In the Arena

Why Congress May Finally Do a Budget Deal

Congress will turn from do-nothing to no-dither

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MANDEL NGAN / AFP / Getty Images

President Barack Obama makes his way to the Rose Garden to speak on the budget on April 10,2013 at the White House in Washington.

A professor at the university of Pennsylvania’s Wharton School wants to hook me up to a computer and test how well I make predictions. I can save him the trouble. Journalists are terrific when it comes to analyzing the past, pretty good on what’s happening right now and embarrassingly dreadful about the day after tomorrow. I stopped making predictions right after I assured CNN’s Jake Tapper that George W. Bush would never win the Republican presidential nomination after he lost the New Hampshire primary in 2000.

Sometimes, though, I just can’t help myself. And this is one of those times: I think we’re going to get a bipartisan budget deal this year. You are skeptical. You should be. But I can summon a few tantalizing arguments to make the case.

Both houses of Congress passed measures that would have withheld lawmakers’ pay if they didn’t pass a budget resolution this year—an acknowledgment that their constituents are getting pretty tired of the status quo. Several members of Congress have told me that the business community is particularly sick of the enduring economic uncertainty caused by the deadlock, which is an excellent thing: business has both the cash and the lobbyists to pressure a compromise. It may not be an accident that Democrats finally joined Republicans in producing budget blueprints this year. The two plans are ridiculous, but they exist.

And they’ve created a clear path for President Obama to propose a more moderate and realistic plan that would cut entitlement spending and raise revenue. Both sides profess to be appalled by this, which is also good. Obama’s plan will be more politically palatable for reasonable Republicans if some Democrats refuse to vote for it.

The President has also changed his legislative strategy. He has stopped trying to bang his head up against John Boehner and the Tea Party crowd. He is trying to make the deal in the less carnivorous Senate—and hoping that if the Republican House is presented with a fait accompli, several dozen non–Tea Partyers can be lured away to get it through.

This will not be easy. Success will depend on the leadership of a half-dozen Republican Senators. They’ll have to forge the compromise and then urge another handful of colleagues to come aboard. Oklahoma Senator Tom Coburn, a real leader in this effort, apparently has recovered from his private dismay at the deal Obama and the Republicans made to raise taxes on the wealthy at the brink of the so-called fiscal cliff in January. A majority of the dealmaking Gang of Six, including Coburn, thought that deal was a wasted opportunity. The increased income and capital gains tax rates for the wealthy should have been part of a grander bargain—the Moby Dick of budget deals. As it was, the partial deal gave Democrats an unseemly opportunity to declare victory and Republicans the ability to say, “No more revenue.”

Then came the sequester, an unprecedented moment in American politics. Democrats and Republicans believed that the meat-ax budget cuts were so stupid that neither party would allow them to be enacted—and then they allowed them to be enacted. Both sides now recognize that some sort of deal to ameliorate the stupidity is necessary. And after the sequester, another unprecedented occurrence: the President got all cuddly, inviting Republicans to dinner and visiting them in their Capitol lair and inviting them to dinner again. Never underestimate the American legislator’s need to be coddled.

And so, here we are, with the tiniest sliver of a possibility that something might get done. It doesn’t have to be a big deal—a trillion and a half over 10 years will do—but there must be some significant long-term fixes to the current system. The change in the Social Security consumer price index already proposed by Obama is modest and rational. The wealthy will probably have to pay more for entitlements—and receive fewer personal tax loopholes. (A Mitt Romney–esque cap on tax deductions is very possible.) Medicare needs a structural change as well. It may be that the age of eligibility could be raised according to income or for those who insist on the costly fee-for-service option. Those willing to go the private Medicare Advantage group-plan route, where per capita costs are holding steady, could still be eligible at age 65.

There are those on the left who will object that the deficit issue is overblown and not even a priority among voters. They are right. But we have reached the point where some sort of deal is necessary to restore the public’s, the business community’s and the world’s faith that the U.S. government can, occasionally, take significant action. I predict—tepidly, with no great confidence—that the Congress will finally decide it is time to act.

This article is featured in the “Commentary” section in the  April 22, 2013 issue of TIME

64 comments
Dancingpenguins
Dancingpenguins

Joe,

You may have missed it, but our Senate hasn't been passing budgets for a number of years. Instead Reid prefers continuing resolutions. As to a bi-partisan budget, probably not. It's a trap Obama has set up for Republicans. They can vote to cut Social Security, and lose control of the House. Obama doesn't care about proposing this stuff, he isn't running again. However he does want Pelosi running the House again, to get more of his agenda passed.


Likely no budget, and with any luck Republicans won't vote to cut any entitlement or they risk loss of the House. 

AlvySinger
AlvySinger

This grand bargain if it passes is nothing but a more moderate version of the same nonsense that Romney would have tried to put into place. The kind of taxes that Pres. Obama wants to increase, plus the cuts to SS, medicare, and medicaid are all going to fall on the backs of the middle class. The latter social programs have nothing to do with the debt and were it not for Reagan raiding the surplus on SS, there would never have been any need to address any so-called problems. Why haven't you and every journalist been talking about that every time SS was mentioned as something that would not survive without cuts. Why haven't you discussed the fact that lifting the cap would further solve and stablilize SS for generations. Why haven't you been railing about how Obama promised to not only save SS but also to lift the cap in both campaigns? While in both terms he's turned a 180 and offered SS up to the GOP without it being asked for. 

Your excitement about a grand bargain, will only serve to send this country down the same path as Greece. It's more clear than ever that President Obama is owned by the same people who own Romney and who own most of congress and in who also own the msm-- which includes you. Not a tin-foil hat claim, but a fact that you and most people like you are way to concerned about your jobs than you are about reporting the truth. It is a common fear that plagues many Americans, but never more than those like you who live in a world above most of us and are terrified to lose it.

David Hi
David Hi

we r doneeeeeee we r overrrrrrrrrrrrrr

TimothyBeauchamp
TimothyBeauchamp

Joe, I really think you should stick to not attempting to predict anything.  Then again, you might be right.  Congress and the President might agree to balance the books on the backs of the elderly, disabled veterans and the most vulnerable even though Social Security and the deficit should never be mentioned in the same conversation.  We have a JOBS CRISIS not a DEBT CRISIS.  Of course, the Fourth Estate in Washington, DC is too concerned with access and political celebrity to focus on something as mundane as grandma having to resort to eating cat food.  Also, playing cheer leader for any wars should motivate journalists to fight for disabled vets.  It should, but doesn't, I guess.

SamuelYap
SamuelYap

You may notice that it is the Fed's steady funds injection into the US economy that is keeping it intact and on track. Without it to support the fragile development, the US economy would go bust. So why are the Repubs still braying the old outmoded mantra of decreased spending as the best way to go forward? But then Repubs are not the best example of logic and  rationality. Look at their irrational bullheadedness on gun control!

paulejb
paulejb

Democrats would prefer a North Korean nuclear strike to a budget vote which would diminish the increase in entitlement spending.

paulejb
paulejb

We are more likely to become Cyprus than have Democrats agree to a budget.

paulejb
paulejb

Why now, Joe. Democrats stonewalled a budget for four years. They are not going out on the limb now when the Senate might be in play in 2014.

jmac
jmac

The Caucus:   "The American Conservative Union, one of the oldest and largest conservative advocacy groups, has formed a behind-the-scenes partnership with business lobbyists to tame the activists who have pushed Republican leaders in Congress to adopt some of the most austere spending limits in decades, Nicholas Confessore reports."

Finally, businesses and conservatives are realizes their base is their worst enemy.  What took them so long?  

georgedixon
georgedixon

"Why Congress May Finally Do a Budget Deal"


IF they do it will be largely because the Democrat Senate, after 4 years of refusing to comply with their Constitutional Duty regarding "Federal Budgets" finally produced a budget......

helmetbreaker
helmetbreaker

Joe Klein doesn't have a clue!  The $16.5 trillion debt that will be over $20 trillion by 2016 combined with over $80 trillion in unfunded mandates will never be paid back. The total of this debt is more than twice the net worth of the top 25% of American taxpayers!  All the Obama budget promises is a reduction in the deficit increase, a superficial patch on SS and Medicare that will not solve the program fiscal problems, a $ 1 trillion tax increase on the people who pay 90% of all the taxes now and more federal bureacracy to handle all the paperwork the adjustments will create! And even worse, the adverse affects of immigration reform and ObamaCare are not included! If Republicans give in to huge tax increases and only token cuts, every American will suffer!

Jesús Eduardo
Jesús Eduardo

No more money to go abroad and shed innocent blood. To hell with the puppet of Obama and his banking masters. Do they want blood, oil and resources? Why don't they go themselves there? Cowards.

Dyna Pink
Dyna Pink

Create aworld see the nations turn theirs word,really get there if you cared enough for the living :D

Claudia Pineda del Prado
Claudia Pineda del Prado

That's not what I heard some Republicans say last night, they said they wouldn't vote for it.

kyronnex
kyronnex

a few tantalizing arguments?

I predict ...

tepidly ...

with no great confidence ...

--> so basically, wishful thinking!

JohnLuma
JohnLuma

Good analysis Joe, but your last line undoes the force of your whole argument. What else could "I predict...with no great confidence..." really be except a maximum hedge which talks out of both sides of your mouth -- just like a politician? So you really have predicted nothing except that you don't know.

destor23
destor23

When did Joe Klein go all in on magical thinking?

"There are those on the left who will object that the deficit issue is overblown and not even a priority among voters. They are right. But we have reached the point where some sort of deal is necessary to restore the public’s, the business community’s and the world’s faith that the U.S. government can, occasionally, take significant action."

So, Joe... the left is correct.  The budget issue is overblown.  Voters have other priorities.  But we should go ahead with these cuts anyway, over the objections of those who you just admitted are right on the substance of the issues because of... public relations?

grape_crush
grape_crush

> Both houses of Congress passed measures that would have withheld lawmakers’ pay if they didn’t pass a budget resolution this year...

Impressive, until you consider that the "Senate's median net worth is $2.63 million. The House's is $756,00." Then it just looks like a near-meaningless gesture meant to placate the rubes.

> The two plans are ridiculous, but they exist.

What about the Democratic plans is ridiculous, Joe? Particularly since it is somewhat similar to the "moderate and realistic" budget Obama just proposed.

> Success will depend on the leadership of a half-dozen Republican Senators.

No, success will depend on peeling off enough House Republicans to put the Senate bill on the House floor and then pass the legislation...and given their current stance that "talk about raising revenue is over," that's going to be difficult to pull off.

> Democrats and Republicans believed that the meat-ax budget cuts were so stupid that neither party would allow them to be enacted.

That's what everyone wanted to believe in order to get the deal done and prevent a possible economic collapse. Reality was a bit different:

"Rep. Paul Ryan reiterated a message that House Republicans have been trying to push since the fiscal cliff deal happened: The GOP is unafraid to let the sequester take effect."

> The change in the Social Security consumer price index already proposed by Obama is modest and rational.

Modest and rational? Here's what that change means, Joe:

"All told, chained CPI raises average taxes by about 0.19 percent of income. So, taken all together, it’s basically a big (5 percent over 12 years; more, if you take a longer view) across-the-board cut in Social Security benefits paired with a 0.19 percent income surtax. You don’t hear a lot of politicians calling for the drastic slashing of Social Security benefits and an across-the-board tax increase that disproportionately hits low earners. But that’s what they’re sneakily doing when they talk about chained CPI.

That’s why watchdog groups like the Center for Budget and Policy Priorities argue that the only fair way to do chained CPI would be to pair it with an increase in Social Security benefits, and to exempt Supplemental Security Income, which provides support for impoverished elderly, disabled and blind people. Otherwise, it’s just a typical “raise taxes, cut benefits” plan, and an arguably regressive one at that."

All for something that "does not amount to bold long-term deficit reduction."

> But we have reached the point where some sort of deal is necessary...

No, not, "some sort" of deal. It has to be a good deal, unlike the deal struck for the debt ceiling that birthed the sequestration cuts. Intentionally creating bad legislation just to get a deal done is bad governance.

> I predict—tepidly, with no great confidence—that the Congress will finally decide it is time to act.

Congress always acts. Choosing to not act is in itself an act. The question is really whether or not they will choose to act wisely and in the best interests of the public. 

rhendrickson
rhendrickson

tired hack Klein is merely in the middle of swamplandia's self-referential food chain, and in order to maintain his membership in JournoLism, he must occasionally call for reason and moderation when the cresting bilge-waters of Dementocrat ineptitude flood everyone's basement.  As is happening now with ObowelCare.

PubliusNovus
PubliusNovus

There is no constitutional duty to produce a budget.  Anywhere.

destor23
destor23

@helmetbreaker Oh my.

1)  When a country operates as a global reserve currency and also controls its own currency reserves, the totality of its debt is never paid back, it is always refinanced.


2) Comparing the total debt to the present day net worth of any or all Americans is meaningless because the total debt is not all due at once, ever.  See point 1.

3) A reduction in the rate of increase of the deficit can lower the debt over time, in relation to GDP, which is all that matters.

4) Obamacare reduces the long term debt.

5) Allowing more immigrants into the country would actually solve demographic problems by increasing the size and diversity of the tax base -- not to mention the size and diversity of the overall economy.

tom.litton
tom.litton

@destor23  

I see what he is saying.  The deficit is still #2 problem on most polls the last i heard (not that i agree with it).  Beyond that, if congress can come together and solve this problem, even though it isn't a real problem, then it gives hope they can come together and solve other problems. 

grape_crush
grape_crush

 @destor23 > But we should go ahead with these cuts anyway, over the objections of those who you just admitted are right on the substance of the issues because of... public relations?

Very Important People think that It's Very Important That A Deal Be Made. Never mind that the substance of the deal involves the gradual transition of people from eating Spam to eating Fancy Feast.

georgedixon
georgedixon

@PubliusNovus

"There is no constitutional duty to produce a budget.  Anywhere."

'Try The Constitution' or, lacking that...Google is your friend.

The U.S. Constitution (Article I, section 9, clause 7) states that "no money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of Receipts and Expenditures of all public Money shall be published from time to time."


Law is made by Congress = Senate & House

paulejb
paulejb

@PubliusNovus

"1974 Congressional Budget and Impoundment Control Act"

"The Act had two main goals: (1) strengthen and centralize Congress' budget authority; (2) reduce the President's impoundment authority."

http://bancroft.berkeley.edu/ROHO/projects/debt/budgetcontrolact.html

'Of the three branches of the U.S. government, Congress has the power to determine federal spending, pursuant to Article I, Section 9, of the U.S. Constitution, which states, "No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law." The drafters of the Constitution sought to secure the federal Spending Power with legislators rather than the president, to keep separate the powers of purse and sword. In The Federalist No. 58, James Madison wrote, "This power of the purse may, in fact, be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people." '

http://legal-dictionary.thefreedictionary.com/Federal+Budget

Any other questions, Publius?

paulpablo97
paulpablo97

Yes it does get refinanced but the interes payments are so high the US will not be able to servies its debt without cutting other expenditures. Wait till interest rates go up

Obama care does not reduce long term debt. it will blow the budget in a few years.

forgottenlord
forgottenlord

@paulejb

That proves that Congress is meant to produce the budget if a budget is to be produced.  It merely means they get to decide how spending works.  Continuing Resolutions match the needs of Article 1, Section 9  Technically, they don't even need to do that - if Congress refuses to authorize anything and the government goes into shutdown, there is nothing in the Constitution to suggest they broke the law.

tom.litton
tom.litton

@paulpablo97 @tom.litton  

I never said Krugman was an idiot.  He is very clearly a brilliant award winning economist on the very situation we find our selves in now.  To NOT listen to him is idiotic. 

 

paulpablo97
paulpablo97

@tom.litton is there anything more to debate? You already said that Krugman is an liberal idiot; you already said that "he did not say debt doesn't matter"; you already said that money does not cause inflation but....finish your own debate and then we can talk again.

tom.litton
tom.litton

Yes, what bobell said.  Plus i did find the original source, if anyone is interested:

http://www.nytimes.com/2003/03/11/opinion/a-fiscal-train-wreck.html

I will also admit that Krugman is liberal and does have a liberal bias.  However, i always found is economic analysis to be very grounded in data and actual evidence, unlike many pundits.  This explains why he is distrustful of republican administrations and more accepting of democratic administrations.  

A few other notes:

He doesn't say that debt doesn't matter.  Only that unemployment and escaping the liquidity trap are more important right now.  He has advocating reducing the debt to GDP ratio after that though.

He doesn't say printing money doesn't cause inflation, only that printing money in a liquidity trap doesn't cause inflation.

For immigration effecting the budget:  http://www.thefiscaltimes.com/Articles/2013/04/10/Costs-of-Immigration-Reform-Split-Conservatives.aspx#page1

 I never said obamacare wouldn't cause deficits, only that it isn't expected to (or more accurately the CBO numbers say it won't).   If you have evidence to the contrary, then send it my way. 


bobell
bobell

@paulpablo97 A surfboard may be just great when you're on the ocean, but you don't try to drive it down a freeway. And you don't manage the economy the same way in a boom as in a recession, particularly a recession associated with a liquidity trap.

In 2003 we weren't in a liquidity trap, and the Bush tax cuts and spending increases were threatening to ignite inflation. Krugman reacted accordingly. In 2009 we fell into a liquidity trap from which we are yet to emerge, and the historically low interest and inflation rates we now see are the direct result.  Changing times = changing conduct.

paulpablo97
paulpablo97

Funny you quote Krugman:

Krugman wrote:

America...can't experience an interest rate spike unless people see an increased chance of economic recovery and hence a rise in short-term rates. And the people who have been predicting an interest rate spike any day now for four years shouldn't have any credibility at this point.

But in 2003, added the puzzled Mankiw, Krugman had written just the opposite:

[L]ast week I switched to a fixed-rate mortgage. It means higher monthly payments, but I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits...my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.

And as that temptation becomes obvious, interest rates will soar. It won't happen right away... But unless we slide into Japanese-style deflation, there are much higher interest rates in our future.

I would like to see what study says that adding 12 million to the entitlement roll will have not effect on the deficit?  

Obama care will not increase the deficit? Please, it is alredy blowing several gaskets with implementation overruns!

paulpablo97
paulpablo97

You claimed first that the US should not worry about increased debt because it can always refinance.  I say it should because it will make the US another Japan with a stagnat economy (US is already is another Japan) without growth. We has seen this over the last few years and it does not look any better in the future.

destor23
destor23

@paulpablo97 This is why I shouldn't argue on Swampland.  All subtlety is lost.  My point is that in 22 years of trying, they have not experienced a spike in interest rates, even when borrowing 200% of GDP.  And Japan does not have as many growth options as the US does.  If the bond vigilantes don't go after Japan, I wouldn't expect them to land in D.C.

tom.litton
tom.litton

@paulpablo97Krugman did a blog about Japan this morning:  http://krugman.blogs.nytimes.com/2013/04/11/monetary-policy-in-a-liquidity-trap/

Since you mentioned them i thought you would be interested. 

Anyway, we are no were near the level of debt of Japan.  There is very little reason to worry much about it now (although i would agree that having a plan in place for later would be a plus).

The studies i've seen says that making the 12 Mil illegal immigrants legal would not have a significant effect on the budget (at least the federal budget).  Once you realize the percent of the budget spent on low income programs (food stamps, etc) is really low (less than 5% i think), you can see how it couldn't possible be enough to have a real impact. 

Obamacare was never intended to reduce the deficit.  It was intended to save lives.  However, it isn't expected to increase the deficit either.  If and when it does, it can be adjusted then.  

If you have evidence to the contrary, then i'd like to see it.

paulpablo97
paulpablo97

Japan's economy has been stagnat for 20 years. they have not been able to grow just like the US now. Is that what you want?

As I said before, Obama care will only exacerbate our problems It is already having an effect on busns hiring and It will not reduced the deficit

Immigation will be a dragg on the economy as most are poor and need public assistance. So you can take that one away as s solution to our problems unless the US enforces a more strict law, only well quealified professionals and not the kind of migrants we see know; don't speake the lanuage and have no education.

destor23
destor23

@paulpablo97 People have been saying the same thing about Japan for 22 years now -- that its interest rates would spike, causing a debt catastrophe that would lock its Treasury out of the capital markets.  What do you think?  Are those people wrong or just really early?