A Budget Is Born

Despite all the rancor and political infighting on both sides of the aisle, the final Continuing Resolution (CR) for fiscal year 2011 was passed by comfortable margins in both chambers of Congress. In the House, the vote was 260-167, with 59 Republicans and 108 Democrats rejecting the deal. In the Senate, the final vote was 81-19 with 14 Republicans and 5 Democrats dissenting. It will head to the president’s desk where Mr. Obama is expected to sign it. Thus, the latest threat of a government shutdown has been averted. But much like the president’s 2012 budget plan just unveiled Wednesday, the remainder of the 2011 budget is an exercise in fuzzy numbers deception. And probably as many Republicans as Democrats are hoping that the public won’t take notice of the ruse.

First, the compromise itself. Republicans, under pressure from their freshman class in Congress, many of whom were the beneficiaries of Tea Party politics, started out with the intention of lopping $100 billion from the 2011 budget. $100 billion became $61 billion in fairly short order, already upsetting many of the new members who expressed their displeasure when 54 of them voted against the last continuous resolution designed to prevent the government from shutting down. When an 11th hour compromise among the president, House Speaker John Boehner, and Senate Majority Leader Harry Reid was reached, the number had been whittled down to $38 billion, with Boehner calling it the “best deal [Republicans] could get,” and president Obama touting it as the “biggest annual spending cut in history.”

Both men were apparently wrong. According to a Congressional Budget Office (CBO) estimate, the “make-or-break” deal funding the federal government through the remainder of the fiscal year saves only $352 million. Much of this is due to the kind of sleight-of-hand accounting in federal budgeting that makes hard numbers elusive, to say the least. For example, $8 billion in cuts to domestic programs and foreign aid are offset by nearly equal increases in defense spending. Other “cuts” come from projected spending that may never occur, and still others from seemingly arcane budget rules which allow them to be declared as such if they take away spending from one program, even if the money is used to fund increases in other parts of the legislation. Such “savings” amount to $17.8 billion, yet virtually none of it is used to actually reduce the deficit. Another factor is timing: since the current fiscal year is more than half over, cuts in new spending authority, along with slower spending grants used for infrastructure projects, won’t be immediately registered on deficit summaries.

Some Republicans expressed their disdain. First-year Rep. Tim Huelskamp (R-KS) characterized the deal as “phantom savings” and promised to vote against it. “It’s worse because of the expectations,” said an aide to another conservative House member. “We knew that not all of the $39 billion would be real cuts, but to find out that almost none of it was real was very disappointing.” An aid for the GOP senator questioned the deal as well. “We were getting $2 billion a week,” he offered. “Then we end up with $350 million for six months?”

Yet Republican leadership successfully endeavored to keep yesterday’s vote in context, saying that it was the result of “cleaning up the Democrats’ mess from last year,” a reference to the fact that the Democratically-controlled 111th Congress punted on their obligation to enact a budget for 2011. This was the first time since modern standards were adopted in 1974 that Congress failed to enact an annual budget, which is why a series of continuing CRs–including this one–became necessary. GOP leaders further reminded their members that this budget had to be resolved before the far more important work on the 2012 budget could begin.

Which brings us to the second element of context, Mr. Obama’s 2012 budget proposal. In what was viewed by Democrats as the antidote to Rep. Paul Ryan’s (R-WI) Roadmap for America, the president laid out a plan which ostensibly cuts deficits by $4 trillion dollars over twelve years. Yet once again, akin to their number-crunching with respect to the just-passed CR for 2011, the CBO revealed that such savings would only amount to $1.7 trillion. This is due to the fact that the president claimed he has already proposed $1.1 trillion dollars in deficit reduction for 2012, while the CBO reports that the budget submitted by Mr. Obama in February increases deficits over ten years to $1.2 trillion. The $2.3 trillion difference between the White House and CBO numbers explains the the lower savings projections.

The CBO also points out the possible error rates in the president’s budget projections increase over time, meaning the last two years of his 12-year budget may be the most erroneous of all. Even more telling is the twelve year period itself. Standard budget projections are made in ten-year cycles, and the president offered no reason for the switch.

Perhaps the most troubling aspect of the president’s plan, however, was it’s overtly partisan tone. As the Wall Street Journal noted, it was pitched in order to “inoculate the White House from criticism that it is not serious about the fiscal crisis, after ignoring its own deficit commission last year and tossing off a $3.73 trillion budget in February that increased spending amid a record deficit of $1.65 trillion,” and to characterize Mr. Ryan’s plan as creating ”a fundamentally different America than the one we’ve known throughout most of our history.” Mr. Ryan was hardly amused. ”What we heard today was not fiscal leadership from our commander-in-chief. What we heard today was a political broadside from our campaigner-in-chief,” he responded at a press conference. And it was hardly surprising that the president, like so many of his Democrat colleagues, targeted the “rich” for higher taxes, while blaming them for most of the country’s woes.

Another item in the contextual mix is “The Cap Act” sponsored by Bob Corker (R-TN), and Claire McCaskill (D-MO), a bill aimed at forcing a reduction in spending over 10 years down to 20.6 percent of GDP from its current 25 percent. The bill is viewed as something of a compromise between itself and a Balanced Budget Amendment, which Sen. McCaskill contends will fall short of the necessary 67 Senate votes required for a constitutional amendment. The Cap Act is also seen as a possible vehicle to garner greater support for raising the debt ceiling, the other large item on the upcoming Congressional agenda.

Thus, as reflected by the lopsided votes in both houses of Congress, it became apparent that neither party was overly interested in getting bogged down in what was, by comparison, a relatively minor skirmish relative to the showdowns on the debt ceiling and the 2012 budget. Both are for far, far higher stakes, and both parties are likely to be remembered for their performance in these two battles, long after this one becomes little more than a footnote leading up to the 2012 election.

And even though this budget has just passed, the political maneuvering on the first 800-pound gorilla, a vote on the budget ceiling, has already begun. Despite the fact that the Democratically-controlled Congress and Obama administration were the ones who added $5 trillion dollars to our $14 trillion debt in the last four and two years respectively, Treasury Secretary Timothy Geithner warned Republicans that they will “own the risk,” of using the ceiling as a means of wringing substantial spending cuts from the 2012 budget. This comes two days after House Speaker Boehner has called raising taxes, an integral part of the second 800-pound gorilla, aka the president’s latest 2012 budget proposal, “unacceptable and a nonstarter.”

Who blinks first? Statistically, Republicans, since they control only the House. Politically? Democrats lost 64 House and six Senate seats in 2010 – the “national conversation” has definitely turned from spending to cutting. The most important consideration for everyone concerned? Correctly assessing the mood of the electorate with respect to the 2012 election.

Arnold Ahlert is a contributing columnist to the conservative website JewishWorldReview.