No Threat of Armageddon? No Budget Deal

Many were surprised that the super committee could not reach an agreement to solve our protracted budget mess. If they had been paying attention to how this mess was created over the past several decades, I would have to wonder why.

During boom years, Congress avoids paying off debt and instead expands entitlement programs while flush with cash. When times turn bad, Congress greatly expands the debt problem by expanding entitlements to ease the pain and by creating costly new “jobs” programs.

Congress and presidents only address the budget deficit issue under the threat of Armageddon.

Worse yet, even to get the minimal agreements that they do achieve require lots of budget gimmickry that masks the amount of true savings.

Why was the super committee discussing packages that only rearranged the deck chairs? Because there was no real fear of Armageddon if they did nothing. The size of the deficit will be the same. Government debt will still be allowed to be issued. Government bills will still be paid.

The Budget Control Act (BCA) that was enacted in August as a result of the debt limit negotiations included provisions to sequester funds over the next decade to save the same amount of money that the super committee was attempting to achieve.

President Obama sat on the sidelines because the decisions of how to achieve the small reductions in spending growth required by the sequestration will not occur until two months after the presidential elections next November. Additionally, the BCA guarantees that he will receive a $1.2 trillion increase in the debt limit in January regardless of the success or failure of the super committee. Thus, President Obama was content to sit on the sidelines and twiddle his thumbs as he watched the two parties throw mud.

Where is the crisis to drive a deal?

While there are plenty of smaller items that the negotiators could agree on, those will wait until the next big bill that “must pass”  — the Omnibus Appropriation bill in December.

Republicans want some extensions of some of the Bush tax rates that are expiring. The Democrats have a host of spending programs they want to fund in the face of a debt crisis, such as extension of expanded unemployment insurance benefits, more infrastructure spending, and extension of the payroll tax cut — which was needed to get a tax cut to the almost fifty percent of people who pay no income taxes. Both sides would like to temporarily fix the Alternative Minimum Tax (AMT) through the elections.

Finally, Congress needs to address the “doc fix” before January when physicians face about a 30% cut in Medicare reimbursements for their services. The American Medical Association (AMA) was promised by the Democrats that this annual problem would be permanently fixed in the Obamacare bill in return for the AMA support for the bill.

However, the doc fix was pulled from the Obamacare package because Democrats wanted to spend that money on other new benefits. So they promised the AMA it would be fixed in separate legislation right after Obamacare passed. The doctors now understand they were the victims of a bait-and-switch. The permanent doc fix never passed.

Now Democrats have figured out how to finally pay for it: offset all of this new spending by taking credit for not spending money on the wars they have already said they were not going to continue.

The Budget Control Act allowed for budget credit in a category called Overseas Contingency Operations (OCO). This defense spending on the wars we are fighting has always been added to the budget as emergency supplemental funding. This money has been added outside of any spending caps that previously had been agreed to.

Now under the BCA, you can count money not spent outside of budget limits as budget savings.

Thus, by announcing that you will not continue wars in Afghanistan and Iraq at current levels, you get credit for budget savings that you can spend elsewhere. If in the future we determine our military forces still need to be engaged those regions, we declare it an “emergency” and can continue spending all the money we want.

When will all this budgetary sleight-of-hand happen?

Look for it near Christmastime, as government funding will be about to run out and Congress must either pass an Omnibus Appropriations bill for the rest of fiscal year 2012 or kick the can down the road with another continuing resolution to allow the government to pay its bills for another short period of time.

The threat of shutting the government down is the Armageddon needed to drive a deal.