Will the Budgetary Twain Ever Meet?

Now that the Democratic-controlled Senate has passed its first budget in four years by the resounding margin of 50-49, Congressional leaders will face the unenviable task of reconciling it with the budget passed by the House of Representatives and sponsored by Rep. Paul Ryan (R-Wis.).

The Democratic budget, spearheaded by Sen. Patty Murray (D-Wash.), calls for nearly $2 trillion in deficit reduction over the next two years. But half of that–$975 billion—comes from raising taxes, principally by limiting deductions for wealthier households. And it reduces the deficit to 3% of GDP but never balances the budget.

Ryan would cut rather than raise taxes for businesses and individuals, blowing an even bigger hole in the budget it purports to balance.

So, to close that gap and balance the budget in ten years, it repeals Obamacare and transforms Medicare into a “premium support” system while turning Medicaid over to the states.

The budgets are based on such different assumptions and opposing philosophies of government that forging a workable compromise looks like “mission impossible,” as The Hill put it.

But strip out the red meat for each party’s base and we might actually get somewhere. The Hill reports that talks are proceeding between Murray, one of the most liberal senators, and conservative hero Ryan, the 2012 Republican vice-presidential candidate.

First, let’s look at Ryan’s plan, because it’s more ambitious and there are more obvious things to eliminate in a final deal. The biggest nonstarter is repealing Obamacare, which Ryan estimates would save $1.6 trillion from 2014 through 2023. Block granting Medicaid (and preventing its expansion under Obamacare) would save maybe another $770 billion during that time.

Democrats will never accept that, but they may agree to slow the rate of increase of Medicaid. So, let’s split the difference, which gets us down to $300 billion in Medicaid savings over ten years.

President Obama met briefly with Republican National Committee leaders last month in the Capitol. Official White House photo by Pete Souza.

President Obama met briefly with Republican National Committee leaders last month in the Capitol. Official White House photo by Pete Souza.

Democrats also will never agree to the Ryan Medicare plan, although President Obama has said he’s open to compromise if Republicans agree to more revenue increases, which they have said they never would.

The Ryan budget would also cut an astonishing $1.9 trillion in “other mandatory” federal programs  over the next ten years, but it doesn’t get specific  besides saying we should block grant food stamps to the states.

So, Ryan’s radical reforms of Medicare, Medicaid, and other entitlement programs and repealing Obamacare account for $4 trillion out of his proposed $5.3 trillion in cuts. The rest come from lower  interest payments and cuts in discretionary spending. That doesn’t leave much to work with.

Murray’s budget is much simpler. Its $975 billion in cuts come primarily from defense spending, Medicare, and savings on interest.  It also sneaks in $100 billion in extra stimulus. It will replace the automatic spending cuts (sequester) with a combination of spending cuts and tax increases.

So, where’s the common ground? Here are four possibilities:

  1. Drop Ryan’s radical overhaul of entitlement programs and replace them with tighter eligibility standards for Medicare and Medicaid.
  2. Drop Murray’s call for extra stimulus
  3. Repackage Murray’s tax increases as tax reform, including some cuts in corporate taxes recommended by Ryan and an overhaul of deductions and exemptions.
  4. Keep the $1.2 trillion “sequester,” but give the president more discretion to make cuts in both defense and domestic spending.

That gives us maybe $2-2.5 trillion in spending cuts, including to some entitlement programs, and perhaps another $500 billion in revenue increases, net of business tax cuts. So we could see as much as $3 trillion more deficit reduction over the next decade.

Granted, it’s not the most likely outcome, but stranger things have happened. The president introduces his new budget—finally—next week. Let’s see if he can move the ball forward.

 

 

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