A closer look at the budget deal

Here’s a good article in the Wall Street Journal about the budget deal struck by the House, Senate and White House on the weekend.

Excerpt:

The big picture is that the deal is a victory for the cause of smaller government, arguably the biggest since welfare reform in 1996. Most bipartisan budget deals trade tax increases that are immediate for spending cuts that turn out to be fictional. This one includes no immediate tax increases, despite President Obama’s demand as recently as last Monday. The immediate spending cuts are real, if smaller than we’d prefer, and the longer-term cuts could be real if Republicans hold Congress and continue to enforce the deal’s spending caps.

The framework (we haven’t seen all the details) calls for an initial step of some $900 billion in domestic discretionary cuts over 10 years from the Congressional Budget Office (CBO) baseline puffed up by recent spending. If the cuts hold, this would go some way to erasing the fiscal damage from the Obama-Nancy Pelosi stimulus.

[…]The second phase of the deal is less clear cut, though it also could turn out to shrink Leviathan. Party leaders in both houses of Congress will each appoint three Members to a special committee that will recommend another round of deficit reduction of between $1.2 trillion and $1.5 trillion, also over 10 years. Their mandate is broad, and we’re told very little is off the table, but at least seven of the 12 Members would have to agree on a package to force an up-or-down vote in Congress.

If the committee can’t agree on enough deficit reduction, then automatic spending cuts would ensue to make up the difference to reach the $1.2 trillion minimum deficit-reduction target. One key point is that the committee’s failure to agree would not automatically “trigger” (in Beltway parlance) revenue increases, as the White House was insisting on as recently as this weekend. That would have guaranteed that Democrats would never agree to enough cuts, and Republicans were right to resist.

Instead the automatic cuts would be divided equally between defense and nondefense. So, for example, if the committee agrees to deficit reduction of only $600 billion, then another $300 billion would be cut automatically from defense and domestic accounts (excluding Medicare beneficiaries) to reach at least $1.2 trillion.

One reason to think tax increases are unlikely, however, is that the 12-Member committee will operate from CBO’s baseline that assumes that the Bush tax rates expire in 2013. CBO assumes that taxes will rise by $3.5 trillion over the next decade, including huge increases for middle-class earners. Since any elimination of those tax increases would increase the deficit under CBO’s math, the strong incentive for the Members will be to avoid the tax issue. This increases the political incentive for deficit reduction to come from spending cuts.

Mr. Obama’s biggest gain in the deal is that he gets his highest priority of not having to repeat this debt-limit fight again before the 2012 election. The deal stipulates that the debt ceiling will rise automatically by $900 billion this year, and at least $1.2 trillion next year, unless two-thirds of Congress disapproves it. Congress will not do so.

I don’t like the deal because I wanted Obama to have to face this problem with this again in May of 2012, but it may be the best deal we could get with control of only the House.

4 thoughts on “A closer look at the budget deal”

  1. I don’t like it, either, but I agree it may be the best possible at this time. The main problem I have is that nothing is ever written in stone with these guys, regardless of party. What’s done with this Congress can be undone with the next. But at least it is leaning toward spending reduction rather than tax increases. THAT is a victory in and of itself.

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    1. Paul Ryan was just on Medved and I thought I heard him say that the first round spending cuts are automatic, and the second round cuts require a 60-vote majority to overrule. I could be wrong.

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  2. I would have liked it to come up again in may 2012 because according to this fox new poll (http://www.foxnews.com/politics/2011/07/20/fox-news-poll-majority-against-raising-debt-ceiling/) most americans say they will blame the GOP if all of this fails rather than blaming Obama. Now if this comes up again in 2012, you know it will drag out again and most of the GOP (tea party in particular) will really have a tough time getting re-elected. My fear is that by the end of next year when voting comes around is most will forget that the GOP backed tax cuts during all of the wars they pushed caused the mounting deficits and the sky rocketing debts (definitely Obama has played a major role approving these budgets but as of yet there is no decent GOP presidential alternative – everyone is trying to cater to the 1 – 2% tea party voice that seems to be drowning out all reason)

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    1. I agree with you. This was actually one of the main things I wanted was to have this come up again in 2012. But there will be a debate going on in 2012 about the second round of cuts at least, so that’s something.

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