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My life’s work is devoted to cutting the federal government in half. In fact, I have published detailed plans regarding how to do that (it’s called entitlement reform), in far too many places already (just a start on what needs to be done), including in my 2011 book, America’s Ticking Bankruptcy Bomb (HarperCollins), in this column, and with every free market think tank tuned in to the real world.
In fact, I’m probably the only person in Washington who thinks the legislation that would have that effect over the long run can and quite possibly will be enacted within the next 10 years (politics operates in cycles, like a pendulum, thank you Barack Obama). And I have worked directly on that project with Paul Ryan — he is one of the few people in America who understands that if these reforms are done right, the poor, seniors, those in need of health care, working people, America, and the taxpayers will all be vastly better off.
I say that so you know where I am coming from in analyzing the Ryan-Murray budget deal.
What’s in the Deal
The deal involves an exact compromise between the federal discretionary spending totals proposed in Ryan’s 2014 Republican budget ($967 billion) passed by the House and Murray’s 2014 Democrat budget ($1.058 trillion) passed by the Senate earlier this year, setting federal discretionary spending for 2014 at $1.12 trillion. That result was effectively set by how your friends, neighbors, and fellow Americans voted last year. So calling that “A Huge Republican Cave-In” is not accurate.
True it breaks the sequester spending cap for 2014 by $45 billion. That is bad and sad, because the sequester spending caps actually reduced total federal spending in actual nominal dollars for both 2012 and 2013, which seems to have already boosted economic growth. That was the first reduction in actual total federal spending for two years since the end of the Korean War under President Eisenhower. But that $45 billion represents an increase in total federal spending for 2014 compared to current law of 1.2%, which is all that Ryan and the Republicans conceded in the budget deal for 2014. Hardly a huge Republican cave-in.
Highly principled and always numerically accurate Chris Edwards of the Cato Institute asks, “Why would Republican leaders agree to that?” The best answer would be because that reflects how the American people, or at least those who showed up at the polls (note), voted last year, and that is who Congressional Republican leaders work for.
The budget deal also breaks the sequester spending cap for 2015 by $18 billion, a rounding error in today’s federal spending, for a total of $63 billion in increased spending over current law for both 2014 and 2015. That represents an increase of 0.9% in total federal spending under current law for both years combined, which is all the increased spending that Ryan and the Republicans conceded in the entire budget deal. Not really a huge Republican cave in. In fact, 70% of the sequester remains in place even for 2014 and 2015 when the sequester caps were broken.
Moreover, half of that total spending increase under the budget deal goes for defense spending, which many conservatives support. Given that the Islamic World is about to undergo a nuclear breakout under the negotiations that Obama and his grown-up 1960s hippies are conducting with Iran, and Russia and China are rapidly modernizing their nuclear arsenal while America’s deteriorates, that increased defense spending may be wise for now.
In addition, the sequester spending caps remain in effect unchanged for 2016 (at $1.016 trillion in total federal discretionary spending for that year), and beyond. Edwards says, “The problem is that appropriators of both parties never sleep; they are not going to go into hibernation for the next decade contented with current spending limits.” That is quite true. But the American people will have something to say about that in 2014 (see more on that below).
Furthermore, the budget agreement that Ryan negotiated with the Democrats provides for more than fully offsetting the 2014 and 2015 spending increases with some entitlement reform and other spending reductions, and just a bit (see below) of taxes, but no tax increases on income, payrolls, or sales. All of that comes to $85 billion, or about $22 billion more than the total spending increases under the deal, over the first 10 years, adding up to more later. This is why Ryan claims that the entire deal is a net reduction in the deficit over 10 years, which I think probably has to be taken as too speculative of a claim at this point.
These are not promises of future cuts to be made later! They are changes to current law that will have those effects in reducing spending in later years. They include reducing the COLA increases for early military retirees only before age 62. They include requiring all new federal employees to contribute more to cover their own retirement benefits, leaving less to be paid by the taxpayers. They include requiring companies to finance more of the costs of the federal guarantees of their own pensions, leaving less to be paid by the taxpayers. They also provide for freeing more federally controlled areas for oil and gas exploration and production, generating more oil and gas royalties. Other provisions reduce federal overpayments, and improve federal collections of amounts due. Also included are extending new sequester spending caps to 2022 and 2023, saving another $22 billion.
Americans for Tax Reform has a more realistic understanding of the total effect of the deal on spending. It says, “Over the long term budget horizon, [the Ryan-Murray budget deal] is a large net spending cut . . . the spending cuts included in the plan are permanent and mandatory. It would take an act of Congress to amend them.” ATR adds that under the deal, “The 2014-2015 divergence from the discretionary spending caps’ trend line was a one time event not repeated in the [budget] window. The cuts to pay for this anomaly, however, are permanent and will reduce government spending by many times more than the small spending increases in 2014 and 2015. [The budget deal] is a short-term discretionary spending increase dwarfed in size by a long-run mandatory spending cut.”
The one actual tax increase in the budget deal is an increase in the airline ticket tax, from 60 cents to $3.10 a trip. Yes, that is a tax increase rather than euphemistically an increase in “user fees.” But it does not justify saying that the budget deal is “a tax increase to finance spending increases.” It is not a tax increase worth stressing over at all. ATR supports repealing the airline ticket tax entirely, replacing it with permanent spending cuts elsewhere, and fully privatizing the Transportation Safety Administration (TSA). That is a very good plan, which we should all work towards (and will be able to implement sooner than currently recognized).
Edwards says that the budget deal, “effectively guts the Budget Control Act of 2011,” and “blows up the 2011 budget control act,” adding, “America’s Founders planned for the House to be the body defending the people from a big spending Senate and president, but today’s House is completely falling down on the job.” But I say it shows a masterful job by Ryan in defending the interests of fiscal conservatives, in very difficult times, with very little political capital.
However, what you have just read here is a far more sophisticated, reasoned, and informed explanation of the deal than House Speaker John Boehner spouting at a press conference that conservative criticisms of the deal are “ridiculous.”
Seeing the Whole Battlefield
The best commentary I have read on the budget deal is Larry Kudlow’s “Ryan Saves GOP from Itself.” Kudlow writes:
In my view, the GOP got the better of this deal. The spending increases are tiny and there are no income tax hikes. The sequester itself is not dead. And a costly extension of unemployment insurance never made it in the bill. The Democrats wanted an end to sequestration and a big tax hike and got neither. And Ryan was able to get minor entitlement reforms….
Kudlow’s bigger point is that Ryan saved the GOP from itself by taking another government shutdown off of the table while giving in very little. Kudlow writes:
If the GOP wants to retake the Senate and hold the House in 2014, the key issues must be the catastrophic pitfalls of Obamacare and better economic growth. A shutdown would be a distraction. It would take the heat off Obama and Obamacare, and all the Democrats who falsely promised that if you like your insurance and doctor, you can keep them. Obama’s ‘like it, keep it’ promise was just named the lie of the year…. Reminding voters of that is much more important….
The bottom line is that the public loathed the shutdown last fall. The GOP already played that card, and it is no longer available. That eliminates the leverage House Republicans used in 2011 to get the very effective sequester and budget caps in the first place. To escape with so little damage to those achievements is a huge victory.
The bigger picture is also the stakes for 2014. President Obama has put down a huge bet for the elections next year, trying to take back the House for the Democrats in his second midterm election, so contrary to American political history, where even the parties of Franklin Roosevelt and Ronald Reagan were torn apart in their second midterms. If Obama succeeds politically where even FDR and Reagan failed, no one will be able to challenge anything he wants, for his last two years at least.
But on the other side of the ledger, if as is much more likely, the Republicans take back the Senate in 2014, then Obama will be a total lame duck at that point, all the more so since he so recklessly has made the bet to take back the House instead. The political pendulum will have started swinging back, fiercely, just as East European libertarians started winning elections after the Soviet Union fell.
But if all the most conservative voters stay home next year, having been convinced by conservative commentators and opinion leaders that the Republicans aren’t worth coming out to vote for, then Washington will conclude that the American people want to go Communist. If that seems like an overstatement, that is because you don’t understand Washington.
Yes, Mark Levin is so right that we do need to fight for a new Republican Party. Especially so if the political pendulum does swing back fiercely, we need to have the right boats in place to come in leading the new tide. What conservative leaders can do to maximize those prospects is to challenge those very Appropriations Committee leaders that have fought so persistently against the sequester spending caps, like Congressman Hal Rogers, Chairman, and Congressman Tom Cole serving on the Committee. Cause Congressmen to flee service on the Appropriations Committee as a threat to their very political careers.
That can be done without blowing up the Republican Party for 2014, which would blow up America, possibly quite literally. Such a principled fight within the Republican Party can strengthen conservatives, the Tea Party, and the Republican Party itself, a win-win-win for America all around.
[First posted at the American Spectator.]