickling out.

Here are the White House’s bullets:

–Creates jobs by responsibly paying for investments in education, manufacturing, clean energy, infrastructure, and small business.

–Includes $1.8 trillion of additional deficit reduction over 10 years, bringing total deficit reduction achieved to $4.3 trillion.

–Represents more than $2 in spending cuts for every $1 of new revenue from closing tax loopholes and reducing tax benefits for the wealthiest.

–Deficit is reduced to 2.8% of GDP by 2016 and 1.7% by 2023 with debt declining as a share of the economy, while protecting the investments we need to create jobs and strengthen the middle class.

–Includes $400 billion in health savings that crack down on waste and fraud to strengthen Medicare for years to come.

The shift to the chained CPI, a benefit cut for Social Security, is embedded in the $1.8 trillion in savings in the second bullet, as is the cost of a benefit bump up for older workers to help offset the cut (i.e., they reverse some of the impact of the cuts with revenues from the switch to the slower growing price index).

I’m glad to see them leading with the jobs measures, though hard to see them getting very far.  But once the actual budget numbers come out later this morning, I suspect its architecture will reflect more of an “accelerator now, brake later” in terms the competing imperatives of near-term job growth and long-term debt reduction.

Re the latter, they lay out the $1.8 trillion in deficit reduction as follows:

–$580 billion in additional revenue relative to the end-of-year tax deal, from tax reform that closes tax loopholes and reduces tax benefits for those who need them least;

–$400 billion in health savings that build on the health reform law and strengthen Medicare;

–$200 billion in savings from other mandatory programs, such as reductions to farm subsidies and reforms to federal retirement benefits;

–$200 billion in additional discretionary savings, with equal amounts from defense and nondefense programs;

–$230 billion in savings from using a chained measure of inflation for cost-of-living adjustments throughout the Budget, with protections for the most vulnerable;

–$210 billion in savings from reduced interest payments on the debt; and

–$50 billion for immediate infrastructure investments, as noted earlier, to repair our roads and transit  systems, create jobs, and build a foundation for economic growth [this is a cost, if you’re keeping score].

The first bullet raises revenues though a 28% cap on deductions for households in the top 2% of the income scale, above $250,000, and the “Buffet rule,” a 30% minimum effective tax rates on incomes above $1 million (most of the revenue comes from the cap).

This is the price to the R’s for the cuts to Medicare and Social Security, and thus far, they’ve been adamant that they will not compromise.  If that’s so, then they should never be able to speak the words “grand bargain” again, as that’s what’s on offer here: entitlement cuts for new revenues.

The $230 billion there refers to the chained CPI, including savings from program cuts and about $100 billion from revenue increases.  Remember, under this price index, the tax brackets grow less quickly, so more income passes into higher brackets than under the current price adjustments.

Also, see that $200 billion in additional discretionary cuts?  Very bad idea.  The caps on this spending, at least on the non-defense side of the ledger, are already too deep.

Two observations.  First, there are two budgets in here.  The Boehner offer that comprises the second set of bullets above, and a lot of stuff that’s been in President Obama’s budget since he came on the scene but has never been enacted, along with some new initiatives, like his very cool pre-school idea, paid for through higher tobacco taxes.

I think the important point to emphasize, with the huge caveat coming in a moment, is that when the WH says, “this is not a menu—R’s don’t get to choose the chained CPI from column A and reject the revenue increases in column B,” they’re referring to the Boehner offer.  The other parts, like the pre-K plan, can be ordered a la carte.

OK, let’s be clear.  It’s highly unlikely that any of this is going anywhere soon.  Republican intransigence on tax revenues will continue to produce the gridlock that’s ground fiscal policy to a halt, though perhaps now even the most misguided commentators will not be able to frame this as “a pox on both their houses!”  Clearly, the WH is open to compromise, more open, in fact, than many of their D allies.

So we’ll slog along under the various patchwork solutions (“continuing resolutions”).  There will be an ugly dustup around the next debt ceiling, though my sense (or at least my hope) is that enough R’s are burned out on default threats to avoid that dismal fate.  In which case we end up with some agreement that gets D’s to swallow something they don’t like—maybe some more hacking away at the discretionary caps (ugh)—in exchange for another temporary increase in the ceiling.

I’m sorry if none of this is uplifting.  But like I said last night, we’re stuck with the worst fiscal policy process and outcomes I’ve seen in decades in this business.  I obviously get the importance of getting into the weeds of all these budgets, but at this point it’s more important to get out the weed whacker and figure out a way out of this mess.

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8 comments in reply to "Another Day, Another Budget…"

  1. The Raven says:

    “it’s more important to get out the weed whacker and figure out a way out of this mess.”

    Guy, how? This is looking like 1850s politics.

    And all the while the CO2 levels rise and the bees are dying.

    • Chris G says:

      > And all the while the CO2 levels rise and the bees are dying.

      Funny how those things are completely off the radar. They weren’t on the radar before the election, certainly not during it (obviously nobody wants to risk being labeled a pinko Commie treehugger), and not now. Not even a debate of YOYO vs WITT when it comes to environmental issues.

  2. Th says:

    Two thoughts: 1) the President just wasted one of his dwindling opportunities to describe “a way out of this mess.” Where is the future in this budget other than reduced expectations? Paul Ryan sells his snake oil as unleashing unprecedented growth and prosperity while the President sells… what? Patty Murray’s budget did a much better job of pointing back to full employment and economic growth and the Progressive Caucus budget did a great job of completely rejecting the idea that the budget proposals had to fall between unacceptable and horrendous.

    2) Vote for the Democrats; we’ll agree to cut SS and Medicare as long as we get to raise your taxes. What is it with winning reelection? Clinton dismantled the last cushion for the poorest among us, Bush tried to privatize SS and gave the congress to the Democrats and now this. Repeal the 22nd amendment.

  3. Fred Donaldson says:

    You didn’t look very happy with Joe Kernan lecturing you this morning, as he does with most guests who are not neolithic in their approach to the middle class.

    Wisely, in your current commentary you don’t mention the impact of Social Security chained cpi on the budget, since Soc Sec doesn’t affect the budget, but the concept of Dems helping the poor with changes just for them, because of the cpi, does result in a quandary. If it’s fair for the middle class, why does it need adjustment for folks just below the middle class?

    And nobody has talked much about the chained cpi affect on veteran retirees, who could lose up to a 16% cut in annual benefits at a certain point if they are currently 45-50. Not only are we saving money on the backs of people in wheelchairs from old age, but we’re stealing from the people who risked their lives so martinis flow freely in DC.

  4. Perplexed says:

    I’m having a little trouble with the math & mechanics here. How is it that the priorities of the wealthiest 5% of the country (deficit reductions, safety net reductions, tax reductions and loopholes) have the ability to hold what’s good for the 95% hostage to their demands? And how is it that they get the President to accept that this a reasonable way to to rank and negotiate the Country’s spending priorities? I can’t seem to get this to mesh with government by the people or government for the people in a democracy. Maybe they forgot to include the the bullet point where this gets addressed?

  5. Procopius says:

    OK, some useful information here, but I’m still puzzled.

    “The shift to the chained CPI, a benefit cut for Social Security, is embedded in the $1.8 trillion in savings in the second bullet, as is the cost of a benefit bump up for older workers to help offset the cut” Well, how can a change to Social Security be included in deficit reduction, when Social Security benefits do not come from the general fund? And why has no one, not one single person (until I saw it here), not Obama, not Reid, not Pelosi, not Axelrod, not Plouffe, not Valerie Jarrett, mention the “benefit bump for older workers.”? This is as stupid a tactical mistake as the DNC’s decision to not mention the benefits to be expected from Obamacare during the 2010 campaign, when the Republicans were screaming about Death Panels and “robbing Medicare.”

    Also, too, why do you say the Republicans should never, ever again use the words “Grand Bargain”? They don’t use the words anyway, they don’t want a Grand Bargain and never said they did. It’s only Obama who seems obsessed with this idea to the point of lunacy.

    • Jared Bernstein says:

      The switch to the chained index saves about $130bn in other on-budget programs and raises $100bn in revs, over 10 years. Sloppy writing on my part.

      • urban legend says:

        Specify, please — the other on-budget reductions being? Nobody has felt it necessary to say a word about this to critics, just as nobody cared about defending giving up the public option to those who cared the most — and did the most work to put the administration in the White House. Is that the vets? If so, that’s a defense?

        Higher revenues? I suppose that’s bracket creep, which is a pretty regressive way to do it.