The Devil in the Budget Reduction Details

As this is written, the grand budget reduction package has finally passed and is headed to the White House for the President’s signature. Tinged with more than a hint of digust and distaste for the unseemly process that got to the final agreement, most people are heaving a sigh of relief that the debt default bullet has been dodged at least until after next year’s election. The respite from the thoroughly unpleasant realities that got us here in the first place is, unfortunately, nothing more than a brief respite. The Congress and the President may have agreed in a general sense to overall cut levels and directions for reducing government spending, but the details afre yet to be worked out, and as usual, it is in those details that the devil lies.

The agreement, of course, purports to do three things. First, it sets an overall goal for deficit reduction (over 2 trillion), to be amended (upward, one assumes) by the report of the commission of Congressional members it also mandates and whose report on December 23 will be a Christmas present of dubious desirability for members and the president working toward reeelction. The provisions of the deal say that unless the commission’s work is completed and acted upon, the result will be to “trigger” much more draconian cuts elsewhere, but most prominently to defense and entitlement programs. Since these budgets have the largest and most vocalof all constituency votes, avoiding the trigger (which everybody is rhetorically committed to doing) is a real incentive. The two major potential sources of savings do not change by acting, however, setting up the basis for a firefight the parameters of which are already forming.

The second major provision is that the deal includes no additional governmental revenues in the form of new (or reinstated in the case of the 2001 Bush tax cuts) governmental revenues (taxes). The Republicans are heralding this as a major accomplishment, but it means that any movement toeward deficit or debt reduction has to come exclusively from spending cuts. This provision should be considered as etched in sand as the tide moves in, not in concrete.

Third, the deal requires a vote in both chambers on a proposal for a balanced budget amendment. This is pure political posturing to make the sullen children of the Tea Party caucus happy, and although it makes good apparent sense on the face of it, it will become a part of the U.S. Constitution approximately one week after the first full-scale flight of flying pigs passes over your home. It’s part of the deal, and both sides will use its failure to stoke its campaigns in emotional and misleading ways, but that’s about it.

The devil in the details is in how to turn the general numbers into real reductions in the ratio between what the government takes in and what it spends. The actual contribution of various sectors has effectively been kicked down the road, where it will form the core of the 2012 election campaign, particularly for the presidency. Defense, which is the general concern of this blog, stands at the center of this debate. Let me suggest that two questions will dominate that debate and dictate its outcome.

The first question is the ratio of budget cuts to “revenue enhancements.” Conservatives maintain they have taken this question off the table, but don’t believe it. Clearly, deficits can be reduced either with cuts in spending, increases in revenue,or some combination. The deal says reductions only, but that was a sop to the GOP. Since the exemption of tax increases (or reforms) is the current focus, balance can only be achieved by greater cuts. Conversely, enhanced revenues reduce the cuts that must be made. Anyone who thinks that question has been settled is in for a rude awakening that will play out in the 2012 election.

The most public arena will be over cuts to entitlements. Democrats are going to argue that cutting entitlements effectively taxes the poor and weak at the expense of providing additional benefits for the fat cats (rich people whose taxes would be raised under tax reform). It is a powerful emotional argument. Republicans will skirt the issue of further enhancing the already rich (because the wealthy are their most important constituency but do not have enough votes to win elections) and argue instead that additional taxation are “job breakers” (based on the unproven assertion that the wealthy will invest their untaxed income on job creation rather than in simply piling more dollars in their “counting rooms”). This will become particularly emotional when the actual detailed impacts on entitlements that actual people depend on are put on the record (which, of course, Democrats will do with some glee). The Republicans are counting on the dual notions that people want smaller government and that their cuts do not particularly affect current recipients, just future ones. The problems here are that people agree abstractly that they do not like big government except in areas where they benefit from it and that some current recipients actually do care about their descendents. A food fight of epic proportions (and unparalleled nastiness) looms.

The other question is how much defense will participate in these reductions. The first wave is not especially onerous, because much or it is premised on savings from drawdowns in Iraq and Afghanistan that have already been programmed and accepted (if not embraced) by the Pentagon. The argument for full participation by Defense in cuts arises from the size of the defense budget (second largest program) and the proportionof so-called discretionary money that is in that budget (about 65 percent of the total of funds that must be appropriated annually).

The wagons are already circling on this one. Deeper cuts, we are told, will cut into the “muscle” of the military and leave it incapable of protecting all of America’s overseas commitments. The deeper the cuts get, the worse the effect is. Since nobody wants to be accused of making the country more vulnerable to its enemies, there is a strong emotional conflict here that has to be resolved.

This debate has to be taken in the context of the overall reduction debate. The amount the Pentagon has to sacrifice is directly related to the debt left after other sources–notably entitlements and new revenues–are accounted for. Defense is thus pitted against programs from which large numbers of Americans who vote in large numbers benefit from and the tax breaks of the wealthist Americans. There are no simple answers to how that relative contribution should be assessed, although plenty of simple answers, all of which are flawed in some ways, will be floated during the campaign. In the most general terms, Republicans are likely to argue a minimum defense contribution and no new taxes, leaving virtually the entire reduction on the backs of entitlement programs. That is simply not going to happen electorally. The Democratic answer is new revenues (closing loopholes, doing away with the Bush cuts), fairly deep defense cuts, and lesser cuts to entitlements. The lines are thus drawn in the sand, ready to be washed away with the tide. It is not going to be pretty to watch, but it will be exciting once the current eye in the storm passeds over and thosepesky details have be attended to.

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