Yes, There’s Hope for a Big Budget Deal

Conventional wisdom about the outcome of the Budget Conference Committee – co-chaired by House Budget Chairman Paul Ryan, a Republican, and Senate Budget Committee Chairwoman Patty Murray, a Democrat – is that nothing much will happen. At best, they will cut a small-bore deal to avoid another government shutdown or debt crisis before the congressional elections in November. They will fail to enhance near-term growth or tackle the tax and entitlement reforms needed to stabilize future debt increases. The excuses are: the challenges are too big, time is too short and conferees don’t have the legislative tools to do anything substantial.

We disagree.

Time for the conferees is short, but they have the option of buying more time for the big decisions. The challenges are huge, but the consequences of failure are even worse. Most important, the conferees have a legislative tool – reconciliation – at their disposal that enables them to find a lasting solution, if they have the will to do so.

The conferees could agree on a short-term package to overturn the fiscal year 2014 sequestration caps that are punishing the recovery and making it hard to deliver the government services that both parties want. That would already be an important step in the right direction. But there is an opportunity to do more. At the same time, conferees could issue reconciliation instructions to the committees of the House and Senate to make fundamental, phased-in changes in taxes and entitlements. Such instructions could set a date in March 2014 as the day for committees to respond to the instructions with long-term, pro-growth changes in taxes and entitlements that would stabilize and begin to reduce the ratio of U.S. debt to the size of the economy.

Both sides fear reconciliation. Republicans fear it will lead to higher revenues. Democrats fear it will lead to future reductions in Medicare, Medicaid and Social Security benefits. In other words, both are afraid to even discuss the changes needed to grow the economy faster and start the nation’s debt accumulation on a downward path. Both are afraid to do more than kick the proverbial can down the road one more time.

But fear is not a strategy. All of the bipartisan budget strategy groups, including the Debt Reduction Task Force that we co-chaired at the Bipartisan Policy Center, have proposed reforming income taxes to enhance economic growth and raise more revenue without raising tax rates. They also recommended slowing the growth of health care entitlements by making care delivery more efficient and preserving Social Security for future retirees by making the program solvent. The budget conferees have an opportunity to change the dismal trajectory of:

• Defense sequesters that will make America more vulnerable in an increasingly armed world;
• Domestic sequesters that are “eating our seed corn,” diminishing investments in health, education, science and infrastructure;
• A quick return to increasing debt that slows future growth and requires ever-increasing resources for debt service.

We do not underestimate the difficulty of finding common ground in our polarized political environment. It has been more than a quarter of a century since a divided Congress – one chamber Democratic and one Republican – has been able to reach a budget agreement. This fact alone shows that the challenges for bipartisan progress remain imposing. But the challenges can be met – time is sufficient, obstacles can be overcome and legislative tools exist.

However, only the active engagement on a sustained basis by the president and by congressional leadership can achieve a breakthrough. As Presidents Clinton and Reagan showed, if an executive is willing to use the bully pulpit, fiscal paths can be changed, fear notwithstanding.

In the last three years, the president and Congress have done three things: avoided a fiscal cliff of their own making; avoided a debt default danger of their own making; and continued the prospect of lurching from one budget crisis to the next without solving underlying problems. Now is the time to shift to the real issues. Negotiations should focus on existing entitlement promises that cannot be met with the current system and on a simplifying a tax code that is now anti-growth.

Are we naïve?

Maybe, although we combine about 90 years of work in the fiscal arena. Perhaps we are both nostalgic for negotiations when fear was pushed aside and leaders risked rejection. We have experienced agreements that came together even when time was short, the challenge huge and emotions high. We believe these conferees can do so as well if they have courage and party leaders have their backs.