Wednesday, July 20, 2011

Cut, Cap and Balance: A Big Opportunity Lost

Much ink (mostly virtual) has been spilled on cut, cap and balance, the latest House Republican approach to addressing the budget and raising the debt ceiling.  Unfortunately, the House Republicans took 3 good ideas and put them into one bad bill.  Let me take the pieces one at a time.


This should have been a standalone bill that included the debt ceiling increase in exchange for $110 billion in cuts next year.  The rationale is fairly simple...first, this Congress only controls what happens next year.  The out years, as they like to call them in Washington, will be managed by some other Congress.  Second, reducing the budget baseline by $110 billion next year produces more than $1.5 trillion in cuts over a 10-year period assuming similar growth rates in the out years.  Third, it breaks the back of the discussion about "savings over 10-years" and gets the debate focused where it ought to be, on next year.


The cap idea is fine as a statement of future intent but Republicans chose the wrong numbers from a political perspective and the wrong timeline from a long-term perspective.  Republicans should have aimed at slightly less than the Bowles-Simpson 21 percent, say 20.5%.  This would have provided cover for the cap (almost the same as Bowles-Simpson).  It also would have gotten two thirds of the way to 18 percent (which is an unrealistic number anyway).  This bill should also have been separated from the balance part of the bill (and the cut part).  By tying it to Republican's version of a BBA, they enabled the Democratic attack that the bill requires spending at 18% of GDP...the cap part doesn't actually do this.


I have lots of issues with this part of the bill.  The most important one is that passing a bill that says that a BBA has to be passed in the future is more or less a waste of time.  Pass a BBA or don't (we should) but passing a bill that holds the debt ceiling hostage to a future BBA is simply political posturing.  In addition, the BBA should not specify a level of spending.  That's not a BBA, it's a spending cap and a level of spending should not be enshrined in the US Constitution.

What we should have had was a hard cut with a debt ceiling increase that reframes the debate to be about lowering the baseline for future budgeting, a separate cap bill tied to Bowles-Simpson to make it harder to fight against, and a BBA that could actually pass.  Instead we got what we got, something that is going nowhere and creates no leverage.

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