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Friday Update: Congress Returns with Budget Front and Center

May 2, 2011

At the conclusion of the May 5 meeting at Blair House between Vice President Biden and six congressional leaders, all parties to the talks said progress had been made toward a deal that would lead both to a deficit reduction budget deal and a positive vote in Congress to raise the federal borrowing limit.    Beyond general platitudes, however, it was not clear to those outside the room just what exactly constituted progress other than they met and agreed to meet again next Tuesday.

Republicans leaders insisted that discretionary and entitlement spending was on the table and tax expenditures off the table, while Democratic leaders insist that everything must be on the table.  Behind the scenes, though, it appears a view is emerging that would take the big three entitlement programs (Social Security, Medicare, and Medicaid) off the table along with tax expenditures.

If that view is correct, it would put tremendous pressure on the smaller mandatory spending items and on the appropriations bills for FY 2012 and the years following.  Tax breaks represent more than a quarter of all federal spending.  Excluding them from the ledger, the big three entitlement programs represent over 40 percent of federal spending.  Another 6 percent or so is represented by interest paid on the federal debt.  If all of that is off the table, and if the 20 percent or so of federal spending that goes to defense is treated lightly, everything else would likely see severe retrenchment.  That is one of many dilemmas the negotiators will no doubt continue to grapple with.

Thursday Update

Today Vice President Joe Biden meets with six congressional leaders to discuss the parameters of a possible budget deal that would provide some assurances that Congress will raise the debt limit before the U.S. defaults on its obligations.

The government will run up against the current borrowing limit on May 16, but the Treasury Department announced earlier this week by using a variety of tools it could prevent default until early August.  Previously it the Department had said early July, but tax revenues have recently come in faster than expected.

Meanwhile, Senate Budget Committee Chair Kent Conrad (D-ND) presented two variations on the Senate budget resolution he will introduce and mark up in committee next week to his fellow Democrats on Tuesday.  The reaction was mixed.  One version followed more or less the contours of the plan being negotiated by the so-called bipartisan Gang of Six (see original story below) and the other would include some of the same provisions but adjusted to pass in a more partisan fashion.  Conrad also suggested on Wednesday that the Senate budget resolution might include binding enforcement mechanisms if that would aid passage of the bill to increase the federal borrowing limit.

According to a story in today’s Washington Post, senior House Republicans are perhaps open to a deal that would leave Social Security, Medicare, and Medicaid off the table for now, but still include major cuts to mandatory spending, including, according to the story, farm subsidies and possibly food stamps.  The story adds that House Majority Leader Eric Cantor will insist that any deal include budget cuts in the FY 2012 appropriations bill, enforceable spending caps that ratchet down in future years, and legislation by the end of this year that would cut mandatory spending.

The Senate Finance Committee held a hearing on Wednesday to discuss various ideas on budget enforcement mechanisms.  Committee Chair Max Baucus (D-MT) will be one of the six congressional leaders at today’s meeting with the Vice President.

Original Post

As the two week congressional recess comes to a close and Members return to DC, attention will once again focus on the 2012 budget process.  Attention in particular will focus on a possible deal from a small bipartisan group of Senators as well as on a separate small group conclave with Vice President Joe Biden scheduled for Thursday at Blair House.

By law, the congressional budget resolution should be a wrap by April 15, but as is true most years, that deadline has come and gone without an agreement.  The process for getting something finished, however, is even more confusing than it is most years.  So below we provide a quick recap of where things stand and what the budget process may mean for the 2012 Farm Bill.

House Budget

The House approved its 2012 budget resolution on April 15 on a near party line vote.  That plan would reduce spending by $6.2 trillion and reduce the deficit by $4.4 trillion over the next decade, including nearly a trillion dollars from annual discretionary (appropriated) spending with the remainder from mandatory and entitlement spending.  The plan would spare defense and security discretionary spending and Social Security entitlement spending from cuts, but hit most everything else.  Over a trillion in savings is projected from the repeal of the new health care law.  Additional savings come from major policy changes to Medicare and Medicaid.  The plan would also reduce taxes for the wealthy.

With respect to the upcoming 2012 Farm Bill, the House budget resolution includes major assumptions about the outcome of the farm bill debate.  It assumes the transformation of the Supplemental Nutrition Assistance Program (commonly referred to as food stamps) into a state block grant program, cutting $127 billion over a ten year period in the process.  For farm commodity and crop insurance subsidies, it assumes a reduction of $30 billion over the next decade.   Conservation programs, the next largest category of farm bill spending after nutrition programs and commodity/crop insurance subsidies, would see a reduction as well.  The House-passed plan would cut government-wide environmental spending by $18 billion, though it is not possible to say how much of that reduction would be assigned to USDA or the farm bill, though undoubtedly a portion would be.

According to House Agriculture Committee Democratic staff, the total cut to the Agriculture Committee would be 23 percent, far greater than the average 14 percent for other committees.

One of the more curious things about the House budget resolution is its lack of enforcement mechanisms for the proposed unprecedented reductions in mandatory and entitlement spending.  By normal congressional budget process a budget resolution proposing such cuts would include a “budget reconciliation” process, with requirements to each authorizing committee with control over mandatory spending to produce a bill including the assigned cuts by date certain.  The lack of any such instructions makes the document a bit more like a set of talking points than a full blown plan.

Senate Discussions

Over in the Senate, no budget resolution has yet been even introduced, much less acted upon by the Budget Committee.  Committee Chair Kent Conrad (D-ND) has been working with five other Senators (collectively known as the Gang of Six) for months to try to fashion a bipartisan deal built in part on the framework presented by the President’s Deficit Reduction Commission, on which Conrad served last year.  The Gang of Six (Conrad plus Senators Chambliss (R-GA), Coburn (R-OK), Crapo (R-ID), Durbin (D-IL), and Warner (D-VA) and chaired by Warner and Chambliss) has been reluctant to say when or if they will produce an agreement, though there is considerable speculation that it might come this week.

Unlike the House-passed plan, it is assumed the Gang of Six plan will include tax increases as well as spending cuts, thus putting the three GOP participants at some risk politically.  Discussion of cuts to entitlement programs, on the other hand, have left many Democrats uneasy about the nature of a potential agreement.

If the Gang of Six strikes a deal, it will likely become the Senate budget resolution introduced by Chairman Conrad to be acted on by the Senate Budget Committee and then the full Senate.  If not, Conrad is likely to retain many of the same features as those being negotiated by the Gang of Six, but would need to re-tailor it to attract more Democratic support under the assumption that without a deal the Senate budget resolution will need to pass as a largely partisan measure.

What the implications of any Senate budget deal is for the 2012 Farm Bill remains an open question.  Last year’s report from the Deficit Commission may offer some clues.  It proposed cutting commodity and conservation spending by $15 billion over the next decade, while also proposed spending $5 billion in new funding for the Supplemental Revenue Assistance Payments or SURE program (often referred to as permanent farm disaster aid), for a net cut of $10 billion.  Within conservation, the Commission specifically targeted the Environmental Quality Incentives Program and the Conservation Stewardship Program.

Biden Budget Group

Meanwhile, on Thursday, the Vice President will convene yet another bipartisan group for budget talks.   The group engaging in those talks include House Majority Leader Eric Cantor (R-VA), Senate Minority Whip Jon Kyl (R-AZ), House Assistant Majority Leader  James Clyburn (D-SC), House Budget Ranking Member Chris Van Hollen (D-MD), Senate Finance Chair Max Baucus (D-MT), and Senate Appropriations Chair Daniel Inouye (D-HI).

It is not clear how this group will function or whether or not it will become the primary locus for forging a bicameral, bipartisan approach to deficit reduction.  Looming in the background is the need to increase the federal debt limit.  The existing debt limit will be exceeded later this month, though a variety of stopgap tools are available to the government to manage it without triggering default for a month or so longer, until early July.  Default could trigger a global financial crisis that would slow economic growth and greatly increase long-term budget deficits.

Many Republicans and some conservative Democrats have nonetheless tied voting for the debt limit increase to some type of long-term budget deal having been worked out before they vote.  Whether that would take the form of a broad framework for later action or would lock in actual cuts is likely to be a hot topic on Thursday at Blair House.

Categories: Budget and Appropriations, Farm Bill

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