In the Nation's Interest

Monthly Member Update: SNAFU, FORSOOTH

The U.S. Congress is going to deal with three major budget issues this year.  But don’t get your hopes up.  The situation is normal – which is to say, dysfunctional.  (You all know what the real acronym is.)  These issues will be addressed only because they must.  No problems will be solved.  In fact, there is a real question whether problems will be created instead.

In sum, this is all theater.  In fact, given that life imitates art, and life is flirting with tragedy from a substantive point of view, let’s enjoy the art to the extent that we can.  All Washington’s a stage, and the play’s the thing.

Act One

When William Shakespeare had a soothsayer warn Julius Caesar to “beware the ides of March,” Shakespeare and the soothsayer did not imply, nor likely did Caesar infer, anything about the public debt.  Of course, Rome arguably did blunder off of the stage of history in part because it could not finance its empire; but the conversation at Caesar’s time had a different point (as it were).

Just three days ago, though, our national Treasury fell afoul of the calendar at just the same point as Caesar did.  Two episodes back in our debt-limit soap opera in the Congress (it has not risen to the level of Shakespearean tragedy), the scene progression was abruptly changed.  Up to that point, the debt limit was set in dollar terms, which meant that its duration in time was subject to the vagaries of the economy and the economically sensitive components of the budget.  But back in February of 2013, the Congress wanted more control over the pacing of the drama, and so they instead “suspended” the debt limit until a date certain in the future.  As of that date, the limit would be reinstated at whatever amount the debt would happen to constitute at the time.  This time around, with some minor refinements to limit further the Treasury’s flexibility to build up a cash balance in anticipation, the Congress repeated that scene.  And the scene was set to end, appropriately enough, upon the ides of March.  And here we find ourselves.

So now the Treasury Secretary is unable to borrow normally in the financial markets, and must resort to his “extraordinary measures” – lately much more common than extraordinary – to finance the operations of the federal government.  By chance or by design, this reinstatement comes shortly after the Treasury has paid most of the tax refunds that are due to over-withheld individuals and households, and shortly before calendar year 2014 tax returns are due (on April 15).  In part for this reason, and in part because the budget is improving temporarily, the Secretary’s extraordinary measures will buy him a considerable length of time – perhaps until October, perhaps close to Christmas – before he is totally strapped for cash.

Some have argued that past impending collisions with the debt limit have motivated salutary action on budget policy.  However, that is a naïve misreading of history.  The most significant deficit reduction actions – 1982, under President Reagan; 1990, under President George H.W. Bush; and 1993, under President Clinton – were undertaken for other reasons.  In 1982, the budget was recognized as out of control, errors in the 1981 budget legislation were recognized, and President Reagan was willing to step up to the plate and compromise to solve a major problem.  In 1990, it was economic weakness and the impending sequestration under Gramm-Rudman-Hollings, not the debt limit, that motivated the first President Bush to sit down with the other party.  And in 1993, the prime mover was a President who set fiscal responsibility as his highest priority and was willing to pay a political price to achieve it.  In each of those instances, a President and a Congress already willing to incur the pain of reducing the deficit increased the debt limit while they were at it – like a surgeon who fixes a just-discovered minor problem before sewing up a patient after a major operation.  But the debt limit was by no means the primary causal factor, and justifying the near-existential risks from potential mismanagement of the statutory limit because it might induce positive legislative action is a gross miscalculation of cost and benefit, in my view.  (I discussed this issue at greater length in an earlier weekly CED blog, at https://www.ced.org/blog/entry/you-cant-judge-a-law-by-its-intent.)

So what happens whenever the Treasury actually does exhaust its extraordinary borrowing authority, and cannot raise the cash it needs to pay its bills?  That is up to the willingness of the Congress to resolve the issue.  As of right now, just as in the other recent instances, there are some Members of Congress who express their determination to go to the wall against the President to extract various concessions.  Most but not all of those concessions have to do with changes in budget policy, including primarily reductions in spending.  (“My kingdom for a debt-limit increase…”)  So there is plenty of reason to expect the grinding of gears to emanate from our nation’s capital.  Such dissonant music is hardly the food of love – but we must play on.

Act Two

Unfortunately for our metaphor, the ides in April does not fall on the 15th (it actually is the 13th).  However, if it did, the pattern of Act One would continue smoothly into Act Two.  The Congress is obligated by law to complete a budget resolution by April 15.  When the fiscal calendar was set in the Congressional Budget and Impoundment Control Act of 1974, the due date for the budget resolution may have been set to April 15 to tie the Congress’s obligation to complete a budget resolution to the citizens’ obligation to file their tax returns.  If that were the case, then the taxpayers probably have a much better record of performance than does the Congress of late.  The Congress has completed a budget resolution in precisely zero out of the last four years, five out of the last 12, and seven out of the last 14.  So we have spent as much time without a congressional budget as with one over this and the preceding presidencies.

You surely have heard people say that the nation has a budget problem because the Congress has not enacted a budget.  Actually, it is the other way around; the Congress has not enacted a budget because it cannot summon the courage to confront our serious budget problem.  To be sure, if our leaders want to claim that they govern effectively, producing and adhering to a budget would seem to be a minimal prerequisite.  But the failures to complete budget resolutions began with a vengeance after the budget went south in a big way after 2001.

The budget resolution is often largely symbolic, and so one might think that it would be a risk-free vote for Members of Congress.  But symbols matter in politics.  If times are bad, and a large budget deficit is inevitable in the coming year, an honest Representative or Senator who votes for a realistic budget resolution will be tagged by his opponent with voting for the deficit, a big increase in the debt, and increases in spending on (for example) SNAP (which used to be called Food Stamps), “welfare,” and every other unattractive federal safety-net program.  No official regulator of political advertising integrity would rule such an ad to be “inaccurate,” as distorted and unfair as it clearly would be.  (Politifact and similar impartial authorities would finger those ads, if they came up for review, and for what that would be worth to the maligned policymaker.)

For these reasons, budget resolutions following 2001 became political nightmares for Members of Congress with competitive seats.  Not only was the budget in deep yogurt in the near term, but there were associated policy problems 10 years out.  The new management in Washington in 2001 wanted to be able to enact a big tax cut without the possibility of a Senate filibuster (which would require 60 votes to stop).  To accomplish that under the Senate rules governing the budget, they needed to terminate the revenue cost within 10 years.  In practice, what that meant was “sunsetting” the major 2001 tax cut package after 9-1/4 fiscal years (that is, at the end of calendar year 2010).

The end result was that Members contemplating a subsequent budget resolution covering the coming 10 years found themselves on the horns of a dilemma.  If they did not want to show the budget remaining in substantial deficit throughout the entire duration of the budget resolution, they had to allow the tax cuts to expire.  But that would leave them nominally in favor of a “tax increase,” which would occur after 2010 when the tax cuts expired – at least as far as the 30-second advertisers were concerned.  Ah, there’s the rub.  It is no surprise that the Congress’s performance in completing budget resolutions fell off the table because of these atmospheric issues after 2001, and therefore after the performance of the budget took a long-term turn for the worse.  In fact, in the first few years, the Congress found a cheap expedient:  They reduced the durations of their budget resolutions from 10 years to five, so that they did not have to answer the question of whether they would allow the tax cuts to expire.  Everything was covered over with a wink and a nod, and the Congress managed to pass budget resolutions in 2002 and 2004, and then again in 2008 through 2010 (with the Congress in 2009 and 2010 under decisive control of the President’s party).  But 2010 was the last budget resolution we have seen.

So this year, we have unified control of the House and the Senate by the party in opposition to the President.  To convince the voters to give them control, among other things, the Republicans made the point that Democrats, despite their control of the Senate, had not successfully cooperated with House Republicans to complete a budget resolution.  So now, with control of both chambers, the Republicans have to produce, lest they be hoist with their own petard.  And they face problems of their own.

The budget resolution takes the wide-angle view.  (We’ll reach some of the details in Act Three.)  And the Big Picture is important to Members of Congress seeking reelection.  Of the 34 Senators up for reelection in 2016, 24 are Republicans; only 10 are Democrats.  So at the crudest level, the Republican majority in the Senate is highly exposed; but the plot thickens further.  Among the most competitive seats, five have Republicans running in generally Democratic states (citing the Charlie Cook “Partisan Voting Index”).  So Republican Senators who put their own reelections first will seek to echo the soothing tones coming from their leader, Senator Mitch McConnell (R-KY): don’t rock the boat, show that you can govern and that you can get along.  That approach, not coincidentally, also would be the most favorable toward the party’s presidential prospects.

Republican Members of the House, in contrast, will run for reelection in their smaller and often gerrymandered districts.  Many House Members (both Republicans and Democrats) have sufficiently safe districts that they face no real threat in any general election.  But given the predominance of ideologically extreme voters in primary elections, even long-time incumbent Members easily can lose in a primary if they are not extreme enough.  Such House Members need to take a hard line on prominent, even symbolic votes – and the budget resolution is near the top of that list.  In fact, although you will not hear them say it in public, numerous House Republicans who put their own reelections first will admit privately that they have no interest in bending their public profiles to smooth the way for a Republican to take the White House.  They just don’t care.  They will breathe fire in this Congress so that their likely primary voters will support their re-nomination, and will be happy in the next Congress to breathe fire toward whoever the resulting Democratic president might be.  House Republicans in that category include those who voted against Representative John Boehner (R-OH) for Speaker after the 2014 elections, and then were willing to buck their Speaker and shut down the Department of Homeland Security – of all agencies – over hot-button immigration policy.

But let’s be real.  It is highly unlikely that the House conservatives’ aggressive plans would go anywhere in this Congress.  Not only would their own Republican Senators resist, but obviously, the President would veto any such package.  A budget resolution and the reconciliation bill that implements it might not be subject to a Senate filibuster, but the reconciliation bill – the one that actually changes policy – would be subject to a presidential veto.  And overriding the veto requires two-thirds, not just 60 votes, in the Senate.  Certainly, the House conservatives could negotiate with the President and come up with a compromise that he would accept.  But there is no sign of such a dialog to date, and no sign of anyone proposing such a process for the future.  So a fire-breathing House budget resolution would be even more abhorrent to many Republicans in the Senate:  Not only could it constitute their own self-impalement in the forthcoming election (remember what happened to Marc Antony), but it would be futile to boot, in that it would not accomplish anything in terms of policy change.

Thus, many Republican Senators will want a soothing budget resolution – go along to get along, you scratch my back and I’ll scratch yours.  In contrast, many House Republicans will want a budget resolution that purports fundamentally to re-shape government – at the cost of offending many voters, including the elderly over Medicare and Social Security, and including those needed to reelect Republican Senators and elect a Republican president.

In fact, a budget resolution is a highly malleable document – a chameleon, in effect, like fair Portia as the defense attorney in The Merchant of Venice.  First of all, it does not have to say anything.  Virtually the budget resolution’s only number – one number – that really matters is the total amount of money that may be spent in annual appropriations bills for the coming fiscal year (more on that in Act Three).  Everything else in the resolution can be unflavored mush if the authors wish it to be so.

But if a congressional majority wants to spice up the mush, still without any real implications for policy, it can.  Dramatic changes in policy can be signaled but not really proposed by putting them in the 11th year of a 10-year resolution (as was the case in a recent House budget resolution proposal for some degree of privatization of Social Security).  “Deficit-neutral reserve funds” can be created to allow the majority to pursue all manner of legislation later on – although usually such reserve funds are put in the resolution with no intention of any ultimate action, merely to gratify the advocates of particular causes.

In contrast, a budget resolution can set the stage for real, revolutionary change.  In particular, it can contain “reconciliation instructions” that require the various committees of jurisdiction over programs to report minimum amounts of spending cuts and / or revenue increases.  If those committees do not produce, then at least in theory the Budget Committees can write their own legislation to the same effect.  (This has never happened.)

So if the Senate wants to write an elevator-music budget resolution that delivers nothing and offends no one, they can do that.  Or if they want to write a budget resolution that promises the world in soft language and paper accounts but delivers nothing, they can do that, too.  And at the other extreme, if the House wants to write a budget resolution that puts a stick of dynamite under the federal government and lights the fuse, they can do that.

So which will it be?  Or will the Congress fail to complete any budget resolution at all?  The answer to that question lies in whether the House and the Senate can agree on a budget that somehow promises enough for the House, but does so softly enough for the Senate.  Can the Senate, which wants nothing real, and the House, which insists on real change, be satisfied with the same resolution?  Or will the constituencies of both sides rebel?  Do the Republicans in the two chambers care enough about each other to be willing to try to cooperate?

By all accounts, both the House conservatives and the ideologically oriented groups that support them are dissatisfied with the work of the Congress thus far.  They believe that everything they have done since their accession to control of Congress in 2011 has amounted to empty promises and sham.  If they are to stay on board through the completion of a House-Senate budget resolution that also satisfies a nervous Senate that is more than willing to wait two more years for real change, Act Two will be one of the best mysteries the theater has ever seen.  The budget resolution’s identity will be as much of a surprise as was Macduff’s gestation.

Act Three

In contrast to the symbolism that likely will predominate in the budget resolution of Act Two, Act Three will spill a lot of ketchup – or maybe even real blood.

As was mentioned earlier, the one function that a budget resolution needs to perform is to set a total amount of appropriations for the coming fiscal year.  If the Congress does not complete a budget resolution, then the House and the Senate must ad lib to begin the appropriations process (the Budget Act requires the two chambers to wait for the completion of the budget resolution to begin their appropriations work, but allows them to start on May 15 if the budget resolution is not completed by then).  If there is no budget resolution, as in so many other awkward legislative situations, the House majority can use its control of the rules to set its own number and move on.  But the situation in the Senate is much more complicated, and every Senate step of the process of writing appropriations bills in the absence of a House-Senate budget resolution is tortured.

So even though much of this year’s budget resolution will be solely for purposes of show, the appropriations part will be for real dough.  And as the budget resolution melds into the appropriations process in Act Three, it will reveal still further real conflicts both within and between the Senate and House Republican caucuses.

Already, there is conflict brewing (“bubble, bubble, toil and trouble”) in the House over defense spending.  The traditional conservative position has been pro-Pentagon and pro-defense spending.  Many Republicans adhering to that school of thought have spoken out against the much-reduced, so-called “sequester” level of defense spending caps.  However, many of the new breed of populist conservatives see defense spending in the same light as other appropriated spending; they believe it is a part of “big government,” and should be cut just as readily as anything else.  And even among the pro-defense conservatives, there are varying gradations of willingness to compromise with Democrats to find agreement for higher defense spending caps.  Some would be happy to offer higher domestic spending caps to Democrats to get their reciprocation on agreement on higher defense caps; for other pro-defense conservatives, it is “my way or the highway,” as it were (which is ironic given that by the end of the play, highway funding also will be involved – read on).

So already, some of the more-traditional Republicans such as Senators John McCain (R-AZ) and Lindsey Graham (R-SC) have been outspoken on the need for greater defense spending, while Senators Rand Paul (R-KY) and Jeff Sessions (R-AL, and Chairman of the Budget Committee) are openly opposed.  And already, there is a proposal for a “deficit-neutral reserve fund” – remember that chameleon – to finesse the issue until later this year.  Senator McCain is willing to strike a deal with Democrats to increase both defense and domestic funding; others are vociferously opposed.

Now, in the House budget resolution draft, we see the first salvo in this internecine battle.  Under Budget Chairman Tom Price (R-GA), the House resolution would supply a large defense spending increase – but would call it “emergency” funding for “overseas contingency operations” (OCO), which would not count against the spending caps.  But the House resolution also claims to achieve budget balance by its tenth year (fiscal year 2025), and to do so it must assume that this 2016 “emergency” eases abruptly before 2017 (and then ends totally before 2022), allowing the level of defense spending to drop precipitously just in time to achieve balance in the last year.  And the resolution seeks no meeting of the minds with either congressional Democrats or the President, in that it would make up some of this additional defense spending by cutting domestic appropriated spending.  Thus, at this stage, there is little prospect of this approach to budget policy becoming law in the annual appropriations process.

Where is this leading us?  It is hard to know.  About the only thing we can say with some measure of confidence is that there likely will not be individual appropriations bills enacted on time this year, following the pattern of at least the last dozen years.  We most likely will see a series of continuing resolutions, followed by some form of omnibus bill enacted well after the 2016 fiscal year already has begun.  So those who believe that government is inefficient and ineffective will have more evidence for their case; it is hard for agencies to plan and modernize their operations when they have uncertain budgets and no meaningful congressional oversight year after year.  And it is impossible to know how the House and Senate majorities will settle their internal differences, and their differences with each other – and how those processes will affect their relationships with the House and Senate minorities and the White House.

Act Four – Denouement

As those appropriations conflicts begin to come to a head when the current fiscal year and its funding expire at the end of September, the debt limit will just be coming to its own critical stage (if current forecasts materialize).  And over the same six months, the Congress will have had to face funding crises with respect to transportation (the Highway Trust Fund will have run low, constraining grants to state governments), and the Medicare program’s “sustainable growth rate” formula will have imposed a 21 percent across-the-board reduction in physician reimbursements unless legislation intervenes.  How the Congress has dealt with all of those issues will help to determine whether it can resolve the debt limit crisis as it rises to a full boil (cue Macbeth’s witches one more time).

So will it be “all’s well that ends well,” or “all are punish’d?”  Stay tuned.  Or rather, be sure to come back to your seat after intermission.