Discussion: (0 comments)
There are no comments available.
View related content: Economics
On Thursday, the House of Representatives passed the Bipartisan Budget Act of 2013, with remarkable bipartisan support. 169 Republicans and 163 Democrats joined hands in a touching moment of Kumbaya, providing the federal government with funding to operate uninterruptedly for not two weeks, not two months, but two years to come—as long as the Senate manages to pass the same budget legislation next week. How, one may wonder, did we come such a long way from the partisan conflict that marked most of the past few years? And what implications will this deal have for the nation’s fiscal, economic, and political future?
Let’s first look at the substance of the deal. It consists of $62 billion in spending increases for the next two years, partially undoing the spending cuts imposed by sequestration, while extending sequestration from 2021 to 2023, reducing spending in those years by $28 billion. A variety of other deficit-reduction measures, totaling $57 billion, make for a net reduction of the deficit over the next decade of about $23 billion. These measures include pension benefit cuts for civilian and military federal employees, an increase in taxes on plane tickets (called “user fees,” because as you can tell from lines at airports across the country, consumers are desperate to enjoy the TSA’s services), and, of course, a vicious and aggressive war on waste, fraud and abuse.
Democrats in both the House and the Senate have shown overwhelming support for this deal. Most of that support is derived from the near-future spending increases that lift discretionary spending above $1 trillion, a nice, big, round number. House Budget Committee Chair Paul Ryan, who negotiated the deal with Democratic Senator Patty Murray, his Senate counterpart, has praised the deal for reducing future deficits, albeit only slightly. The law as written does indeed have that effect, though it does little to nothing to address the escalating costs associated with programs like Social Security, Medicare and Medicaid, which drive most of the future fiscal challenges facing the country.
Even more disconcertingly, most of the spending decreases come much later than the spending increases. This concern has been expressed by many conservatives, both inside and outside of Congress. The overwhelming majority of new outlays will occur in the next two years, while over half of the deficit-reduction measures will take place in 2022 and 2023. To put that into perspective, some 20 million Americans currently will pass away before then. And it’s not just that: most of these reductions come from an extension of sequester cuts by two years. But as we’ve just seen, these broad cuts are easily reversible and enjoy bipartisan unpopularity. If the precedent set this week has any predictive power, spending caps will indeed be raised after 2014 as well. If, like in the current deal, they are elevated to a level halfway between those with sequestration and without sequestration, spending would increase by at least an additional $100 billion, comfortably erasing the projected $23 billion in deficit reduction from the current House deal.“This deal does at least one thing: it removes some of the uncertainty introduced by Congress’ policymaking approach of the last few years” – Stan Veuger
That said, this deal does at least one thing: it removes some of the uncertainty introduced by Congress’ policymaking approach of the last few years, under which tax rates are set 20 minutes before they kick in, the government is funded on a day-by-day basis, and a global financial crisis is regularly only days away. Professor Daniel Shoag of Harvard’s Kennedy School of Government and I have estimated that such uncertainty contributed between one and two percentage points to unemployment rates during the recession; eliminating some of that would be extraordinarily helpful in what is still a weak labor market in an economy that is recovering slowly.
Another forte of the bill that should appeal to conservatives is of a more political nature. By removing these budget issues from the table (and hopefully raising the debt ceiling ahead of time early next year), Republicans can continue to focus the attention of the public on the dramatic rollout of Obamacare. Whereas Republicans were demanding the delay of one feature of the law (the individual mandate) in October, the administration has now delayed a wide variety of its components, some of them repeatedly. From the employer mandate to the small-business exchanges, from healthcare.gov to enrollment periods, practically nothing remains in place as originally planned. Even Democrats running for reelection have started distancing themselves from the law. If these problems, delays, and displays of staggering incompetence continue, the fewer distractions the better for Republicans in the midterm elections next November. And that, above all, makes this deal an attractive one for conservatives.
Stan Veuger is a resident scholar at AEI. His academic research focuses on political economy and applied microeconomics.
There are no comments available.
1150 17th Street, N.W. Washington, D.C. 20036
© 2016 American Enterprise Institute for Public Policy Research