How the Budget Baseline Favors Spending: Continued

My blog on “How the Budget Baseline Favors Spending” stimulated numerous thoughtful comments. Some implied that my proposal would reward those who wish to make the Bush tax cuts permanent and ignore the fact that dubious accounting was used to get them passed in the first place. Those arguing this point did not pay sufficient attention to my last paragraph which implied that baseline reform would have to await the disposition of the Bush cuts. Further, I alluded to the possibility that whatever portions of the Bush policy are extended, the extension will again be temporary, thus making it difficult to finally settle the point.

The most challenging point was raised by Blue Dog. It was argued that if the baseline assumes that temporary tax cuts are permanent, should they not also be scored using the same assumption? I think that follows logically. The problem is that there are tax cuts that are clearly meant to be temporary and probably will be. The tax cuts in the recent stimulus package are an example.

There are two possible solutions to this problem. One approach would deal with it by attempting to differentiate tax cuts that were clearly meant to be sunset from those really intended to be permanent. Blue Dog noted that we do that with entitlements, but there are obvious difficulties and the necessary language would complicate a budget process that has already become so complex that only a few people in the world understand it all. (I am not one of them.)

The other approach would be to ignore the problem. The budget process contains many illogical features, and perhaps, we should accept one more. Currently, there is no attempt to differentiate appropriations that are almost as permanent as entitlements, e.g. financing the Bureau of Labor Statistics, from those that we fervently hope will be shorter lasting, e.g. funding the wars in Iraq and Afghanistan. Since almost all of the many temporary tax cuts are meant to be permanent, it may not be too inaccurate to regard all as permanent, even those few that are clearly temporary. The downside of this approach is obvious. Legislators would not get any reward for making certain tax cuts truly temporary when that is the fiscally responsible thing to do.

Moreover, ignoring the problem raises another issue. The Byrd rule does not allow reconciliation procedures to be used for legislation that increases the deficit beyond the budget horizon. This provides a very strong incentive to claim that all tax cuts and entitlement increases are temporary. Scoring them as permanent would have ruled out the stimulus package, although it must also be remembered that rules can be waived and points of order defeated. Many have argued that in any case, reconciliation should not be allowed for any deficit increasing measure and that would solve this problem. The counterargument is that it is so easy to block policy changes in the Senate that it is necessary to keep the option of using reconciliation for both deficit increasing and reducing policies.

This discussion shows how incredibly complicated the budget process has become. The needed debate about reforming the baseline probably has to be extended to reforming the whole thing.