House and Senate Republicans are moving forward with competing versions of the congressional budget resolution for fiscal year 2018. Last week, the House approved its version by a vote of 219–206, and the Senate Budget Committee put out its version as well. The Senate will consider the committee’s recommended resolution in the coming days.
These resolutions are viewed correctly as the first steps toward enactment of tax reform. They would authorize consideration of the GOP’s planned tax legislation under the rules of budget reconciliation. Reconciliation bills can be approved in the Senate with a simple majority vote. With 52 Republicans now in the Senate, the GOP could, in theory at least, pass a tax bill without needing any votes from Senate Democrats.
But an important question about tax reform remains: Can it be passed within a responsible overall fiscal plan? Unfortunately, the GOP’s emerging budget framework is a major cause for concern from this perspective.
The Republican sponsors of these resolutions claim they would lead to (or at least make progress toward reaching) a balanced budget at the end of 10 years. It’s important to a lot of Republicans to be able to say they voted for a balanced budget.
But Republicans really don’t have a plan to balance the budget; in fact, they don’t have a budget plan at all. What they have is an agreement to move forward on tax reform, which is important. But tax reform could stall if it isn’t pursued within a sensible overall fiscal policy.
The House and Senate budget resolutions can’t be taken seriously because they vastly overstate the GOP’s commitment to real spending restraint. Both the House and Senate versions assume deep spending cuts over the next decade — spending cuts that Republicans have no intention of putting into actual legislation. In fact, the GOP’s legislative priorities are likely to increase future deficits rather than reduce them.
The Senate committee’s version of the resolution supposedly cuts spending by a total of $5.1 trillion over the next 10 years, including $4.3 trillion from entitlement programs. The tables released by the committee explaining the plan do not indicate which programs would be cut to reach the overall target, or what kinds of reforms would be pursued to produce such large savings.
There is no possible way to hit the spending targets of the Senate resolution without major cuts in Medicaid and also Medicare. In July, the Senate rejected, by a vote of 43 to 57, a plan to repeal and replace the Affordable Care Act (ACA) that would have cut federal spending by $0.9 trillion over 10 years, including nearly $0.8 trillion in Medicaid spending restraint. The net deficit reduction from this amendment was estimated at $0.4 trillion. One reason the amendment failed was concern among some Senate Republicans that the cuts in Medicaid spending were too deep. The cuts needed in Medicaid to reach the targets in the committee-reported resolution would be far greater than the cuts which were already rejected in the Senate.
The committee-reported resolution in the Senate would allow a tax bill to reduce revenues by a total of $1.5 trillion over 10 years, and increase spending on appropriated accounts (mainly for defense) by $43 billion 2018. After 2018, the resolution assumes the appropriations committee will embark on a multi-year program of deep spending cuts in non-defense accounts, saving $632 billion over the period 2019 to 2027. There is no viable plan to produce this level of savings in appropriated accounts.
The House-passed resolution is similar in that it assumes large unspecified savings in entitlement programs and non-defense appropriated accounts that Republicans have shown little appetite for advancing. The House version is better than the Senate version in that it requires key House committees with jurisdiction over entitlements to produce legislation to cut spending by $200 billion over a decade. But $200 billion in savings over 10 years isn’t nearly enough to balance the budget, and may not be enough to offset the expected increases in defense spending. (The House resolution also calls for a revenue-neutral tax reform instead of a tax cut.)
The most likely outcome of a House-Senate compromise on the competing versions of the budget resolution is a tax cut of some size, but perhaps less than the $1.5 trillion authorized in the Senate version. It is also possible that the House will force the Senate to accept some level of savings, perhaps $100 billion or more, from entitlement programs that would be required in a reconciliation bill. A compromise budget resolution will authorize a sizeable increase in defense spending, as it should, but there won’t be much savings in the non-defense accounts, and perhaps none at all.
The net effect? Republicans’ budget plans point toward an increase in future budget deficits rather than a reduction.
Now is not the time to increase federal budget deficits. The economy is growing and near full employment. There is no need for fiscal stimulus. Moreover, large and growing federal deficits and rising federal debt are perhaps the most serious threats to the nation’s long-term prosperity. The Congressional Budget Office (CBO) projects the federal government will run a cumulative deficit of over $10 trillion over the next 10 years under current law, pushing federal debt up from 77 percent of GDP today to 91 percent of GDP in 2027. By 2040, CBO expects federal debt to reach 123 percent of GDP.
Republicans should be putting forward a budget plan to reduce long-term deficits, not the reverse. While there is no need to fixate on balancing the budget in 10 years, there is a need to not make matters worse in the near term and to take firm steps to head off a fiscal crisis over the medium and long-run.
To their credit, the Republican plans to repeal and replace the ACA would have lowered long-term Medicaid obligations. Those plans were rejected in the Senate, but Republicans should not give up on their ideas. A modified approach to Medicaid reform, with more assurances of coverage for low-income households, might still be possible. In addition, Republicans should find agreement among themselves about what realistic adjustments in Medicare and Social Security they can advance to keep the trust funds solvent and to reduce long-term obligations.
Republicans are now fully in control of the two elected branches of the federal government — they are running the government. There is a real risk at this point in overpromising on spending cuts that the party has no intention of pursuing. A better approach would focus on more modest, incremental steps that point in the right direction, and which Republicans would actually try to enact.
James C. Capretta is a RealClearPolicy Contributor and holds the Milton Friedman chair at the American Enterprise Institute.