Senate Democrats will put forward their own budget next week, instead of leaving town for the 4th of July weekend. The biggest near-term consequence of this is that there will be no recess appointment of any Presidential nominee, meaning that the Consumer Financial Protection Bureau will indeed lose powers when it transfers over to the Federal Reserve without a director in mid-July.

The longer-term consequence is that Democrats, led by Kent Conrad, will have their own budget, something to use as a marker in the debt limit debate. And it looks like it will have an equitable ratio of spending reductions and revenue increases:

Conrad said it would reduce the deficit by more than $4 trillion over the next 10 years […]

His work was slowed by a disagreement within his committee between Sen. Bernie Sanders (D-Vt.), an outspoken liberal, and centrists such as Sen. Bill Nelson (Fla.), who faces a tough race for re-election in Florida next year.

Sanders insisted the budget resolution should call for higher tax revenues to pay for at least 50 percent of the deficit reduction goal. Sanders also pushed for a surtax on millionaires.

“We’ve largely reached agreement,” Conrad said Wednesday. “It will take a little while to get it all written up and prepared for release. I don’t want to do it tomorrow because I don’t think we have enough time to do it right in terms of its release but we’ll be ready to go next week if we’re in session or the week after that.”

As I said previously, Sanders set up this left pole in the debate, even though that left pole would still contract fiscal policy in the near term, an unadvisable notion, and would actually increase revenue by half as much as what would happen if we did nothing and returned to the Clinton-era tax rates. That’s an austerity budget without much difference as Greece’s, which had an equal mix of tax hikes and spending cuts. Chuck Schumer did add something about near-term job creation today, so maybe this becomes a feature and we just get no contraction in the first year. That’s literally the hope at this point.

Of course, this 1:1 ratio is far better than the 6:1 ratio which was rejected by House Republicans during the Joe Biden talks. And Mike Konczal finds that Republicans actually proposed a ratio substantially similar to the one they rejected:

Let’s take a look at March, 2011 Joint Economic Committee (JEC) Republican report, Spend Less, Owe Less, Grow the Economy. This report lays out the entire case for expansionary austerity, or how if we cut the deficit now the economy will likely grow faster, faster enough to offset the contraction. National Journal covered this report here. I think this report is bananas, but we are trying to think like a right-wing economist here […]

When Republicans say that there is all kinds of research supporting their demands to cut the deficit for the health of the economy, they are specifically referring to their JEC report, which summarizes all the studies and lays out their arguments for What Is To Be Done. So what does it say about the ratio? Republican JEC, my bold:

“Biggs, Hassett, and Jensen [of the American Enterprise Institute] (2010) found strong evidence that government spending reductions outweigh revenue increases in successful consolidations regardless of the methodology used to identify consolidations. They found that across both methods for identifying consolidations—Alesina’s cyclically adjusted primary balance method (excludes interest payments and business cycle effects) and the IMF’s action-based method (spending cuts and tax increases explicitly for deficit or debt reduction)—successful fiscal consolidations averaged 85% spending cuts and 15% revenue increases, while unsuccessful fiscal consolidations averaged 47% spending cuts and 53% revenue increases [fig. 5].”

So the key Republican report on expansionary contraction posits an 85-15 ratio. After months of talks, Democrats offer an 83-17 ratio. And Republicans reject it. The exact same thing happened during the 2011 appropriations fight: Democrats ended up granting deficit reduction higher than the Republicans’ original offer.

They call this the Overton Window.

Senate Democrats are actually breaking the mold with their 1:1 ratio. Republicans have run screaming in the other direction, touting a Balanced Budget Amendment that would make the Paul Ryan budget unconstitutional. I think the gambit among Republicans is to equate the BBA with revenue increases of any kind, with both of them being dropped in the end for a simple austerity package. The President was adamant that the AEI-level ratio of spending to revenue be included in the deal. If you believe this is all kabuki, that’s where we’ll eventually get.

Or, the President could read the Constitution and just start paying the bills.

David Dayen

David Dayen

1 Comment