Some Thoughts on the Budget Deal

National Review Online | Published on December 11, 2013

By Yuval Levin

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The actual text of the Ryan-Murray budget deal came out late last night, so it’s only now possible to really consider the particulars and see how it looks. It seems to me that the details look a fair bit better than the general outline that had been reported in the press over the past week or so, particularly on the question of whether the entitlement cuts that would replace some discretionary sequester cuts could be expected to actually materialize.

As it stands, this strikes me as more or less a very small-scale version of the sort of thing that Republicans hoped might be made possible by the sequester but Democrats insisted could not be: a trade of discretionary savings for mandatory savings without real tax increases. The latter point depends on your view of user fees—I generally think funding government services through user fees is much better than doing so through general revenue, so I take a move toward (slightly) greater reliance on such funding in a few programs to be a reduction in the burden on taxpayers in general without an increase in the size of government. That’s a good thing, but it’s certainly not unreasonable to describe such user fees as targeted taxes either. What the Democrats didn’t get is what they want and have insisted they would not do without: income tax increases.

This deal would amount to the Democrats accepting the implications of their misjudgment in abiding the Budget Control Act in 2011: accepting discretionary spending levels below BCA levels (and below even the original Ryan budget levels) and cementing the precedent of trading discretionary for entitlement cuts and of making budget deals without higher tax rates. And by avoiding another government shutdown fight, it robs the Democrats of one of the few escape routes they might have from the political nightmare that Obamacare’s rollout has been and will continue to be for them. It’s not exactly a deal to be celebrated, because it’s a very tiny step and does nothing to address the horrendous fiscal problems of our entitlement system. But the Democrats have made it abundantly clear that those won’t get addressed while they control the Senate and the White House, and under the circumstances this strikes me as a good deal worth voting for.

What follow are a few reflections on the contours of the deal, on its benefits, and on its risks and costs.

Most simply stated, the agreement would raise the discretionary spending levels set by the sequester by about $45 billion in 2014 and by about $20 billion in 2015, in each case divided evenly between defense and non-defense discretionary increases. That basically amounts to half of the sequester cuts that were supposed to take spending below the BCA spending caps in 2014 and a quarter of those that were supposed to do so in 2015. This sequester relief (i.e. increased spending) would then be entirely offset, and about $22 billion in additional deficit reduction would be achieved over 10 years, by (very) modest entitlement reforms that take effect over a longer period, by increasing user fees on a few government services paid for directly by people who use them, and by essentially extending the mandatory-spending portion of the sequester an additional two years.

The entitlement savings would come almost entirely from non-health entitlements—there are some modest Medicaid savings in the deal but no major reform, and nothing on Medicare or Obamacare. There is also nothing on Social Security. Instead, the cuts come from things like increasing the contributions federal employees have to make to their pension fund, changing rules to reduce fraud in the unemployment insurance system, repealing some relatively small corporate giveaways, and raising the premiums paid by companies with federally guaranteed pensions. Such small potatoes can add up to a deal here because the change to the sequester is also quite small.

These sorts of modest “other entitlement” reforms have been around as part of assorted Republican and Democratic sequester-replacement proposals for several years. They have generally been included in those proposals along with other, much larger ideas—structural reforms of the major entitlements for Republicans and tax increases for Democrats. What Murray and Ryan have done here is take all the little ideas that have long been basically agreed on by both parties and put them together without the bigger ones that divide the parties.

Indeed, what stands out most as a general matter about this proposed agreement is how very small it is—for good and bad. It involves about $65 billion over the next two years (a bit less than nine-tenths of one percent of projected federal spending over that period). It doesn’t much change the terms reached in the original Budget Control Act and sequester deal, and essentially cements the Democrats’ loss and miscalculation in that deal. The Democrats’ hope, given that they control both the White House and the Senate, was to replace the sequester with some combination of tax increases and more palatable spending cuts. The Ryan-Murray deal would say instead that about 30 percent of the sequester over the next two years will be replaced with modest (and much more sensible) longer-term entitlement savings and other small reforms, and that’s it. 70 percent of the sequester remains in place in those two years, and after those two years the entire sequester remains in place. A comparison of discretionary spending in the absence of the sequester, with the sequester, and under the proposed Ryan-Murray deal, would look like this:

That the Democrats would accept a deal like this is a pretty striking indication of how the Republican House has changed the conversation on the spending front since 2010. Think of it this way: In their first budget after re-taking the majority—the FY 2012 Ryan budget, passed in 2011—the House Republicans wanted discretionary spending to be $1.039 trillion in 2014 and $1.047 trillion in 2015. These budgets were of course described by the Democrats and the political press (but I repeat myself) as some reversion to humanity’s barbaric past. Yet this proposed deal with the Democrats would put discretionary spending at $1.012 trillion in 2014 and $1.014 trillion in 2015—in both cases below that first House Republican budget.

The risk and worry for conservatives in a deal like this is that it replaces some near-term discretionary cuts with entitlement cuts that mostly happen in the out-years. That’s the argument some of the critics of this proposal have made as its general outlines have been reported in the last few days. But the details of the deal should at least in large part put those concerns to rest. The basic difference between discretionary and mandatory spending, after all, is that while discretionary spending has to be legislated anew each year, mandatory spending essentially functions by rule and remains in place until that rule is changed. This is part of the problem with our larger entitlements, of course: They run on autopilot, and building the political will to change course has proven extremely difficult. But in this case, that works in favor of the possibility that these cuts will survive. Because they touch on relatively low-salience mandatory programs, these changes would have to be actively undone to be reversed, and it’s not easy to see the circumstances under which, say, the amount paid by federal workers into their pensions would become a high enough priority for the Democrats that they would fight to lower it in a future budget deal. Mandatory spending out-year cuts have a much better record of actually materializing and remaining in place than discretionary spending out-year cuts.

That’s no guarantee that these cuts would remain in place, of course, and there could never be any such guarantee. But if you look at them individually, it certainly looks pretty likely that they will, and therefore that the downward effect on overall federal spending will have a good chance of persisting through and beyond the budget window and so that over the coming decade, though not in this next year, this deal looks reasonably likely to result in slightly lower rather than higher overall federal spending than we were on a course to achieve without it.

And to be sure, that course was not likely to be sustained in any case. The Republicans’ dirty little secret in this process has always been that their own appropriators hate the sequester almost as much as the Democrats do. In the absence of a deal like this, it’s not all that likely that the sequester could have held for another year or two, and from the point of view of conservatives one of the key benefits of this kind of deal, if it does get enacted, would be to sustain the lower spending levels over the budget window despite the lack of majority support for the sequester in Congress.

Of course, that lack of support for lower spending levels among some Republicans is a source of great (and justified) irritation and anger for conservatives, in and out of Congress. The Republican appropriator class is a problem to be solved, without a doubt. But the idea that forcing that problem into the open at this point by forcing another budget showdown would help the conservative cause just doesn’t make much sense to me—not only from the point of view of electoral politics but also from the point of view of conservative goals.

The goal of conservatives in national politics can’t just be to have less of the same: the liberal welfare state at a slightly lower cost. That is basically what a sequester approach to the budget amounts to, after all—no reform of anything, just a small bit of across the board spending pressure. The goal, rather, should be to transform American government along conservative lines, into a government that works to sustain and expand the space between the individual and the state, to strengthen the market economy and make its benefits accessible to more Americans, to help the poor not with an empty promise of material equality but with a fervent commitment to upward mobility, to strengthen the middle class by lifting needless burdens off the shoulders of parents and workers, and to put an end to the cronyism and corporatism that have come increasingly to characterize the relationship between the private and public sectors. Such a government would certainly cost less, would have little room for the way of thinking embodied by Republican appropriators (and all the more so by congressional Democrats of course), and could help avert the fiscal catastrophe we face if our major entitlement programs are not reformed, but it would do far more than that.

Republicans have used their House majority (very much including the budgets they have passed) to set out some elements of such an agenda, but they know they cannot make much progress while Democrats control the Senate and the White House. Their goals while that remains the case should be to make what modest gains they can, to develop that agenda further (and much work remains to be done on that front), and to improve their chances of winning future elections.

A government shutdown fight, which would easily play into the Democrats’ hands and allow them to distract the public from the ongoing failures of Obamacare (among their other troubles), would surely be a setback for this cause. And we have after all seen very recently that congressional Republicans are not in good shape to make meaningful gains in such a fight at this point. By now even the people who argued most fervently for insisting on defunding or repealing Obamacare in the last budget battle have acknowledged they didn’t really believe that could happen in such a fight. Simply doing it over won’t change the players or the circumstances, however much we might wish we could change both, and won’t advance the conservative cause.

A deal that keeps in place 92 percent of the sequester, replaces the rest (and adds more savings) with fairly durable mandatory savings and other small reforms, and avoids the tax increases the Democrats want would, I think, advance that cause a little.

There’s not much to celebrate here, and there won’t be until the Democrats no longer control the Senate and the White House, but there’s not much to bemoan either, and this deal would make it more likely that the Democrats will lose that control.