Sunday, May 19, 2013, was one of the saddest and most notorious moments in the sordid history of the federal budget.

Let’s start from the beginning.

It’s December 2012 and House Republicans are facing a number of politically very difficult and unpalatable choices because taxes will go up automatically on January 1, the sequester will go into effect on January 2 and the by-now- commonplace-but-still-called “extraordinary” measures the Treasury has been using for several months to deal with the problems caused by not raising the debt ceiling are about to be exhausted.

The tax problem was dealt with by agreeing to a smaller increase than was set to happen under current law and then blaming the White House for it. The sequester was postponed until March 1 when both the GOP and the administration thought that the threat of cuts to domestic and military programs, respectively, would cause the other to back down.

But it was the unique and disgraceful way the debt ceiling was handled that deserves the scorn.

In theory, with more exotic options like the trillion dollar coin and 14th amendment rejected by the White House, the only two choices facing Congress at that moment were to vote to increase the debt ceiling so the federal government could borrow the cash it needed to keep operating, or not to raise the borrowing limit and force Washington to default on some of its obligations. It was a very clear pass/fail, true/false, black/white choice.

This presented the House GOP with two very difficult choices. Voting against the debt ceiling hike was becoming increasing untenable as Wall Street and corporate America made it clear that was not an appropriate alternative from a financial perspective. But voting for the debt ceiling increase was a total nonstarter for the tea party wing of the GOP, which since it first came to prominence in 2010 had made debt ceiling votes one of its biggest political litmus tests.

The GOP’s solution to this dilemma was disgraceful. Instead of taking a political bullet and voting either for or against the debt ceiling, it came up with a scheme that allowed them to do neither. Rather than actually increase the debt ceiling and incur the wrath of their base, House Republicans brought a bill to the floor that required the federal debt ceiling to be iGNORED, that is, the Treasury could borrow whatever amounts it needed to cover its cash needs without any restrictions.

Then on May 19, without an additional vote and, therefore, with no member of the House or Senate having to go on record, the official federal debt ceiling would be raised to the amount the government had actually borrowed over the previous four-plus months. At that point, with the debt ceiling reached, the Treasury again would start to impose the so-called extraordinary measures and the countdown to the next debt ceiling crisis would begin.

At best, the federal debt ceiling is an anachronism, a vestigial organ of the federal budget process that should be eliminated. The actual borrowing needs are determined when legislation is enacted that changes either the amount the government spends or raises in revenues. Increases in the debt ceiling should be part of those bills rather than separate decisions and no member of Congress should be able to vote for a tax cut or spending increase unless he or she agrees at the same time to raise the debt ceiling to accommodate that choice.

But unless and until members of Congress and the White House have to face their constituents for agreeing to eliminate the debt ceiling, they should not be able to allow it to be ignored without taking responsibility for their actions.

The ultimate irony here is that congressional Republicans have been complaining about Senate Democrats not producing a budget between 2009 and 2012. That’s certainly true; Senate Democrats found the votes in favor of a congressional budget resolution with high deficits very politically difficult and decided that the better course of action was to ignore the requirement.

But now the same people on Capital Hill who relentlessly have castigated Democrats for ignoring their budget resolution responsibilities are the ones that authored the completely analogous procedure for the federal debt ceiling.

That makes May 19, 2013, one of the most egregious abrogations of legislative responsibility in U.S. history.

Originally posted at Capital Gains and Games.

There was a time when a $200+ billion reduction in the federal budget deficit would have been big news and hailed as a singular achievement worthy of either fiscal sainthood or a dance-on-the-table party…or both.

Yet yesterday’s Congressional Budget Office report showing that the fiscal 2013 federal deficit will be $642 billion, $203 billion less than CBO’s previous estimate of $845 billion, did not create any spontaneous cannonizations or celebrations. It also didn’t change the still-stalemated and crisis-oriented federal budget debate by even a small amount.

The bottomline: It’s in almost no one’s interest to be happy about the budget news that should have made everyone happier.

Here’s why.

1. The $642 billion estimate is indeed an overwhelming reduction from the 2009 $1.4 deficit and a substantial change from CBO’s February projection. But it is also $642 billion more than no deficit at all. That means that all sides in the budget debate will still be able to use even this much lower number to “prove” whatever point they were making before the new estimate was released.

2. The White House couldn’t take a victory lap because anything it said would have been mischaracterized by congressional Republicans as the president supporting a $600+ billion deficit.

3. Even though they could take some credit for keeping the sequester in place and, therefore, lowering spending, the congressional Republican leadership couldn’t take a victory lap because that would have been taken by some tea partiers as an indication that the speaker and majority leader were not going to demand additional reductions.

4. There’s anything but universal agreement among economists that reducing the deficit in the current economic environment is the right fiscal policy and, therefore, that the reduction in the deficit is good news. Given the still-slow corporate and consumer spending, the continuing cutbacks by state and local governments and the continuing economic problems around the word that are limiting trade with the U.S., Americas austerity-like fiscal policy that has been in place for several years may well be the exact wrong plan at this time.

5. The year-by-year deficit is quickly being replaced by the national debt as the number one fiscal issue. This isn’t surprising: the deficit is falling while the debt is rising and the deficit is in billions while the debt is in trillions. The fact that CBO projects the debt will soon be in a range that most economists would call insignificant makes no difference when the multi-trillion dollar debt sounds so scary.

6. In the wake of the report, the deficit hawk groups are still saying that the deficit is as much of a problem as it was before and pushing for a grand bargain. This too isn’t a surprise. After all, these groups would have less reason for being and far less ability to raise funds if the deficit didn’t exist as an issue.

7. Although the CBO forecasts show the deficit falling from 2013 to 2015, it also shows it rising in nominal terms each year thereafter. Even though that is far less meaningful than the deficit as a percent of GDP, which stays in the low 3.5 percent range, it still allows everyone to cherry-pick the results that best “prove” what they want to say.

So…Do the new CBO numbers mean that there won’t be a fight this fall over the debt ceiling and a continuing resolution? Absolutely not.

Originally published at Capital Gains and Games.

Last August and September, I did a series of eight posts about how, contrary to Tea Party and John Boehner assertions, federal spending was actually very popular. As I said at the time, Americans don’t want less government; they just want government that costs less.

The latest installment — episode 9 — happened last week when the air traffic control problems caused by the sequester were fixed in what by congressional standards was warp speed.

A continuing series
Read the full series

Faced with an immediate backlash from flyers, Congress and the White House enacted legislation that fixed the problems less than a week after the furloughs caused long delays in the skies and long security lines at the airports.

Yes…Flyers are a relatively elite group relative to the population at large. Yes…this is a group that has more influence and a larger megaphone than the average voter. And yes…the delays were easier for the media to cover and so were more visible than sequester-related reductions in other programs.

But my main point from last year’s series of posts is just a relevant now. Faced with the choice of a reduced federal service or a reduction in spending, the decision was immediate and unmistakable: a federal service was the winner.

I looked at the coverage of the FAA furloughs closely for any sign of anyone declaring that this is the price we have to pay for reducing the deficit. As far as I can tell either no one said it, or no one said it loud enough for it to be recorded. Convenience rather than belt tightening was the clear preference. (Please let me know if you saw the opposite.)

This says a great deal about the budget debate that’s ahead.

1. Federal programs that have the potential to inconvenience large groups — like air traffic control– are going to be very difficult to cut no matter what.

2. As happened with the sequester, spending reductions for these programs put in place with great fanfare and lots of political chestbumping are very likely to be reversed within a relatively short period. It might take longer than a week, but the reversals should be expected and built in to projections.

3. If the FAA was hard to cut, think about Medicare and Medicaid, which are far more important to many more people than air traffic control. Indeed, the biggest lesson of the FAA sequester reversal is that changes in Medicare and Medicaid will be far more difficult that anyone is imagining.

4. Federal employees should be worried. The administrative and operating expenses of most departments and agencies will not be a great concern to voters because it’s hard to see how most of that affects them directly.

5. The National Park Service may well be the next reversal if furloughs cause the parks to close one day a week or month as has been rumored.

6. The IRS may also be a candidate for a reversal if it becomes obvious that refunds are seriously delayed.

Originally posted at Capital Gains and Games.

As I posted on March 1, the sequester — the across-the-board spending cuts ordered by the Budget Control Act– would only become real for most voters when the predictions of the impact of the reductions actually started to have a effect on their lives.

Although some people felt it almost immediately, any budget analyst worth his or her salt knew that the real pain was always going to come when federal programs that were labor intensive started to implement furloughs, layoffs and hiring freezes and the services they provided had to be curtailed. That was always going to take a month or more because of the process that needs to be followed to notify employees.

But the fact that labor-intensive programs didn’t reduce services immediately when the sequester began on March 1 never meant that it wasn’t coming. It always was and the protests that the White House was playing fiscal chicken little were simply wrong.

That why it’s hard not be be at least somewhat amused by the mock congressional Republican outrage over the problems that started to be felt this week by airline passengers because of the sequester-related furloughs and other personnel changes at the Federal Aviation Administration.

It’s amusing because the air traffic control slowdowns were totally predictable. At least 70 percent of FAA’s expenses are personnel-related so it was inevitable that the 5.1 percent across-the-board sequester cut would be felt in everything the agency does including — or especially — in its primary function: managing air traffic. When you set up a system like sequestration that requires an agency or department to cut every program, project, and activity by the same percentage, and when an agency’s spending is mostly for salaries and other compensation-related expenses, it’s not hard to see from the start that there has to be an impact on the number of people doing that agency’s work.

No amount of outraged statements from Senate and House Republicans changes that budget reality.

It’s also amusing because congressional Republicans refused to believe the warnings that were coming from the agencies and departments themselves about what the sequester would do to their operations when they were issued in January and February.

They also flatly denied what the White House was saying at the start of the year about the impact the cuts would have on government services. The administration was fear-mongering, they said, even though it was clear to anyone who could read the federal budget that agencies like the FAA would have no choice but to reduce the services they provide and that airlines and passengers would feel the changes.

It’s also amusing because what’s happened this week with the FAA has happened before in 1995 and 1996 during the two government shutdowns. Anyone who lived through it will tell you that there was almost instant surprise, shock and anger about the national parks being closed because few realized it would actually happen or believed it when they were warned.

There are, however, three differences between what’s already happened this week and what happened 18 years ago.

The first is that the White House actually had more discretion in 95-96 than it has today. President Clinton had the authority to exempt critical programs — like FAA — from the shutdown. By contract, President Obama has no such power when it comes to the sequester.

The second is the people who have been affected. In 1995 and 1996 it was campers, hikers and RVers. This week it primarily was salespeople, Wall Streeters and business travelers.

The third is that there was a more or less instant cure for the shutdowns in 95-96 because the problem could be stopped quickly by passing a continuing resolution and reopening the government. This time, the debate will be far harder because the decision has a number of nuances. Are the funds taken from somewhere else to keep the planes flying on time? Should other government services be similarly rescued? Would it be better just to spend more and increase the deficit to restore these services? Will supporters of the other programs that might be cut to pay for FAA et al allow that to happen?

In the meantime, it’s impossible not to see this week’s congressional GOP complaints about the sequester either completely disingenuous, incredibly naive or totally uninformed. Of course it’s also possible that all three apply at the same time.

Originally posted at Capital Gains and Games.

This is not a post about House Budget Committee Chairman Paul Ryan’s (R-WI) exercise and diet program. It is, however, a post about how he’s planning to produce a budget that gets to balance in 10 years without actually balancing anything.

What Ryan is proposing is the fiscal equivalent of him saying that he wants to lose 20 pounds but isn’t going to counting the fat around his midsection to achieve it.

For weeks the budget and political worlds have been buzzing about how Ryan was going to be able to keep his pledge to bring a plan to the House floor that would balance the budget in 10 years without raising taxes. That’s a substantial task even after the already enacted revenue increases in the fiscal cliff deal and the $85 billion in sequester spending cuts, both of which Ryan has said he will include in his plan. It requires significant and politically very sensitive reductions in Medicare, Medicaid and probably Social Security.

We now know how Ryan’s planning to do it: by balancing the budget without counting interest on the national debt. In economic terms, that’s called bringing the budget into “primary balance.”

In other words, he’s not going to balance the budget at all.

How ridiculous is the Ryan balance-the-primary-deficit-only plan?

Try to imagine a Democrat proposing a balanced budget in 10 years by not counting military spending. That’s the equivalent of what Ryan is proposing to do.

This is not hyperbole. By fiscal 2017, total spending on the National Defense function of the federal budget currently is estimated to be close to what’s projected to be spent on “Net Interest” on the national debt — $590 billion vs $566 billion. As a percent of the budget in 2017 there is virtually no difference between the two.

Bringing the budget into balance without including interest means that the budget won’t be balanced at all. In fact, according to current projections it means that there will still be a $566 billion overall deficit.

My recommendation to Ryan: Don’t have your clothes altered anytime soon.

Originally posted at Capital Gains and Games.

How did the sequester happen? How is it possible that what supposedly was the worst possible way to cut the deficit somehow became what actually happened?

Over the weekend Ezra Klein, in a much retweeted blog post that was the talk of large parts of the political blogosphere, said that the GOP was never going to make a deal to avoid the sequester if it included a tax increase. Nothing…not the prospect of reductions in military spending, not the projected reduction in GDP, not the estimated increase in unemployment, not the lost possibility of a bigger deal to reduce the deficit and not the overwhelming likelihood that Republicans would get blamed for all of this…made any difference.

The GOP’s position seems to defy all economic and political commonsense until you realize how much GOP politics have changed in recent years.

The big fear among Republicans — especially those in the House — isn’t that a Democrat will beat them in the 2014 election. The big GOP concern these days is about being “primaried,” the new verb that tells you all you need to know about what’s happening in Washington. The redrawing of congressional districts following the 2010 census made sure that there are few multi-party competitive races. If there’s a big fight for a House seat, it’s far more likely to be in a primary. Once the nomination is over, the seat effectively is won and, except in waves when there is a larger-than-usual change, the general election is more of a formality.

That makes it especially important for someone running for a House seat to pay intense attention to those who vote in her or his primary.Their votes are more important in the almost always lower-turnout primary than in the higher turnout general election. And, most significantly, they are not necessarily (I’m being kind here) representative of the district as a whole.

This is particularly important to House Republicans because they are in the majority and desperately want to keep it. In fact, since the 2012 election, I’ve been told repeatedly by a number of incumbent GOP representatives that maintaining control of the House rather than winning the White House or gaining a majority in the Senate is their top priority.

That gives enormous power to those who vote in GOP primaries. The issue that’s almost singularly important to them is taxes.

That means that anything that even hints at let alone actually includes a tax increase an absolute political mistake for Republicans. This is true even if it prevents a bigger deficit reduction deal from happening, does overall harm to the U.S. economy, cuts the Pentagon or prevents a Republican takeover of the Senate in 2014.

One of the most interesting aspects of this situation is that the Democratic political strategy is just the opposite. The only way for the Dems to win control of the House is to broaden their appeal to the wider audience that votes in the general election and get them to turnout on election day. That means  that, rather than doing anything and everything possible to avoid it, letting the sequester happen and then making sure  Republicans are blamed for the pain and disgust is the better way to go.

And that explains all you need to know about why there was no deal to prevent the sequester last Friday. It was never about cutting spending or reducing the deficit; the fight always was about keeping or winning control of the House of Representatives in the next election. It wasn’t about dueling economic philosophies and it definitely wasn’t about the deficit.

Instead, Republicans and Democrats were playing to completely different audiences. That made a deal to avoid a sequester far less likely than most of us ever wanted to admit.

Originally posted at Capital Gains and Games.

The Clinton administration didn’t play as much hardball as it could have during the 1995 and 1996 federal shutdowns because it decided that the air traffic control system was a critical government activity.

Doing the opposite — and it definitely was a discretionary presidential decision rather than a legislated mandate — likely would have ended the shutdowns much faster because of the outcry when planes were grounded and everything from Fed Ex to business trips to honeymoons were affected. The economic damage and anger would have been immediate and intense.

The Obama White House appears to be going in a very different direction with the sequester. As this story by Matthew Wald in today’s New York Times shows, not only will the air traffic control system be included if the sequester occurs, the administration clearly is not reluctant in the slightest about making it clear that flights will be canceled or seriously delayed…or both if the sequester happens.

The article also makes it clear that a federal function that didn’t exist in 95-96  — the Transportation Security Administration and the security screenings it conducts at airports — will also be seriously affected.

This is why I keep saying that the politics of the sequester will change almost immediately after it starts. Slowdowns at U.S… airports, national parks closed one day a week, slower-than-usual tax refunds — all of which are likely to happen starting on March 1 — almost change how voters view the situation and the pressure on members of Congress to deal with it.

Originally posted at Capital Gains and Games.

A quick post about the new Bowles-Simpson plan that was announced yesterday because that’s all it deserves: It’s a total nonstarter.

(If you haven’t heard about it, here’s Jeanne Sahadi’s story from CNMoney.)

Bowles and Simpson didn’t have enough support to get their original plan through their own commission in 2010, so why do they or anyone else think their new plan is relevant now that the commission has been disbanded? Bowles and Simpson have no standing and no influence.

The new plan should be seen for what it really is: A desperate plea for attention by two men who have hurt rather than helped their reputations by releasing it. It’s the federal budget equivalent of Brett Favre continuing to play for other teams long after he should have just retired.

In the past I’ve said (here, for example) that the Bowles-Simpson Commission should be called the BS commission. This latest ploy by Bowles and Simpson makes it clear I was right the first time.

Originally posted at Capital Gains and Games.

Quick note about tonight’s State of the Union Address: I’m not expecting too much to be said about the budget, deficit or debt.

There are four reasons.

First, as much as a budget person likes me hates to admit it, all three of those topics are highly contentious, wonkish and almost certainly will darken the mood. In other words, they’ll do exactly what most president’s don’t want to do with a SOTU.

Second, the president will want to use the speech to talk about his vision, that is, about the “promised land” voters will find if they follow his lead. He will want to make it clear that budget problems will be solved, or at least diminished, as the country moves in that direction rather than the country will move in the right direction if it solves the budget problem.

Third, there will be plenty of time in the coming weeks for the White House to talk about these topics. In fact, as soon as the SOTU and the follow-up events the administration has planned around the country are over, that’s just about all it will be discussing through the end of March. The SOTU is almost the admnistration’s last chance not to focus on these things.

Fourth, since the 2012 election, the president has significantly changed his negotiating strategy when it comes to the budget and has refused to offer much in the initial meetings with the GOP. Making specific proposals in the SOTU about what he is willing to accept to reduce the deficit would violate that strategy.

This is not to say that the president won’t mention the budget, just that I expect he’ll do so in sweeping, grandiose terms rather than with specifics. He’ll likely call for a process that moves comprehensive tax and entitlement changes, for example. Stopping the constant warfare on the budget may also be an applause line.

Originally published on Capital Gains and Games.

Anyone who thinks H.R. 325 — the No Budget No Pay law that House Speaker John Boehner (R-OH) wants everyone to believe will do so much and be so important — will, in fact, make any difference is both falling for Boehner’s spin and doesn’t understand how the congressional budget process really works.

According to the Congressional Budget Act, a “budget” is not really a budget until the House and Senate agree on a congressional budget resolution conference report, that is, each house has to adopt its own budget and then compromise with the other on a joint agreement. The House- or Senate-passed budget resolution means nothing and neither that house nor Congress as a whole is obligated to follow it.

But the text of H.R. 325 makes it clear that the budget included in No Budget No Pay is not a budget resolution conference report:

If by April 15, 2013, a House of Congress has not agreed to a concurrent resolution on the budget for fiscal year 2014 …the payroll administrator of that House of Congress shall deposit in an escrow account all payments otherwise required to be made during such period for the compensation of Members of Congress who serve in that House of Congress, and shall release such payments to such Members only upon the expiration of such period.

In other words, No Budget No Pay doesn’t require the House and Senate to compromise on a budget, just that they agree on their own budget plan.

This is particularly important because of the misperception that No Budget No Pay means that reconciliation — the procedure that prevents a filibuster in the Senate when changes in spending and revenues are ordered in a budget resolution — can happen if just the Senate passes its own budget resolution. That’s completely untrue: Reconciliation only happens pursuant to instructions in a budget resolution conference report. In other words, the one thing that might actually have had an impact on the budget debate — a budget resolution conference agreement — is precisely what No Budget No Pay doesn’t require.

No Budget No Pay means nothing unless the two houses voluntarily compromise their differences, and that’s what neither has been willing to do.

Originally published at Capital Gains and Games.