More About James Horney
Jim Horney is the Vice President for Federal Fiscal Policy at the Center on Budget and Policy Priorities, where he specializes in federal budget issues.
Full bio and recent public appearances | Research archive at CBPP.org
At some point, the President and Congress will likely agree on a deficit package that includes both up-front savings and a target for more savings that they would achieve in 2013 by changing tax and spending policies.
The package also will likely include a backstop mechanism that’s designed to ensure that the 2013 savings come to fruition even if the President and Congress fail to agree on those policy changes.
In designing that mechanism (e.g., automatic across-the-board spending cuts), policymakers will face a decision that’s received little attention of late — whether to continue a quarter-century tradition of protecting low-income programs or to break faith with that tradition and risk serious harm to the poorest and most vulnerable Americans.
Ever since the 1985 Gramm-Rudman-Hollings (GRH) law, with its annual deficit targets and its across-the-board spending cuts (or “sequestration”) to enforce them, policymakers have exempted low-income mandatory (or entitlement) programs whenever they’ve included backstop mechanisms of that kind in deficit-reduction packages. That tradition includes both versions of GRH (1985 and 1987), the pay-as-you-go laws of 1990 and 2009, and the sequestration mechanism of last year’s Budget Control Act. Most of these laws were enacted on a bipartisan basis.
Were policymakers to ignore this tradition, at risk would be such key safety net programs for the nation’s most vulnerable families and individuals as Medicaid, the Supplemental Nutrition Assistance Program (SNAP, formerly known as the Food Stamp Program), Temporary Assistance for Needy Families, Supplemental Security Income for poor seniors and people with disabilities, child care assistance, free and reduced-price school meals for low-income children, and the Children’s Health Insurance Program.
Subjecting these programs to a backstop mechanism would impose enormous hardship on people already living on the margins, far below the poverty line, and it would likely result in increases in homelessness, hunger, and the number of people who can’t access needed health care. The effects on poor young children could be long-lasting.
The crafting of a backstop mechanism, and what’s in it, is part of a larger question: who should bear the burden of deficit reduction?
In the plan by its co-chairs, former White House Chief of Staff Erskine Bowles and former Senator Alan Simpson, the President’s fiscal commission concluded that any deficit reduction plan should “protect the truly disadvantaged.” Similarly, a blue-ribbon private commission chaired by former Office of Management and Budget Director Alice Rivlin and former Senate Budget Committee Chairman Pete Domenici proposed a plan that avoided cuts in low-income mandatory programs other than Medicaid. The plan produced in July 2011 by the Senate’s bipartisan Gang of Six did the same.
Those who believe that deficit reduction should not increase poverty, inequality, the ranks of the uninsured, or other hardships for our most vulnerable citizens should honor the Bowles-Simpson principle to that effect. Policymakers should not overturn more than 25 years of precedent, and instead should maintain the historic exemption for low-income entitlement programs from automatic cuts under a backstop mechanism.
House Speaker John Boehner is complaining that President Obama’s latest offer in their “fiscal cliff” negotiations is too light on spending cuts, but he and his House Republican colleagues are ignoring the cuts that policymakers have enacted since last year as part of ongoing deficit reduction efforts.
“The White House offer yesterday was essentially $1.3 trillion in new revenues for only $850 billion in net spending reductions,” the Speaker said yesterday. “That’s not balanced in my opinion.”
But, to describe the state of play that way, you have to turn a blind eye to reality in at least two ways.
For starters, Boehner complains that, in what the White House describes as an offer of $1.2 trillion in spending cuts and the same in tax increases, Obama counts interest savings that accrue as spending cuts, thus making the one-to-one ratio illegitimate.
Well, interest savings are counted as “outlay” savings in the federal budget. Besides, the Bowles-Simpson plan, to which policymakers and pundits often point as a standard against which to measure other deficit-cutting proposals, did the same thing.
More importantly, however, is that, when viewed correctly and in their entirety, the non-interest spending cuts under the President’s latest offer would actually exceed his proposed tax increases and would roughly equal the spending cuts that Boehner himself proposed in his deficit-related negotiations with the President last year.
When those negotiations broke down, the President and Congress enacted the 2011 Budget Control Act (BCA), which established annual caps on discretionary spending for each of the next ten years. These caps, which will cut spending by what the White House estimates to be $1 trillion over the next decade, reflected a tentative agreement by the President and Speaker over discretionary spending in those negotiations.
Should we ignore those spending cuts when tallying up deficit-cutting efforts and the mix of spending cuts to tax increases? Absolutely not. It’s completely arbitrary, as the following scenario makes clear:
Suppose the BCA achieved half of the discretionary savings that it did, and Obama was now proposing the other half in his negotiations with Boehner. Suppose as well that, because this hypothetical offer from Obama changed the spending-tax ratio — so that the size of the new spending cuts equals the revenue increases — Boehner accepted it.
Would that be any different than what Obama’s now proposing — to build on the actual BCA savings with his actual offer of the last day?
Of course not. The result would be precisely the same.
The Speaker may want to ignore the reality of the last two years. That doesn’t mean anyone else should do so.
In the latest Tax Notes, Martin Sullivan has some kind words for our recent report, “What Was Actually in Bowles-Simpson?” He notes that the “much-touted Bowles-Simpson deficit reduction plan is widely characterized as reducing the deficit by $4 trillion and having a 2-1 ratio of spending cuts to tax increases.” But, Sullivan writes, an “eye-opening study by Richard Kogan of the Center on Budget and Policy Priorities blows this myth out of the water” by showing that it understates both the amount of deficit reduction in Bowles-Simpson and the share coming from revenue increases.
Sullivan explains that the “misunderstanding is because of inconsistent use of baselines. Back in 2010, the Bowles-Simpson plan computed savings over an eight-year period and used a baseline that assumed the Bush tax cuts would not be extended for the wealthy.”
Our paper shows that, relative to an updated baseline that covers the coming ten years and assumes that policymakers extend the upper-income tax cuts (as well as other expiring policies), the Bowles-Simpson plan outlined in 2010 would raise revenues by $2.6 trillion and cut spending by $2.9 trillion. (Policymakers have since enacted $1.5 trillion of those spending cuts.) Together with the resulting interest savings, the plan would reduce the deficit by $6.3 trillion.
I blogged yesterday about the Cooper-LaTourette budget plan and its proponents’ claim that it reduces deficits through a mixture of two-thirds spending cuts and one-third tax reform — the same ratio as the Bowles-Simpson plan. I offered one explanation of why that’s not true. Here, let me offer another.
As I wrote yesterday, Bowles-Simpson does indeed have roughly two dollars in spending cuts for every dollar in tax increases — if you use a baseline that assumes that President Bush’s tax cuts for upper-income taxpayers expire (and if you count the savings from lower interest payments as a spending cut).
The Cooper-LaTourette budget purports to have the same ratio of spending cuts and tax increases as Bowles-Simpson, but it relies on a different baseline to get there — and that makes all the difference in the world.
What happens, however, if you apply Cooper-LaTourette to the baseline that Bowles-Simpson uses? The ratio of spending cuts to tax increases becomes roughly 7:1. So, as I wrote yesterday, the Cooper-LaTourette plan is far more tilted toward spending cuts, and far less toward tax increases, than Bowles-Simpson.