Michael Linden is managing director for tax policy at the Center for American Progress and one of the smartest left-of-center budget wonks around. We talked on the phone Tuesday afternoon about the policy substance behind the government shutdown. A lightly edited transcript follows.
Surprisingly, while it's a little bit more of a cut for non-defense spending, it's not all non-defense. Some of the difference is defense as well. The Obama budget had $600 billion in it for non-defense discretionary spending, and the Senate CR says $467 billion. It's a $133 billion difference. But that leaves a big chunk in the defense as well.
And it's mostly coming because of sequestration.
It's sequestration but also the Budget Control Act's cap. One of the things that's interesting about that chart is that the Senate budget resolution is a pretty far move from the initial democratic position. At that point, we were already pretty far away from where Democrats started.
When you mention the "original" Paul Ryan budget, which one are you referring to?
The one we were using was the one they released when they took over, in early 2011.
So we've been cutting spending at a faster pace than Paul Ryan wanted to when Republicans took over Congress.
On discretionary spending at least, that's right. And that's what we're pointing out. We've already essentially adopted that Ryan budget, and obviously that was not seen at the time as a moderate approach to government spending.
Part of why it hasn't sparked more outrage, I imagine, is that so many safety net programs like food stamps and Medicaid were exempted from it. But there are some parts of the safety net that aren't excluded. What are the big programs for low-income people that are getting hit?
The sequestration is hurting a lot of things, but in terms of the safety net the big ones are WIC — nutrition assistance for women, infants, and children, the only major nutrition program affected by the sequestration – then Head Start, and then housing assistance. It doesn't get as much attention as Head Start, but all housing assistance is discretionary spending as well. Rental assistance, tenant-based and project-based, all of it. Those are the main ones affected, even though most of the low-income assistance programs are exempt.
The way the sequestration is going to work going forward is pretty different than the way it worked this year. Talk me through that.
The first thing to note is that in 2013, the sequestration was smaller. The total dollar amount of sequester cuts relative to a pre-sequester baseline was smaller in 2013 than in 2014, because we offset a bunch of it as part of the fiscal cliff deal.
The second thing to understand is that the cuts in the first year were automatic, across the board cuts, and there was no way around that. In 2014, the sequester cuts operate by lowering the Budget Control Act's spending caps, so the amount that Congress is allowed to spend in defense and non-defense spending is lowered.
They could live under those caps, and move money into things that are more or less valuable, but the Republicans who want to live within these caps were not able to pass the appropriations bills to do it. The cuts they wanted were so deep and so painful that they couldn't even get Republicans to sign off on it. The Democrats were at least able to unify their caucus around appropriations bills that fit because they were at the higher Budget Control Act caps.
Wait, walk me through that one again. The Republican and Democratic budgets obey two different sets of budget caps?
The Senate budget resolution, and the appropriations bill they marked up, were at the 2014 original Budget Control Act levels. So if we had managed to avoid sequester, the caps that they abided by would be the ones that would have been in place. When we had this last debt-limit fight, those were the levels everyone agreed to. The sequester will come in and reduce these levels. The original caps were already a pretty big compromise. They're a big cut from 2010 levels, and a big change from where Democrats from the past were. And that's before the new, lower CR.
So part of the punishment for the super committee failing to come to a deal was lower spending caps, and Senate Budget Committee chair Patty Murray's budget obeys the caps that would be in place if the super committee had succeeded.
That's right. The Senate, in their budget resolution, wanted to pay for the increase, and pay for the difference from their spending levels and the post-sequestration levels, whereas the Ryan budget wants to live within the Budget Control Act cap. But it's not one cap. It's two separate caps, one on defense and another on non-defense discretionary spending, and the Ryan budget doesn't abide by the defense cap. What it does is move money out of non-defense into defense. So the Ryan budget doesn't live within full sequestration.
So if the Ryan budget took effect today, the defense spending would be cut by the Budget Control Act's budget caps, but non-defense discretionary would already be cut so severely that it'd fall below the caps and be unaffected?
That's exactly right. The levels for non-defense discretionary is where you ended up with the problem that Republicans couldn't support their own spending levels. They're so low that Republicans couldn't even make the numbers work. They couldn't pass THUD [the Transportation and Housing and Urban Development appropriations bill], they didn't even write an HHS/Labor bill because they couldn't make the numbers work. I was saying from the beginning that Ryan's budget was total fantasy, because he relied on these numbers that were unrealistic, that even Republicans wouldn't want.
What would it do to the debt if we were to undo the sequester at this point? How big a deal would that be?
If you went to the Senate budget levels — in other words if you got rid of the sequester and didn't pay for it, and it's important to note that the Senate budget does pay for it and so has no impact whatsoever on the debt projections — it would have a small effect, not dramatic. In fact, if you look at the Committee for a Responsible Federal Budget's "realistic baseline," they already assume no sequester, and that shows debt stabilized over the next five years, and then slow increases afterwards.
One of the most interesting facts here is that the current debt projections without sequestration are lower than the debt projections with sequestration were when it was originally designed. That deficit level is higher than the deficit level today, even if we got rid of sequestration.
Another way of putting that is that the sequester was intended to ensure we'd get another $1.2 trillion in deficit reduction after the initial round of cuts. In between August 2011 and now, we got $800 billion in the fiscal cliff and $500 billion through slower health care cost growth, so we've got more than enough money through the sequester to pay for it.
The reason we still have the sequester is that it was only going to be turned off if we got that $1.2 trillion reduction through the super committee. But that's just arbitrary. We've gotten that and more.
And if that reduction in health spending is secular — that is, if it's not just an artifact of the recession — then you'd expect it to reduce the deficit even more once Obamacare's premium subsidies take effect.
We can certainly hope. The CBO is not known for its radical projections, but they have projected a reduction in mandatory health-care spending of over $500 billion over their two projections. But they don't expect that to be a cyclical change, because if that were the case they wouldn't have built it into their projections.
The other piece of sequester that we forget is that it has costs to jobs, and the economy, and real people, and those costs have to be balanced against the benefits of lower debt levels 10 years from now. Especially given how much the debt situation has improved, it seems to me that the costs dramatically outweigh the benefits.
In 2009 it was easy to see how the multiplier on government spending, the GDP bang for the buck, would be pretty high. There were a lot of unused resources in the economy that government spending could spring into action. But during good economic times, the multiplier should be around 0. Obviously, we're somewhere in between now, but where on the spectrum do you think we are?
We're unfortunately much closer to the 2009 version than the 1997 version, because we still have a pretty substantial demand gap. All the standard economists would agree with that. There's still a very large output gap. In fact, part of the reason the output gap has shrunk is that potential GDP has gone down, which isn't really good news. The conditions where you have a large multiplier still exist, unfortunately. It's not a good thing but it's true.
That's especially true if you step back and consider how the recovery has had a disparate distributional impact. It's going fine and swimmingly for people on the top, but it's still a recession in many ways for most Americans. I don't think there's any real reason to think the multiplier would be all that much lower than it was 2009 or 2010. Certainly, estimates from Mark Zandi and CBO says this is costing jobs that are beyond the direct impact. They see no reason to assume that the multiplier is approaching zero.
If the House were to pass the Senate CR and spending kept on at those levels, would the fiscal drag from sequestration be the same or worse as it's been this past year?
I think that if we end up at that level, that will certainly worsen the fiscal drag. That level is, in nominal dollars, the same as 2013, and in real, inflation-adjusted dollars it's lower. It's a real cut, so that has more effect on the fiscal drag.
Of course, relative to a world where we have a sane fiscal policy, it's a substantial fiscal drag. You have the Federal Open Markets Committee saying, in as strenuous terms as they're allowed to, "Please stop this insanity. It's a real drag on the economy. It's not a sane path."
This whole spectacle has me thinking that there have got to be reforms to the budget process to make shutdowns like this less likely. Republicans in the past have called for CRs to automatically go in effect if Congress doesn't pass regular appropriations, which is kind of ironic given their refusal to pass the CR now. I know the Center on Budget and Policy Priorities doesn't think much of that idea, but maybe there's a way to do it that could be to you guys' liking. Anything come to mind?
I don't know exactly what the CBPP view on this is. We have not written anything, and we've certainly been thinking about it and are still in early stages, so I don't want to go too far down the road here. But there are two things we could do to improve the budget process.
One is structural reforms, or changes to the entire budgeting process. For example, I'm not sure the budget resolution structure as originally conceived makes sense. An automatic CR that keeps spending at last year's nominal levels is a terrible idea, but an inflation- and population-adjusted one might be a more reasonable way to go about it than the current process. I haven't thought about it that much, so don't read too much into this.
The other way is to change peoples' norms. This is about going back to unwritten rules that we don't do certain things, even though they're technically not against the rules. You can grandstand on the debt ceiling, but not extort off it. Don't load up CRs with extraneous policy issues. Riders are frowned upon. Going back to the notion that appropriations committees should be deciding on spending, instead of doing it as part of an ad hoc leadership group.
You can either reform the budget process or you can make the current budget process work better. I'm not sure which is harder. One requires legislation, and the other requires culture change, neither of which seems particularly practical right now. It's certainly something to think hard about, because this is not a sustainable way to govern.
One thing that's struck me is how, if you compare the Murray or Obama budgets to the one that CAP presented before the Peterson Summit, there are a lot of similarities, but if you compare the Ryan budget or the current CR to what, say, AEI presented, it's entirely different. Do you get the sense that right-leaning think tanks aren't getting listened to as much by House Republicans?
That's a tough question for me to answer, because it's hard for me to get in the heads of the Tea Party Republicans. I think that conservative think tanks have put out some good ideas over the past five or six years — not all good ideas, by any means, but some good ideas — that have just been ignored by their ideological compatriots. But we've put out ideas that have been ignored too, so it's hard to say if they're more or less in tune with their think tanks.
I do think that the conservative approach to budgeting in general is untethered to reality, but I think that's true of the Heritage budget plan as well. I don't think that's true of the AEI or American Action Network plans. They put out plans that I don't agree with, but which are tethered to reality. The Heritage and House Republican budget world is totally independent of fact or reality. I don't know if the issue is that they're untethered from the think tank world or that they're only tethered to one part of it.
Anything you want to touch on before we wrap up?
Just how remarkable it is that we're having a budget shutdown and there's been very little discussion of the actual budget. The Republicans have shut down the government over Obamacare and Democrats have not made a very concerted effort to highlight just how bad the levels of funding in the CR really are. What they're trying to do is keep the government open, so I understand that, but we're not having a debate about if this is the right investment in NIH, or schools, or health inspectors.
I hope they open up the government again, right away, so that the issue of Obamacare is no longer on the table when we think about these budget issues. They can still raise the bloody flag of Obamacare, but I hope that once we get the government back and open we can focus on the real issues, which are "How do we get rid of sequestration?" "How do we invest in things that both parties want to do?" There are Republicans who hate the sequestration. You can hear it in [House appropriations chair] Hal Rogers' voice all the time. He's so frustrated with the sequestration levels.
Not least the levels for defense spending.
But not just on defense. Look at what happened on the the THUD bill. They were saying, "We kind of hate this, but these are the levels we were given."
Well, and the levels they voted for.
Well sure, they voted for it. I'm not trying to defend these guys.
Sure, I know you're not a Hal Rogers fan.
But it's a different thing, voting for a budget resolution, versus seeing what it looks like in reality. Decrying discretionary spending is much harder when the cuts become specific. There is a majority in both houses that would pass a more sensible budget if they were given the chance.