Would Democrats Support a Six-Month Clean CR?

It seems like we are slowly inching towards a compromise between Senate Democrats and Senate Republicans. Majority Leader Harry Reid (D-NV) has issued a new offer that includes a nine-month debt ceiling hike, a six-week clean continuing resolution, a delay of the medical device tax, greater income verification for Obamacare subsidies, a formal budget process and a yet-to-be-decided Republican concession. It’s unclear what that concession will be. But if you take the Democrat’s position that they will not negotiate over the debt ceiling or a clean CR, here’s what the deal looks like from their perspective:

Republicans get:                                                           Democrats Get:

  • Delay of medical device tax                                        •  Unknown Concession
  • Greater income verification
  • Formal budget process

The clean CR and debt ceiling increase are not part of the deal as they were never negotiated upon (although Republicans can return to their constituents and say they broke Obama’s promise not to negotiate on the debt ceiling, even if it isn’t actually true). John Boehner will break the Hastert Rule and allow something like this to pass, because he knows we can’t default. That’s how Democrats envision the final deal, at the moment.

But Republicans are upset. They think that Democrats are moving the goal posts on them by demanding a six-week, instead of a six-month, CR. Here’s Sen. Lindsey Graham:

You can blame us, we’ve overplayed our hand, that’s for damn sure. But their response, where the president and [Senate Majority Leader Harry Reid] basically shutting everybody out, and when you try to negotiate, they keep changing the terms of the deal … it’s very frustrating.

So, what terms of the deal does Graham think Democrats changed? He doesn’t specify, but I think this all comes down to what Democrats thought they meant when they said they wanted a clean CR. They meant a CR that lasted six-weeks, or at least they are saying that’s what they meant. Republicans think Democrats meant that they would support a clean CR for any period of time. This is how Reid’s offer looks to them:

Republicans get:                                                           Democrats Get:

  • Delay of medical device tax                                       •  Six-week clean CR
  • Greater income verification                                        •  Unknown Concession
  • Formal budget process

This is the main sticking point right now. Republicans see the six-month CR as something Democrats said they would agree to by itself. Thus, the six-week continuing resolution is a concession for them. Meanwhile, Democrats see the opposite. The six-month clean CR would be a concession. When Democrats originally were calling for Republicans to open government, they didn’t say for how long. The House continually passed bills for six-week CRs that had absurd conditions on them. Democrats may have assumed that any CR would last for six weeks – but they never said so publicly (at least that I can find). Instead, they hammered the Republicans by telling them to pass a clean CR and reopen government, without any time horizon on those demands. Republicans want that clean CR to last six-months to lock in sequestration for longer. Democrats, of course, don’t.

There’s an easy way to figure out what Democrats would accept: Boehner could bring up a clean six-month CR in the House. Would Senate Democrats reject it? If so, it would contradict everything they have said about wanting Republicans to pass a clean CR. If they passed it, it would lock-in the cuts, a current goal of Senate Minority Leader Mitch McConnell. Unfortunately for him, Boehner won’t bring such a bill to the floor due to the internal political dynamics of House Republicans.

Instead, McConnell has limited power to achieve a six-month CR. Americans overwhelmingly blame Republicans for the shutdown and the October 17 debt ceiling deadline is a few days away. He must make a deal and has limited leverage to do so. Meanwhile, Harry Reid truly believes that a six-month CR is not what Democrats meant when they said they’d support a clean CR. If he agreed to a deal with a six-month CR instead of a six-week one, this is how it would look to him and Senate Democrats:

Republicans get:                                                           Democrats Get:

  • Six-month clean CR                                                      •  Unknown Concession
  • Delay of medical device tax
  • Greater income verification
  • Formal budget process

That’s not acceptable to them. That’s the impasse we’re at now. It has nothing to do with Obamacare. Instead, it’s all about how long the clean CR should be and what Democrats meant when they said they wanted a clean CR. And the only person who can force Democrats to answer that question has his hands tied by extremists in his caucus. All as the clock slowly ticks towards a self-inflicted financial crisis.

The Magically Disappearing Deficit

The Congressional Budget Office (CBO) released its 2013 Long Term Budget Outlook today and there’s a lot of good news. Total public debt is projected to hit 100% of GDP in 2038, thanks to growth in entitlement spending and interest payments. However, this number is well below CBO’s estimate last year that public debt would hit 200% of GDP in 2037.*

This is thanks to slightly higher taxes and significantly reduced spending on entitlements and interest payments.

The fiscal cliff deal at the end of last year (officially known as the American Taxpayer Relief Act) made the Bush tax cuts permanent for most Americans and fixed the Alternative Minimum Tax (AMT) to limit its reach. However, the deal also allowed taxes to rise on the wealthiest Americans. Due to that, the CBO now projects that revenues will equal 19.7% of GDP in 2038, up from 18.5% in last year’s report.

On the spending side, two major developments drastically reduced the CBO’s projected spending totals.

First, health care cost growth has slowed considerably over the past couple of years and there is more and more evidence demonstrating that this slowdown is not a short-term result of the recession, but is a permanent bending of the cost curve. This led the CBO to lower its projected health care costs:

A particular challenge currently is estimating the extent to which the recent slowdown in growth can be attributed to temporary factors like the recession or instead reflects more enduring developments. Studies have generally concluded that a portion of the observed reduction in growth cannot be linked directly to the weak economy, and CBO’s own analysis has found no link between the recession and slower growth in spending for Medicare. Accordingly, over the past few years, CBO has substantially reduced its projections of spending on Medicare and Medicaid during the coming decade and slightly lowered its estimate of the underlying rate of growth for health care spending per person for the country as a whole. CBO’s estimate of that underlying rate takes into account spending trends since 1985 but gives greater
weight to the recent experience; because of the pressures to constrain spending growth, the underlying rate is projected to decline gradually in the long run.

The CBO’s 2012 Report projected Medicare and Medicaid spending (plus CHIP and the exchange subsidies) to hit a combined 10.4% of GDP in 2037. In this year’s report, the Budget Office expected those programs to be just 8.2% of GDP. That’s a significant drop.

Second, the extended baseline scenario assumes that sequestration is not repealed, compared to last year’s extended alternative baseline scenario that assumed otherwise. This projection made sense in 2012 when it was widely assumed that Congress would find a way to replace the sequester. But now, sequestration is already in effect and the parties aren’t any closer to finding a replacement. It’s more and more likely that sequester could be here to say. This reduces the CBO’s spending projections significantly:

The Congressional Budget Office (CBO) projects that if current laws generally continued without change, other federal noninterest spending would drop from a total of 11.3 percent of gross domestic product (GDP) in 2012 to 7.6 percent in 2023 and then to 7.1 percent in 2038.

Under the extended alternative baseline scenario in 2012, the CBO projected that spending to be 9.6% of GDP in 2037.

The icing on the cake is that all of this reduced spending will lead to significantly lower debt payments, compared with the CBO’s 2012 projections. Debt payments will still rise from today’s low level of 1.3% of GDP to nearly 5 percent of GDP in 2038 (that’s why it’s a sin we aren’t taking advantage of today’s low rates). But that is much less than the CBO’s 2012 projection of 9.5%.

Having gone through all of that, here’s the overall change in U.S. revenues and spending between last year’s Long Term Budget Outlook and this year’s report:

2013 Long Term Budget

The deficit has dropped by almost two-thirds in the last year alone!

Now, the sequester is still dumb policy and the current projections still leave us with an unsustainable budget (economists and budget wonks agree that we need to get our budget down to around 3% of GDP). But the overall picture is abundantly clear: we’ve already done a huge amount of deficit reduction.

*Note: I’m using the extended alternative baseline scenario from the 2012 Report because it more accurately represents the future policy of both taxes and spending. In this year’s report, I’m using the extended baseline scenario as the Fiscal Cliff deal cleared up the unrealistic assumptions that the CBO used under this scenario in 2012.

“Who Are We Really Affecting With All These Cuts? It’s The Future”

I spent yesterday morning at the Center for American Progress (CAP) where a panel discussed sequestration’s effects on the Head Start program and the thousands of kids harmed by cuts to it. The panel was moderated Christina Samuels from Education Week and included participants from CAP, the Head Start Program, the Office of Management and Budget (OMB) and the Center on Budget and Policy Priorities (CBPP).

Carmel Martin, the Executive Vice President for Policy at CAP, and Yasmina Vinci, the Executive Director of the National Head Start Association, kicked off the program by running through some of the numbers about sequestration’s harmful effects. More than 57,000 kids have lost access to Head Start, including 6,000 infants and toddlers and 51,000 3-4 year olds. Another 87,000 kids have fewer days to attend Head Start, with programs cutting an average of 15 days per child. Yet another 11,000 kids have shorter days (approx. 1.5 hours less each day). Head Start was allowed some flexibility in their cuts and they passed that flexibility on to individual programs. Thus, some programs decided to cut days altogether or eliminate transportation to and from the site while others laid off employees or kicked students out.

But that flexibility will end in 2014, when more scheduled cuts are due to take effect. Colleen Rathgeb, the Director of Policy at Head Start, warned that future cuts will harm children even more.

“These one-time fixes aren’t available in the future,” she said. “This is unsustainable.”

The sequester cut Head Start by 5.27% – equal to $405 million – and more is coming next year unless Congress finds a way to make a deal that undoes the law.

Yet, while the cuts have been steep, they have caused less damage than expected. In February, the White house predicted that 70,000 kids would be kicked out of the program. Fortunately, “only” 57,000 actually have been. Of course, that number will certainly grow next year if the cuts aren’t replaced. And while most of the panelists offered optimistic takes that Congress will find a way to undo the sequester, Michael Linden, the Managing Director for Economic Policy at CAP, offered a more negative view:

“It’s also important to note that while there’s a growing awareness among some policymakers that sequestration is bad, others are saying that it wasn’t as bad as expected to be,” he said. “They have to understand that sequestration is not the status quo.”

Martha Coven, the Associate Director for Education, Income Maintenance and Labor at OMB, emphasized that the Obama Administration does not support the sequester  and is determined not just to undo those cuts, but to add additional funding for early childhood education.

“One thing to be very clear: the cuts to sequestration and Head Start in general were very much not part of the Administrations plan,” she said. “We’re very much trying to put ourselves on a path to reverse that. Moreover, our plan for early education is very much one of investment.”

Investment was a major theme throughout the discussion, with all of the panelists noting that funding for Head Start was not about the present, but was about the future. Head Start has a strong record of improving the quality of neighboring early childhood programs as well, said CBPP’s Sharon Parrott. In addition, states have trouble funding programs like these as they face different budget restrictions than the federal government does, Coven added. For that reason, it’s important for the federal government to fund Head Start and other such programs.

Yet, Congress is gridlocked and the federal government’s budget expires on September 30th. If it can’t reach a deal by then, the government shuts down. And any deal on a budget will have to figure out what to do with sequestration’s cuts. If Republicans and Democrats can’t come to an agreement and instead pass a continuing resolution that keeps the government funding at current levels, Head Start will have to start looking ahead to cuts it will have to make in 2014.

Linden summed up the dangers of the sequester’s effects on Head Start the best:

“Who are we really affecting with all these cuts? It’s the future.”