Budget crisis: five ways the parties increasingly disagree

If their leaders’ public statements are to be believed, the fiscal chasm between the political parties is widening. And it is hard to see how it can be bridged.   

Congressional Democrats and Republicans have agreed to put off the next budget crisis for a month or so. This is a good thing, especially considering the alternative. And they’ll try to write a budget through the formal legislative process rather than starting with high-level negotiations with the White House. This is euphemistically known as regular order though it is hardly regular (it has not been used since the George W. Bush Administration) and there is nothing orderly about it.

The trouble is, Republicans and Democrats are setting out fiscal goals that are light-years apart.  Maybe these are merely opening bids. But without huge concessions, budget talks will be futile. Here are five stumbling blocks to a deal:   

The Next Crisis. While the House GOP agreed to delay the battle over the debt limit until summer, it will try to use two  March deadlines–a package of automatic across-the-board spending cuts and a looming government shutdown– as leverage to slash government .  Democrats prefer March’s automatic spending cuts to the even deeper reductions Republicans are aiming for. 

Spending Cuts. House Budget Committee chair Paul Ryan (R-WI) wants a fiscal plan that would balance the budget in 10 years, and he’d do it entirely by cutting spending. He also wants broad-based individual tax reform that raises no more money than current law. Democrats flatly reject both ideas.

Ryan’s promise to balance the budget in a decade with no tax increases implies cuts in federal spending unseen since the U.S. disarmed after World War II. Most lawmakers are horrified that the automatic spending cuts now scheduled for March would cut military spending by 9.4 percent and domestic spending by about 8 percent. (And note this so-called sequester would exempt Social Security and Medicaid as well as Medicare benefits from any cuts).

But reaching balance in a decade with only spending cuts would make those reductions look like pocket change. It would require slashing all federal outlays by at least 13 percent and probably more in 2022 alone. No Democrat will support it.

That spending cut is my rough estimate based on adjusting the Congressional Budget Office’s Aug, 2012 baseline for the tax and spending changes in the American Tax Relief Act. It assumes, however, that Congress lets all temporary tax extenders expire, ends all funding for the wars in Iraq and Afghanistan, and allows physicians to get whacked with a huge cut in Medicare payments. If those things don’t happen, Ryan’s task will be even tougher.  

The fiscal framework.  Where Ryan would get it all his budget savings from spending cuts, new Senate Budget Committee Chair Patty Murray (D-WA) says any additional deficit reduction should be divided equally between spending cuts and new revenues.

The Goal Line. But Democrats and Republicans don’t even agree on the goal line in this game. While Ryan wants balance in a decade, Democrats are not thinking about balancing the budget at all. Their aim: Stabilize the debt so it does not grow faster than the economy. This would set the ratio of debt to Gross Domestic Product at about 73 percent.

For a sense of how different these goals are, Democrats would have to reduce cumulative deficits by about $1.4 trillion over the next decade to stabilize the debt. Ryan would have to cut spending by more than $700 billion in 2022 alone.

Tax reform. Both sides claim they want to do it. But Republicans insist the new tax law raise no more money than the current code while Democrats demand it generate new revenues to help reduce the deficit. Until they agree on how much a new revenue code should raise, any tax code rewrite is a dead letter.

To summarize: The House will soon pass a budget resolution that calls for balance in 10 years accomplished entirely with spending cuts. The Senate will pass a budget that is not intended to get to balance at all and will divide any deficit reduction equally between taxes and spending.  Both senators and congressman will get paid, per the terms of the new debt limit extension, but it is hard to see how these dueling measures will get us any closer to a long-term budget plan.