Web Chat: Congressional Budget Battles Loom on the Horizon

The upcoming vote in the House of Representatives on Rep. Paul Ryan’s budget proposal, and its expected defeat in the Senate, is set to be the first in a series of critical congressional battles over federal spending during 2012. 

In the midst of a highly polarized election season, will Congress ultimately find compromise on issues such as national defense and entitlement programs? What impact would failure have on a still fragile U.S. economy? On March 28, Isabel Sawhill answered your questions during a live web chat moderated by Vivyan Tran of POLITICO.

12:31 Vivyan Tran: Welcome, let’s get started!

12:32 Comment From Anne: Is the Ryan budget a useful starting point for negotiations on the budget? Or is it just a partisan framework designed to outline party views during an election year?

12:34 Isabel Sawhill: Mostly the latter, I think. It’s certainly not a realistic set of proposals and has zero chance of being enacted in anything like its current form. But there are some serious proposals contained in Ryan’s budget that could continue to get attention such as premium support in health care, tax reform, and devolution of responsibility to states.

12:34 Comment From Brian: How does the Ryan budget of this year differ from last year’s?

12:36 Isabel Sawhill: The most important difference, in my view, is that he revised his Medicare proposal. He continues to talk about premium support but he leaves traditional fee-for-service Medicare as an option for seniors and allows growth of the system at a little faster rate than before. None of this would phase in until 2023, so no one over the age of 55 is affected.

12:36 Comment From Blake: Do you think we will see any progress on the debt this year? America needs our elected officials to work on this, but they seem to be more concerned with partisan squabbling and reelection.

12:38 Isabel Sawhill: It is very discouraging as you suggest. I am not optimistic that we’ll get any kind of grand bargain, but something will have to happen during the lame duck session after the election because so many provisions of existing law expire then and if Congress did nothing there would be a huge tax increase—something like $5 trillion—followed by a sequestration of spending starting in early 2013.

12:39 Comment From Gianne: Do you see the big cuts to defense (because of the failure of the super committee) actually coming into effect?

12:41 Isabel Sawhill: Hard to say, but probably not. Republicans and even some Democrats are very worried about defense cuts. Ryan, for example, increases defense spending in his budget and makes up for this by cutting nondefense spending. Even the administration left the effects of sequestration out of their budget this year (on the grounds that they were achieving enough deficit reduction to make it unnecessary).

12:41 Comment From Don: What’s next with the payroll tax cut? Are we likely to see it extended?

12:44 Isabel Sawhill: I think this will depend on the state of the economy toward the end of the year. A 2 percent increase would really retard demand and would not be a good idea if the recovery is still fragile. And Democrats can make the same argument they made on the last round: raising taxes during a weak recovery is not a good idea and one can’t argue for tax cuts for the wealthy but not for the middle class.

12:44 Comment From Sally: Is it likely that the U.S. will have to raise the debt ceiling again in 2012? With a divided Congress, will this spark another showdown just as the country gets ready to vote for its next president?

12:45 Isabel Sawhill: I don’t know, but it’s unlikely that we’ll both hit the ceiling before the election and have also exhausted all the “extraordinary” actions the Treasury can take to keep the government operating.

12:46 Comment From John, PA: Will Congress find compromise on the budget? Or is this going to be an 11th hour decision like last time?

12:51 Isabel Sawhill: I’m afraid it’s going to be an 11th hour decision and that it won’t be pretty. My guess (but hope I’m wrong) is that they’ll simply kick the can down the road again and probably for just a short period of time. For example, they might extend all of the Bush tax cuts and rescind the sequester but just until the spring of 2013 when a new or reelected president and a new Congress can go to work on the problem. Some argue that Obama will have greater leverage than in the past because he will either be a lame duck or have been reelected and if nothing is done all of the Bush tax cuts will expire. He can threaten Republicans with letting them expire. On the other hand, he has himself promised to extend them for the middle class so this may not work and might be an irresponsible threat in a weak economy.

12:51 Comment From Samantha, Houston: What options are there to help reach a compromise if there is a budget showdown considering the super committee failed so miserably last time?

12:51 Isabel Sawhill: See my last answer.

12:52 Comment From Vicki: The Ryan budget essentially guts domestic discretionary spending in order to maintain the defense budget etc. When are we likely to see action on long-term issues like Social Security and Medicare?

12:55 Isabel Sawhill: Good question. No one—not even Ryan—is talking about Social Security reforms in any concrete way and yet these are well-known and would not have to be very painful if they were enacted now for future retirees. Medicare reform is, of course, bound up with what happens to the Affordable Care Act. We’ll know more when the Supreme Court rules in June (based on hearings going on now). I think there will be continuing discussion of Premium Support as well. There is some bipartisan support for the idea.

12:55 Comment From Robert, Baltimore: Any thoughts on the health care case before the Supreme Court at the moment? Do you think they will strike down the individual mandate?

12:56 Isabel Sawhill: See the commentary by my colleague Henry Aaron on the Brookings website. He has been attending the SC proceedings and has a lot of insight into this.

12:56 Comment From Ginny: What are the implications of the Ryan budget for transportation?

12:57 Isabel Sawhill: Sorry, I don’t know the details, but since discretionary spending is decimated I suspect it fares poorly.

12:58 Comment From Bethany: Are any of the presidential candidates (including Obama) putting forth reasonable budget proposals? What are some of the highlights that you think they could actually implement?

1:01 Isabel Sawhill: I have actually written a piece on the Obama budget. It has some flaws but it compares very well, in my view, to any of the alternatives being put forward by the Republicans, including the current crop of presidential candidates and Ryan. He manages to find about $4 trillion in savings through a combination of tax increases and spending cuts, with a ratio of about 1 to 3 (taxes to spending). It’s the kind of balanced plan that I think we need. All of the Republican plans make deficits worse unless you assume they increase economic growth to levels we’ve never experienced. And they cut taxes with most of the benefits going to the wealthy.

1:01 Vivyan Tran: Thanks for the questions everyone, see you next week.