StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



The 10 Reasons There Won't Be A Grand Budget Bargain Until 2019

27 Nov 2013
Posted by Stan Collender

I've been talking for months about how the Grand Bargain or Big Deal that's always mentioned whenever there are budget talks in Washington won't happen until 2019 at the earliest.

I first posted about 2019 in June and have mentioned it a number of times on television and radio and in speeches since then.

I've also been told that my analysis recently made the big time when a group of the most senior tax lobbyists in Washington discussed it at a private meeting (It's not clear whether they were happy about having six more years to work on issues or sad that nothing much would be done before the end of this decade at the earliest).

Each time I've talked about 2019 I've gotten reactions that range from shock to amazement. No one ever tells me I'm wrong; they just shake their heads in disbelief.

So once again, here's are the top 10 reasons we're likely facing six more years of crisis-by-crisis budgeting in Washington and no Grand Bargain any time soon.

1. Democrats won't agree to the big changes in Social Security, Medicare and other mandatory programs that Republicans want without getting a substantial revenue increase. Republicans won't agree to a revenue increase without big changes in Social Security, Medicare and other entitlements.

2. Republicans absolutely can't and won't increase taxes until after the 2016 presidential election. Doing it before then virtually guarantees that the GOP base will look elsewhere or not vote. Either one would be devastating for Republican candidates.

3. Because of the problem with raising taxes before 2016, changes in mandatory spending are on hold until after 2016 as well.

4. Therefore, there will be no big budget deal for the next three years. There may be tax and mandatory spending reform hearings between now and November 2016, but not much else beyond that.

5. That means that, if it happens at all, the serious work on tax and mandatory spending reform -- the Grand Bargain -- won't begin until early 2017.

6. As the effort in the 1980s showed, tax reform is difficult and lengthy process. The substantive changes being considered will have an impact on virtually every American individual and business and that means that each member of Congress will need to address the issue in some way even if they are not on the House Ways and Means or Senate Finance Committee -- the two committees with jurisdiction over taxes..and Social Security and Medicare.

7. It also means that most members of Congress will have to express their dissatisfaction in some way over what's being considered because they cannot possibly get everything each of their constituents wants. In the 1980s, that translated into several near-death experiences for tax reform.

8. The 1985 tax reform act took three years to enact. It was relatively easy from a budget point of view because from the start the bill was going to be "revenue neutral," that is, it was never going to be an overall tax increase. Yes, some taxpayers would pay more and others less under the new system, but the aggregate revenues raised per year were always going to equal what would have been paid under the old system. That's not going to be the case this time. The cost of admission for Democrats will be additional revenues so the next tax reform effort can't be revenue neutral. That will increase...perhaps significantly...the amount of time needed for the next tax reform debate.

9. Before Republicans will even be able to start to negotiate with Democrats, there will have to be a GOP vs GOP debate on revenue increases. Given the state of the party (the next redistricting doesn't take effect until the 2022 election) that will be politically ferocious and time-consuming.

10. The tax reform debate from the 1980s also took place when there was no tea party wing of the GOP and no social media. Fox News and MSNBC were a decade away from launching, let alone attracting the attention they get today and conservative talk radio as we know it today was in its infancy.  As a result, members of Congress were far less concerned about challenges from the right or left and most often tried to appeal to a broader audience than the narrower one that dominates much of the political debate today. That will make compromise more difficult this next time around.

Given these 10, it's hard to see (1) how a process that could produce a grand bargain could get under way before 2017, and (2) how it could take less time than than it did in the 1980s.

If anything, that makes 2019 an optimistic forecast.

Point #1 is wrong.

"Republicans won't agree to a revenue increase without big changes in Social Security, Medicare and other entitlements".

This statement is correct if you ignore everything after the 6th word. Perhaps it was supposed to convey that this will be the Republican mindset when the time comes to talk about reform in 2017?

In any case, I don't think there will be a bargain in 2019. This would have to mean that the tea party fever will break after the democrats win the white house again in 2016. It won't. As such it will be impossible for republican lawmakers to sit down with anyone in 2017 to talk tax reform.

I think we're going to have to limp along with a little bit of change here and there for the next 10 years.. possibly a loophole or two closing. It won't be until the deficit has been rising for a few years due to rising medical costs that anyone will sit down to have another stab at bending the cost curve.


Remember that 2020 is a

Remember that 2020 is a presidential year and a redistricting year. The GOP is going to be facing a demographically grim picture from January 2023 onwards.


Entitlements

The talks of spending cuts is totally counterproductive. We have an unemployment/jobs crisis that needs to be fixed by additional Federal Spending. Once people are back to work, the budget will move toward balance as it did unexpectedly in the late 1990s as unemployment fell to 4 percent. More employed = more tax revenue & less social spending stabilizers. The way to balance the budget is not over deals to raise taxes or cut spending. It requires expanding the economy, putting people to work and increasing the number of people paying taxes rather than fooling with the tax rates.

Establishment types such as Pete Peterson may want entitlement reform. However, much of the TParty support is from older white folks, many of whom depend on SS and Medicare. Keep your hands off my Medicare was a rallying cry against ObamaCare. Support for SS and Medicare is strong in both parties. It is only the wealthy elites who favor the changes. Major cuts to SS or Medicare would fracture the GOP base and is a non starter with many Dems. Dems are even talking about expanding SS. If SS expansion is the position, then cuts are off the table. Health care cost curve is bending, so there will be less pressure to cut Medicare in the future. The GOP is only against spending if a Dem administration is in charge.


A bit of false equivalence?

Name a democrat in congress who is afraid of a serious challenge from the left?
What are the ratings for the most popular Fox programs vs. those of MSNBC?
Whatever happened to Air America?
When was the last time you saw a liberal at a protest rally wearing a shirt that said, "Put the WHITE back in the White House"?
When democrats are in power, when did they ever pull off a gerrymandering exercise like we have seen from republicans in 2010?
Enough already with the "both sides do it" bs.


a better bargain

Since none of the Serious People, including the host, are willing to vote for an expansionary fiscal policy, why not force the private sector to do it? Increase the minimum wage to $10/hour 1/1/14, to $12/hr 1/1/15, to $14/hr 1/1/16 and to $16/hour 1/1/17, with CPI-U thereafter. This will add perhaps $100B to demand per year after accounting for decrease in safety net spending by the Feds and states. Less than 1% of GDP per year of stimulus, which should unfortunately keep inflation below 3%. Since the Fed would likely raise interest rates if it got above 3%, OK. Still, it would add perhaps 1.5M jobs/year above the 2M/year we're coasting at now. Not the 5M/year we really need to get back on the 20th century expansion line, but 3.5>2.


You ignore the Democratic "Centrists" and Pete Peterson

Obama has already offered so many times that it is getting old, to cut social security and medicare without any justification except being "serious"

Pete Peterson had already spent a half a billion on cutting social safety net programs. Even my congressman representing Boulder CO is follower.


How to Cure National Debt? Fix the Dam Hole!

Congress has a dam problem. Please note the spelling 'd-a-m'. Imagine we have a large lake called the US Treasury that gives the water of life to our economy. The lake water comes from taxes, lots of taxes from all kinds of creeks and streams; cigarettes, gasoline, Social Security, and of course Income Tax. That is how the lake gets filled. The lake gets drained as the government pays our money back to us in the form of services we need. We get roads built, Social Security, Medicare, Police, the Military, and much more, all paid for with the money WE put in the lake. So long as all those little streams and creeks keep refilling the lake it all works. The problem is our lake is going down faster than it is filling up because it has a dam hole, a HUGE dam hole called deficit spending. But don't worry, Congress has a dam solution.
This is easy you think. Fix the dam hole right? Stop spending so much. Don't stop spending that's impossible, but at least slow it down; there are only a certain number of creeks and streams. Nope, their solution is, try to pump more water into the lake using a bunch of garden hoses. Water is gushing from this massive hole called 'overspending' but don't fix the hole, instead keep adding more garden hoses. The idea is eventually all the hoses will be spraying in more water than is leaking through the massive hole. That solution only works so long as the lake keeps growing and the hole does not. The problem is there aren't enough hoses to keep up with the leak.
Actually what the US Government is doing is even worse, because if you follow the hoses you'll find out where the water comes from, the lake. Think that through... the lake is draining because there is a hole in the dam. You cannot fix it by pumping water from the lake through a hose, and back into the same lake.
But that is exactly what happens when we let Washington 'invest' in more programs and pet projects. Each time they 'invest' in something it widens the hole in the dam. Each time they widen the hole they try to offset the additional leak by adding another garden hose, another tax, which cannot possibly put in as much water as they are taking out.
If you keep borrowing more credit (raising the national debt ceiling) and then instead of paying it back you just spend it all, sooner or later that becomes an unsustainable plan. You can't keep going further and further into debt without any plan to pay it back.
I love Stan's 10 Reasons, and I think they are pretty accurate, but the question is larger than how long it will be before we have some kind of grand bargain or debt deal. The bigger question is how much debt is acceptable? Can we raise the debt ceiling to $20 trillion? How about $25 trillion. We already know there aren't enough hoses to pay back the $17 trillion we already owe, so why not just raise it to $50 trillion. The ceiling has no meaning if there is no ladder tall enough to reach it. There is only one long term solution. Stop spending money that isn't there. Whether that happens tomorrow or in 2020, sooner or later either we will do it, or the lenders like China will just cut off the money supply. What loan place would continue loaning more money when they KNOW they will never be repaid? What happens then? I plan to still be alive in 2020, so do most of you. My suggestion - better stock up on hoses - Home Depot has a Black Friday sale.




Recent comments


Advertising


Order from Amazon


Copyright

Creative Commons LicenseThe content of CapitalGainsandGames.com is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License. Need permissions beyond the scope of this license? Please submit a request here.