January 7, 2011
It’s a fact of life that sometimes you have to spend money to save money. We all know this in our personal lives. For example, it may be cheaper to buy a new car than keep spending money repairing an old one, or to invest in a more efficient new furnace that may pay for itself by lowering one’s heating bill. The same is true with government. Closing an obsolete military base costs money in the short run, but saves money in the long run.
Another way Congress may need to spend money now to save much more later is by investing in the analysis and research necessary to understand the enormous complexity of federal finances. The fact is that permanent solutions to our budget problems will necessarily require changes in a great many laws that govern the eligibility for government benefits, contracting, federal financing for programs administered by the states, and many other things.
Only experts understand the complexities of programs like Medicare and how difficult it is to change the law in such a way as to achieve meaningful savings. They know that those who benefit from such programs – by which I don’t mean individual beneficiaries, but institutions such as hospitals, HMOs and insurance companies – employ people who know the law and program details and get paid a lot to frustrate ill-devised efforts to reduce their revenues.
Experts also know the history of efforts to control spending and why they failed. One reason is that Congress often enacts cuts with great fanfare and then undoes them when they start to actually have an impact. For example, in 1997 it enacted a law to control Medicare spending by preventing fees for doctors’ services from rising faster than a formula called the sustainable growth rate. But once the law began to bite in 2002, a Republican Congress blocked it from taking effect, but didn’t repeal it. By 2010, it reached the point where the law would have required a 25 percent cut in doctors’ fees. At the last minute, Congress punted the ball by delaying implementation of the 1997 law yet again, at a one-year cost of $15 billion.
Some may lament that this is simply an example of the perverse power of special interests and a failure of will by Congress. Perhaps so, but as long as we live in a democracy, those affected by government have the right to make their opinions known and to influence our elected representatives through a variety of legal means, including lobbying, advertising, campaign contributions, moral suasion and so on.
Although campaign contributions get the most attention, it’s worth remembering that the most powerful lobby in Washington is the AARP and it makes no contributions to any candidate. It doesn’t have to because it has some 40 million members, which shows that at some point just about everyone is a special interest. As Pogo put it, “We have met the enemy and he is us.” The point is that spending and deficits are not going to be controlled by taking a meat-ax to the budget, as many of those in the Tea Party want to do. You can’t just enact across the board cuts in every program or abolish departments and agencies and expect their functions to completely disappear. Interest on the debt can’t be cut; defense can’t be reduced significantly without scaling back the Defense Department’s commitments, withdrawing from Iraq and Afghanistan, canceling weapons systems that create jobs in hundreds of different congressional districts, reducing the pay and benefits of our armed forces and so on; and abolishing every so-called earmark in the budget and foreign aid, as well, would together only reduce spending by 1 percent.
The reality is that Social Security, Medicare and Medicaid are where the real money is, and reducing outlays for these programs is very, very hard; not just for political reasons, but because they are highly complex programs and require changes in the law governing eligibility to reduce spending in the long run. Doing so in a way that can’t be gamed by beneficiaries or create massive unfairness is a major challenge.
Congress needs the best possible analysis and research to help it understand the nature of the programs it wants to cut and how to write laws that will achieve its goal. Fortunately, it already has an organization at its disposal called the Congressional Budget Office to do this. Established in 1974, it has 250 of the best budget analysts and economists in Washington and deep institutional knowledge of every facet of government spending. (A parallel organization called the Joint Committee on Taxation does the same thing for tax policy.)
Unfortunately, Republicans have long had it in for the CBO.Many would like nothing better than to abolish it altogether, just as they abolished the Office of Technology Assessment and the Advisory Commission on Intergovernmental Relations when they took control of Congress in 1995. Even those Republicans that don’t hate the CBO see its close to $50 million per year budget as an inviting target for false economy.
CBO’s great sin, in Republican eyes, is that it’s always telling them that their pet ideas are wrong: tax cuts don’t automatically pay for themselves through the Laffer Curve, the Affordable Care Act didn’t raise the deficit, the budget can’t be balanced only by cutting domestic discretionary spending, and other heresies to Republican dogma.
Moreover, CBO director Doug Elmendorf has been a lightning rod for Republicans. Many hold a grudge against him for attending a White House meeting in the summer of 2009 on health care reform. In a July 23, 2009, report, the Wall Street Journal implied that Elmendorf had been pressured into changing the CBO’s score on health care reform. It called the meeting “extraordinary and inappropriate.”
Subsequently, the CBO scored the health legislation as reducing the deficit in both the short-run and the long-run – a view that every Republican finds incredible and factually wrong. They all believe that ACA increases the deficit, which is why they plan to vote on its repeal next week.
Interestingly, CBO was not asked to score the cost of repeal by its sponsors, which is normally required for all bills that affect spending. However, it did so anyway. Yesterday, CBO estimated that ACA repeal will increase the deficit by $230 billion over the next 10 years. Keep in mind that repeal would not only reduce spending for new benefits, but also reverse all of the cost savings that paid for them. Undoing those savings means increasing Medicare spending by about $500 billion. That’s why Republicans had to bend their own rules to permit a vote on ACA repeal in order to get around their promise never to increase entitlement spending without offsetting it with entitlement cuts.
One way Republicans could demonstrate some integrity would be by reappointing Elmendorf to his position as soon as possible. His term as CBO director expired at noon on Jan. 3, although he is permitted to continue serving in that capacity until a replacement is named. Congress does not have to vote on his reappointment to a full four-year term; it requires only the agreement of the speaker of the House and the president pro tempore of the Senate, Rep. John Boehner, R-Ohio, and Sen. Daniel Inouye, D-Hawaii, respectively. Traditionally, they simply follow the recommendations of the chairmen of the House and Senate Budget committees, currently Rep. Paul Ryan, R-Wis., and Sen. Kent Conrad, D-N.D.
Both Conrad and Ryan have publicly called for Elmendorf to be reappointed. However, the final decision is above their pay grade and Boehner in particular may not want to make it any time soon.
Unfortunately, this means that in some of the contentious budget fights expected in coming months there will be a strong temptation to threaten Elmendorf by denying him reappointment unless he gives the Republicans the numbers they want. It would be highly desirable to remove even the suspicion of this possibility by reappointing him now.
It goes without saying that CBO is not infallible; I’ve been known to criticize it from time to time myself. But contrary to popular belief among Republicans, CBO’s analyses are not affected by the partisan or ideological leanings of its staff, in my opinion. Its errors are nearly always the result of a lack of time, data and resources; conditions imposed upon it by the necessity of having to take legislative language at face value even when it is obviously written to game CBO’s scoring system; and the limitations of economic science itself. It would be a tragedy for the country if Republicans undermine its integrity and ability to do its job. If they mean what they say about getting the nation’s finances in order, a strong and independent CBO is their strongest ally.