Web Chat: The Budget and a Divided Congress

On Wednesday, February 16, Brookings expert Ron Haskins participated in a live web chat on President Obama’s budget proposals. POLITICO senior editor David Mark moderated the discussion.

The transcript of this chat follows.

12:00 David Mark: Welcome to the chat. Let’s get started.

12:00 [Comment From Wayne: ] Aren’t Republicans in something of a political dilemma with the independent voters they need to retain for 2012? To fulfill their election mandate, they have to propose and attempt to enact deep spending cuts. On the other hand, independent voters are particularly infected with the “cut the other guy’s spending” syndrome. If Republicans propose cuts to politically popular things like higher education benefits and farm programs, won’t those voters slide back into the Democratic column?

12:02 Ron Haskins: Yes, they are, but so are Democrats. The basic problem with the deficit — and the reason congress and the president have done such a lousy job of fighting it — is that the American people say they want to reduce the deficit, but they don’t want to cut any programs (well, maybe foreign aid, which is less that a fraction of 1% of the budget) or raise any taxes.

12:02 [Comment From Jim Nolan: ] I don’t understand how the Administration picked out the programs to be cut, such as LIHEAP and the Community Services Block Grant. These programs have pretty widespread support among his natural constituency. Without arguing the merits of individual projects to be offered up, why does he pick those that appeal to his core? Seems very odd to me.

12:07 Ron Haskins: Jim, you’re on to the basic dilemma. You just can’t make progress on the deficit unless you cut programs that are popular and raise taxes that are always unpopular. Here are two additional points. First, if spending is to be reduced in a reasonable fashion, we should consider whether the program actually helps people, how much it cost, what the direct and indirect impacts would be, whose ox gets gored, and other factors. But let’s not be naive; political considerations will also be an important factor. If I could have my way, I would try to minimize the political factors and maximize the data and reasoning about how much good the program does, especially whether it contributes to the nation’s economy in the long run. The second consideration is that the political parties will differ on how they value these criteria for deciding what to cut. But hopefully, at some point the parties will be willing to compromise and each side will get part of what it wants at the cost of giving up other parts of what it wants.

12:07 [Comment From Don Beck: ] Do you think the president wimped out on the budget this year? It seems like he just pushed the most difficult decisions on to future budget plans.

12:12 Ron Haskins: Yes, I do think he wimped out. On the other hand, I’ll bet his advisors told him what happened to Ronald Reagan when he proposed serious changes in the Social Security program in 1981. At the time, Social Security was actually running out of money. Even so, the President was slaughtered by Democrats for his cruelty in cutting promised benefits from Social Security. So he appointed a bipartisan commission; the commission made great recommendations that involved both cuts and tax increases; the package passed the Congress on a bipartisan basis in 1983, and Social Security was literally saved. If Obama proposed changes in Social Security and Medicare, it seems likely that Republicans would return the favor Democrats bestowed on their president in 1981. The solution is that the President and Republicans and Democrats from the Hill need to go into a room, lock the door, and come out with something that gives both parties some of what they want but that reduces the deficit to now and in the future so that the public debt will remain stable at around 60 percent of GDP.

12:12 [Comment From Rick: ] Overall, how was the president’s budget received on the Hill by the two parties? Do you expect that we’ll encounter the same problems we saw last year?

12:14 Ron Haskins: Here’s a surprise: Republicans attacked it and most Democrats either kept quiet or tried to defend the President’s budget. I would expect this reaction from both sides to continue as the House and Senate try to establish their own budgets.

12:14 [Comment From Gerard M.: ] Do you think a government shutdown is a likely scenario?

12:17 Ron Haskins: No, I don’t think there will be a government shutdown. The most likely cause would be the freshman Republicans refusing to compromise on dealing with the Continuing Resolution that expires in early March. Roughly speaking, that’s what happened when Republicans twice closed the govenrment in 1995 and 1996 — they were driven to it because the freshmen members were true believers. But I think enough Republicans remember the consequences the party paid as a result of the shutdowns in the 1990s that a repeat performance is unlikely. But it could happen.

12:17 [Comment From Maryann: ] How can we be remotely concerned with the 2012 budget when the 2011 budget isn’t even settled yet?

12:20 Ron Haskins: We must not only be concerned with the 2012 budget but the 2081 budget as well. We have two deficit problems. One is immediate. For no really good reason, the current budget is shockingly out of balance. So we must deal with that. But the second problem is that as a result of the aging of the population and the relentless rise of health care expenditures, we have a long-term problem that will explode in the years after 2020. As for the 2011 budget, we must deal with that by early March because the previous congress did not pass a budget and the government is running on a Continuing Resolution.

12:20 [Comment From Bill in Va.: ] Is there anything to be learned and applied from the UK’s “austerity budget” experience? I know it’s a different government, but in enacting severe budget pain, can we say anything good or bad about outcomes in Britain?

12:21 Ron Haskins: There is one very big thing to learn from the UK austerity budget. Members of our congress and our President should look to the UK for inspiration to make very difficult and politically risky decisions for the sake of the nation’s future. Politicians were brave in the UK; now we need them to be brave here.

12:22 [Comment From Len Walters: ] How did they do it back in the ’90s, when they actually cut spending and raised taxes? I know the economy was stronger then, but how did they get to a compromise?

12:24 Ron Haskins: Don’t forget that the budget compromise achieved in 1997 occured only after huge fights between the parties, lots of nasty rhetoric, and two government closures. It wasn’t easy back then. One lesson we can learn from that experience is that everything was truly on the table and both parties were making proposals on taxes and on Medicare. We need both parties to do the same thing now.

12:24 [Comment From Mark, Greenbelt: ] Isn’t this the wrong time to make serious budget cuts? Don’t we need to be careful to protect the economic recovery and keep the stimulus going?

12:26 Ron Haskins: The economy is growing at last — less than everyone would like, but it’s growing. From my perspective, the long-term consequences of the nation defaulting on its debt would be much more devastating for us and for future generations than the modest impact cutting and tax increases are likely to have on economic growth.

12:26 [Comment From Jennifer S.: ] Don’t big cuts in federal spending lead to big job losses? Our unemployment rate is already high — could laying off federal workers and contractors push it even higher and threaten the recovery?

12:29 Ron Haskins: Again, choose your poison. We simply cannot continue the spending path established by previous policy. Presumably there are some cuts and tax increases that would have less impact on the economy than other cuts and tax increases, so we should try to take the actions that will do the least damage. For example, if we were to reform the tax code by eliminating lots or credits and deductions and lowering the rate, we could make the code fairer, more efficient, and more effective in raising revenue.

12:29 [Comment From Sandy G.: ] Are we in real danger of our own government defaulting on its debts? Just how serious is the budget crisis, and how much time do we have to fix it?

12:31 Ron Haskins: No one knows how much time we have to fix the problem. However, almost everyone who knows about financial markets believes that a default is possible and that the consequences would be catastrophic. In fact, bond rating agencies are already saying that on our current course, they might downgrade federal credit rating in a few years. Trouble is just around the corner.

12:31 David Mark: Thanks for the chat, folks.