Gloomy Budget Mavens Predict Government Shutdown
Policy + Politics

Gloomy Budget Mavens Predict Government Shutdown

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For those seeking a silver lining in Washington’s budget turmoil, a gathering of the town’s smartest and most experienced budget and economic experts on Friday at The Urban Institute was not the place to be. The roomful of budget savants, convened by former Congressional Budget Office director Robert D. Reischauer, spent much of the morning berating President Obama’s 2012 budget plan and warning of an almost certain budget train wreck on Capitol Hill  this spring.

Rudy Penner of the Urban Institute, another former CBO director, set the tone of the conference by denouncing Obama’s $3.7 trillion budget plan for the fiscal year beginning Oct.1 as “politically cautious and economically reckless.”  Penner warned that the president’s game plan for bringing down the long term deficit is far too tame, and that Obama and his advisers are crossing their fingers and “betting there isn’t going to be a sovereign debt crisis before the 2012 election.”

Deficit hawks Maya MacGuineas of the Committee for a Responsible Budget  and Robert  L. Bixby of the Concord Coalition, along with William G. Gale of the Brookings Institution all bemoaned Obama’s refusal to embrace many of the tough  tax and entitlement reform proposals embedded in the presidential fiscal commission’s final report in drafting his own budget. “The [president’s] budget is not a call to action, it’s a very status quo thing,” Bixby said.

And when Reischauer, the president of the Urban Institute and one of the most prominent economists in town, asked the 35 panelists – ranging from liberals to conservatives to libertarians – to raise their hands if they thought the federal government is headed for a shutdown this spring, 24 of them raised their hands.

“I’m getting depressed the more I hear this conversation,” said Paul L. Posner, the Director of the Public Administration Program at George Mason University and a former budget and public finance expert at the U.S. Government Accountability Office (GAO).

Norman J.  Ornstein likens the
looming budget and debt ceiling battles
to “the showdown at the O.K. Corral.”

The conference came at the end of an eventful and politically tumultuous week in the budget world, beginning with Obama’s release of his new budget on Monday, a series of congressional hearings in which Democrats and Republicans alike skewered the budget for inadequately addressing the long term deficit and debt, three days of battles on the Republican-controlled House floor over a GOP resolution that would cut $61 billion from this year’s spending, and massive demonstrations by teachers, fire fighters and other public employees protesting proposed budget cuts and pension overhauls in Wisconsin, Ohio and elsewhere.

A politically divided Congress and the White House must meet a March 4 deadline for passing a new spending resolution to keep the federal government operating through the end of the fiscal year, Sept. 30, or face the possibility of a government shutdown.  House Speaker John Boehner, R-Ohio, has warned that House GOP leaders won’t accept another short term extension of spending authority, adding to the possibility of a repeat of the government shutdowns during the Clinton administration in late 1995 and early 1996. Layered over  all of that is a concern that the Treasury will run out of borrowing authority before Congress finally agrees to raise the current $14.3 trillion debt ceiling, which could trigger a default on U.S. borrowing and a worldwide financial crisis.

Norman J.  Ornstein, a resident scholar at the American Enterprise Institute, likens the looming budget and debt ceiling battles to “the showdown at the O.K. Corral.” While there are some promising signs of bipartisan cooperation in the Senate, Ornstein believes the partisan divide is so great in the House that there  may not be room for a deal on spending for the current and coming year.

Ryan is “basically facing pitch forks and boiling oil
from his junior members over his inability
to reach that $100 billion pledge . . .
and he has been forced to up the ante.”

“What I think is going to be most interesting is to see first how Republicans in the House get past – if they do – their increasingly tough rhetoric from Speaker Boehner,” Ornstein said.  Adding to the problem, he said, is that Rep. Paul Ryan, R-Wis., the new chairman of the House Budget Committee and a GOP icon of fiscal restraint, is having trouble satisfying the demands of freshmen conservatives and Tea Party members to cut even more to reach a campaign pledge of $100 billion in savings this year. 

Ryan is “basically facing pitch forks and boiling oil from his junior members over his inability to reach that $100 billion pledge . . . and he has been forced to up the ante,” said Ornstein, who has written widely on Congress and the budget process.

While Obama and his advisers are being hammered from both sides of the aisle for not offering up a more ambitious and politically risk budget to address the long term debt and mounting entitlement spending, “Any initiative that emerges from Barack Obama is going to be declared dead on a arrival by Republicans in Congress, Ornstein said.

Thomas E. Mann, a noted congressional scholar at Brookings, said a Middle-East peace negotiations analogy is apt in describing the Obama administration’s dilemma.  “Is there a partner for peace? My reading is there really isn’t now a partner on the Republican side of the aisle and everything we’ve seen over the last few years reinforces that,” he said.

At the heart of this week’s debate is  Obama’s budget – a plan that includes a five-year freeze on all discretionary spending outside of defense and national security, slowing the growth in the Pentagon budget and eliminating or downsizing 200 programs to achieve $1.1 trillion of deficit savings over the next decade. The president and administration officials defended the budget plan, boasting that it would gradually reduce the deficit – now pegged at a record $1.6 trillion, or nearly 11 percent of the overall economy – to only $607 billion, or 3 percent of gross domestic product.

Members of both the House and Senate
Budget Committees repeatedly assailed
the budget as a “disappointing”
display of overspending and overtaxing.

“If you look at what the mandate of the fiscal commission was, it was to bring the deficit down to 3 percent of GDP by the middle of the decade,” White House Budget Director Jacob (“Jack”) Lew told the House Budget Committee. “Our budget does that.”  Lew also said the budget calls for a federal pay freeze, medical malpractice reform, government reorganization, and the application of pay-as-you-go rules to the Transportation Trust Fund -- all examples of the White House adopting fiscal commission ideas.

Obama and Lew characterized the fiscal commission’s bold recommendations for achieving nearly $4 trillion in deficit reduction through 2020 with cuts and savings in Medicare and Medicaid, defense and discretionary spending – as well as changes to sustain Social Security – as a “framework” for discussion later this year. 

But skeptical members of both the House and Senate Budget Committees repeatedly assailed the budget as a “disappointing” display of overspending and overtaxing that is not to be taken seriously, as the nation is overwhelmed by debt.  And they chastised the president for shying away from the central recommendations in the final report of the fiscal commission, which was chaired by Democrat Erskine Bowles and former Republican senator Alan Simpson of Wyoming.

But Obama clearly signaled they have no intention of getting out front with proposals on long term debt reduction and entitlement savings until the two sides have a chance to discuss the issues in depth in the coming months.

“I do understand the White House argument they put out there, which is we can’t have put any real policies into this budget because it would have made it so toxic… but that’s the exact same argument they made last year,” said MacGuineas. “That was part of Jack Lew’s talking points this year – that ‘We can’t get real because we will get beaten up.’ Well those were [former White House budget director] Peter Orszag’s talking points behind the scene last year as well, and what you don’t see is anything that  they did in the past year to help change that environment so that the president could have put out a real budget.”

In seconding MacGuineas’s complaint, Gale said he was disappointed that Obama didn’t use his fiscal commission  as political cover and promote its recommendations in the spirit of, “this is not perfect but it’s the next big step” we need to take.

But Robert Greenstein, president of the liberal  leaning  Center on Budget and Policy Priorities, dismissed some of the criticism of Obama’s budget as “caricature” – noting that the president likely would have been pummeled for trying to turn Bowles and Simpson’s assumed levels of savings in areas like taxes, defense, and health care into concrete budget-cut or tax-increase proposals, since many of the proposed savings in Bowles-Simpson were only vaguely defined or simply offered for illustrative purposes.

“I’m fascinated by the lionizing of Bowles-Simpson and the demonization of the Obama budget,” Greenstein said.  Greenstein argued that the commission’s proposed cuts in defense were far too deep to sell to Congress and the Joint Chiefs of Staff, and that the discretionary cuts were made substantially deeper in the final days of the commission’s work, apparently to help secure votes of Republican members of the commission.

And “when you get to health care, Bowles-Simpson claims trillions of dollars of savings in health care savings in future decades without specifics on how to get there,” Greenstein said, adding that the commission report “waves a wand and assumes health care costs throughout the entire federal health care system will somehow, year after year, grow at only GDP-plus one percentage point regardless of what’s happening to the growth of health care costs throughout the U.S. health care system.”

“I think we need to understand there are far more magic asterisks there than in the Obama budget,” Greenstein said, referring to proposals that assume substantial savings without providing the nuts and bolts of specific policy proposals to achieve them.

Related Links
The Real Losers in a Government Shutdown (Huffington Post)
Government Shutdown on the Lips of Democrats, Not Republicans (The Hill)
John Boehner Increases Chance of Government Shutdown (Politico)