Tuesday, July 19, 2011

Just what is Cut, Cap, and Balance?

H.R. 2560 - The Cut, Cap, and Balance Act of 2011. That is what most of the discussion in Washington is going to be about today. So what, exactly, does it do? First of all, you can take a look for yourself here, but it isn't necessarily that pretty. Let's take the bill title word by title word.

Title I: "Cut"

Title I is, appropriately named, "Cut." It's meant to cut the 2012 federal budget. Sec. 101 would cap discretionary spending budget authority for FY 2012 at $1 trillion, 19.4 billion and would cap FY 2012 discretionary outlays at 1.225 trillion.

Just for comparison, FY2010 (which is the last year we had a real budget), the total discretionary budget was $1.378 trillion, so that would be a cut of $349 billion for budget authority and $153 billion in outlays. And that's not taking into account any increase in defense spending between FY 2010 and FY 2011. Based on FY2010 numbers, a $349 billion cut in appropriations would result in a essentially a 50% cut in non-defense discretionary funding, if no defense funding were cut from FY2010 levels. Even if one went with the $153 billion in outlays, that's a 21% cut.

Just for some scope, to make up $349 billion, we would have to eliminate, entirely, the Department of Health and Human Services, the Department of Transportation, the State Department, the Department of Housing and Urban Development, the Department of Education, the Department of Energy, and the Department of Agriculture (give or take a billion).

(To make up $153 billion, if you want to use that number, you would merely only have to cut Health and Human Services and Transportation, plus another 2 or 3 billion).

If one were to carry that cut over 10 years, one would be looking at $3.5 trillion in cuts from the discretionary budget alone based on budget authority, or $1.53 trillion using the outlays number, assuming budget growth is equal to inflation.

Title I also caps the money that can be spent on the "Global War on Terrorism" (their term in the bill) at $126.5 billion. I'm not entirely sure if that is in addition to the discretionary spending or not.

Title I then also caps direct, or mandatory spending, at $680.7 billion, exempting Social Security, Medicare, Veterans Benefits and Services, and national debt interest (note: Medicaid is NOT on the exempted list). This may or may not result in any mandatory cuts in 2012. Based on FY 2010 numbers (PDF), that would be a cut of $60.3 billion (taking out gains from TARP), though would be pretty much even with expected expenses based on FY 2012 projections made in January 2011.

So that's the "Cut" section. meant for FY 2012.


Title II: "Cap"

Section 201(a), as far as I can tell, removes section (c)(4) from this piece of the US Code, which eliminates certain discretionary budget categories, including "highway category," "mass transit category," "conservation spending category," "Federal and State Land and Water Conservation Fund sub-category," among others. I don't think this prohibits funds from being spent for these things, but it appears to eliminate them as distinct budget categories. It then adds to the US Code, this:

The term ‘GDP’, for any fiscal year, means the gross domestic product during such fiscal year consistent with Department of Commerce definitions."

Section 201(b) then limits total outlays (both on and off budget) to:

  • 21.7% of GDP in 2013
  • 20.8% of GDP in 2014
  • 20.2% of GDP in 2015
  • 20.1% of GDP in 2016
  • 19.9% of GDP in 2017
  • 19.7% of GDP in 2018
  • 19.9% of GDP in 2019, 2020, and 2021
Just as comparison, federal outlays for the past 40 years have averaged at about 20.6% of GDP, though FY 2009 and FY 2010 averaged at 24.4% of GDP.

Finally 201(b) says that if outlays are over, sequestration measures should be taken, though Medicare, Social Security, military pay, military retirement, veterans benefits, and national debt interest are exempt.

Then we get to:

Title III: Balance

This section extends the debt limit to $16.7 trillion (an increase of $2.3 trillion), but only unless and until a balanced budget amendment as introduced in H. J. Res. 1, S. J. Res. 10, or H. J. Res. 56 (or any comparable amendment) is passed by 2/3 of both houses of Congress and sent to the states.

So what do these amendments do?
  • Not shockingly, they all require a balanced budget. H.J. Res. 1 allows this to be exempted by a 3/5 vote in both Houses. S. J. Res. 10 and H. J. Res. 56 require a 2/3 vote to override this provision
  • They spending at 18% of GDP and requires a 2/3 vote of both Houses to override this requirement
  • They require the president to submit a balanced budget to Congress
  • They require that any increase in revenue require a 2/3 vote in Congress to pass
  • They require a 3/5 vote in both Houses to increase the debt limit
  • They allow the waiving of the balanced budget requirement, GDP requirement, presidential budget requirement, and debt ceiling requirement in the case a declaration of war is in effect. H.J. Res. 1 also allows the waiving of the revenue increase requirement.
  • Ditto on the waiving in the case of the US being engaged in "a military conflict that causes an imminent and serious military threat to national security." H. J. Res. 1 would allow Congress to declare such a state by a majority vote. The other two amendments would require a 3/5 vote. Those two would also require that any additional spending be limited to the military conflict in question.
  • S. J. Res. 10 and H. J. Res. 56 say that no court may require an increase in revenue
  • H. J. Res. 1 would take effect in 2 years after ratification, unless it is ratified after 2016, in which case it would take effect in 1 year.
  • S. J. Res 10 and H. J. Res 56 would take effect 5 years after ratification
  • None of the amendments have a ratification time limit
So what does this do? It does several things, very few of them good.

It would force federal spending to be at a level that we haven't consistently seen since before World War II, as there has not been a stretch of more than 5 years in a row that the federal government has spent at 18% GDP or less since. In fact, only two years - 2000 and 2001 - has this been the case since 1974.

It would likely gut entitlement spending. The average GDP in 2010 was $14.660 trillion. A 18% cap would have required a spending cap of $2.639 trillion, which would have required a cut of about $913 billion from the budget that actually passed. Even if all discretionary spending, including defense, were cut by 50%, we'd still have to cut $224 billion from mandatory programs. Assuming defense were untouched, we'd have to cut $556 billion from mandatory programs, or about 25.5%. If Social Security, Mediare, and Medicaid were left intact, that would mean ALL other mandatory spending, sans interest on the national debt, would have to be eliminated, including food stamps, veterans benefits, unemployment, student loans, etc.

The federal budget could very well be reduced to defense spending, Social Security, Mediare, Medicaid, and national debt interest and absolutely else - assuming that revenues actually reached 18% (and that's happened under two of President Bush's, and none of President Obama's budgets). If not, then even more cuts would be necessary. Based on FY 2010 revenue - and remember it would take a 2/3 vote to increase revenue under these Amendments - the budget would be operating closer to 14% of GDP, meaning that the budget would have faced a cut of about $1.5 trillion, or a 42% budget cut across every single program, including Medicare and Social Security.

Also, cutting $1 trillion yearly from the federal budget would have a devastating impact on the economy, which would likely reduce the GDP, both lowering the funding cap and reducing tax revenues, forcing further cuts, lowering the GDP further. Such an amendment could trigger a downward spiral that would almost certainly result in the gutting of most of the nation's entitlement programs.

This amendment would also largely trigger elections moot, and that's something that all but the hardest core Republicans should be opposed to, regardless of whether one agrees with current Democratic policies or not.

This amendment would enshrine in the Constitution right wing conservative economic doctrine, ensuring that conservatives could implement their agenda of cutting the budget and cutting taxes by a mere majority vote, but would require moderates and liberals to meet a virtually unattainable goal of 2/3 vote in both Houses to implement any of their policy goals, or to even undo anything Republicans might have done when they were in power. It would effectively ensure that Republicans control government, even if they lose elections. Only an overwhelming election of Democrats, ensuring a 2/3 majority in both Houses could undo this arrangement.

Is an arrangement where one party can do what it wants by majority vote, but the other party must face the burden of a 2/3 vote really something that Americans want?

Further, these amendments would:
  • Make it near impossible to implement stimulus spending in a recession. In fact, it would almost certainly require severe budget cuts in the very programs that help people the most during a recession.
  • It would create a disincentive to implement possible stimulative tax cuts as it would take a 2/3 vote to repeal them (assuming one couldn't just sunset them)
  • It would make it difficult for the government to provide disaster relief in the case of a major hurricane, earthquake, flood, drought, or other natural disaster as it would require a 2/3 vote to do so
  • It would make some common sense fixes to Social Security difficult, by making any vote to raise or eliminate the payroll tax cap subject to a 2/3 vote, putting the sustainability of Social Security into even further question
  • The Patient Protection and Affordable Care Act would almost certainly have to be repealed. This would actually make it harder to balance the budget, as the PPACA has the net effect of lowering the deficit, but it would violate the 18% of GDP provision.
  • It would almost certainly require that any steps to be taken to lower the national debt would have to be taken by spending cuts only.
  • If the GOP cut taxes with the argument that it would increase revenue - and were wrong - it would be nearly impossible to reverse as it would take a 2/3 vote to do so.
  • However, it would make it (relatively) easy for a party who controls Washington to do something such as Invading Iraq again, as it would only take a 3/5 vote of both Houses to declare doing so a "imminent and serious military threat to national security." - but would make it difficult to pay for such action by raising taxes as 2 of the 3 amendments wouldn't waive the 2/3 vote to raise taxes provision, even in a time of war.
  • It would make the US much like California in that it would take a 2/3 vote to do any sort of real budget reforms. This situation was a large reason why California faced one of the biggest budget deficits in the nation
  • It would encourage Congress to balance the budget using budgeting tricks, similar to what is happening in many states with balanced budget amendments right now, making the nation's financial situation less stable, not more stable
Oh, and with no time limit on ratification, it could make the balanced budget amendment a state-level election issue in perpetuity, and could eventually be ratified sometime in the future, much like the 27th Amendment was, 203 years after it was passed by Congress, if enough states happened to elect sympathetic legislatures in favor of it at some unknown time in the future.

This is just the tip of the iceberg of what the GOP's proposals are trying to do.

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