The 2-Minute Budget Deal Reaction: Open Thread

So I’ve had a tiny bit of time to reflect on the budget deal. Here are the key points:

  • $900B in immediate cuts [1/3 to defense], coupled to a $900B immediate debt ceiling increase.
  • Additional $1.2T-1.5T debt ceiling increase IF Congress either passes a balanced budget amendment or a bipartisan commission creates a debt reduction [tax revenue OR spending cuts] that can pass Congress by the end of the year.
  • If the above doesn’t occur, triggered spending cuts to defense and medicare [and possibly elsewhere] in the amount of $1.2T will occur along with a $1.2T debt ceiling increase. No revenue increases.

It could be better, it could be worse. I can see a few things here… First, we can throw out the BBA. That’s a non-starter. The whole reason that was added was for Tea Party buy-in, but it’s simply not going to pass. So we’re left with anywhere from $1.2T minimum in debt reduction, which is ALL cuts, to probably about $1.5T maximum (as there’s no political will for more) that can come from taxes or cuts.

With multiple paths going forward, I think we have to figure out what we’d like to see. And in my opinion, the BEST outcome is for the commission to fail and for the triggered cuts to occur. The commission has the capability to push for tax hikes, and I think in any scenario they’ll find a way for more than $300B of their package [assumed to be exactly $1.5T] to be increased tax revenues, meaning they’ll cut spending LESS than $1.2T.

Of the proposed cuts in the trigger, it’s about $600B over 10 years to defense, and a sizable chunk is expected to go into Medicare. While libertarians and Republicans may not find common ground on the defense spending, we’re talking about a total of $1T over 10 years, which should be feasible if we’re going to assume that we actually draw down in Iraq and Afghanistan. For the most part, that $1T will encompass keeping military spending roughly equal to what it is now, as those cuts are from a projected baseline which add at least $500B from what we’d spend by multiplying this year’s war-inflated spending out over 10 years.

The Medicare spending will put further pressure on reforming the program, and may give more political cover to performing drastic reforms such as the Ryan plan — voucherizing Medicare and pushing it to the Obamacare exchanges. Either way, we MUST restructure entitlements, and this is a start.

So I see a lot of danger in whatever the commission comes up with. Let’s start hoping the commission fails, and these already-planned $1.2T in cuts go into effect. Seems like the best option on the table at the moment.

This is an off-the-cuff reaction, of course. I encourage you guys to give your own thoughts on the plan in the comments.

  • Jeff Molby

    What’s the projected deficit over 10 years? something like $10T? $1T of cuts isn’t going to make much of a difference. Even the “Grand Bargain” wouldn’t have gotten us within sniffing distance of a balanced budget.

    It’s better than the endless march of increased spending, but I hope no one is offended when I let out a big yawn.

  • Phil

    I agree with Jeff that the actual effect of the much touted deal is small. EXCEPT it is so convoluted that no-one can really know what its results will eventually be.
    In fact, my biggest criticism of the federal government as it now operates is that it has taken on so many powers over so many every day decisions of citizens that it is impossible to know what it is actually doing.

  • Akston

    Here’s the difference between a “spending cut” and a “budget cut”.

  • tkc

    Akston beat me to. As Cato points out, the cuts aren’t real. The higher debt ceiling is.

    They’ve successfully kicked the can down the road at a cost of around $7000 more debt for every man, woman, and child in the country.

    I have about as much confidence in this commission as I do in having congress do something fiscally sane. Which is to say zero.

    The federal government is broken and should be disbanded.

  • Brad Warbiany


    I appreciate and agree with the sentiment here… I think this isn’t a hugely meaningful improvement. But let’s look at two things:

    1) The historical precedent is to allow clean debt ceiling increases. Getting *anything* out of it, especially with no new tax revenues, is a positive.

    2) This is just step 1. Getting $2T in budget cuts over the next decade isn’t going to solve our spending problem, but it creates a new baseline to work from. As I point out in today’s post, making a deal here doesn’t mean that future issues aren’t opportunities to negotiate further.

    I too want to disband the federal government, but I don’t think it’s going to happen overnight, and as Megan McArdle keeps pointing out, if you push the system over the brink, the voters WILL punish you to the extent that you won’t have the chance to do it again. It took 100 years to build Leviathan; we can’t dismantle it in one vote. The key is to KEEP PRESSURE on small-government legislators so they don’t allow this to be the finish line.

  • Jeff Molby

    True, Brad, but you can’t fight the same fight every quarter either. The GOP is already ridiculed for “always wanting tax cuts” and it wouldn’t take long for it to earn a reputation of “always wanting spending cuts”. They’ll lose whatever public backing they have if they force budget crises on a regular basis. I can already hear Obama saying, “We just passed massive cuts and here they are wanting ever more.”

    It’s a delicate balance.

  • Jeff Molby

    Akston and tkc, the cuts are real. The CBO’s baseline isn’t just some imaginary number. All else being equal, spending would have gone up to those levels. Reducing the increase is a small, but real win.

    As Brad said, the numbers aren’t enough to get excited about, but it’s an interesting precedent.

  • Akston

    I agree that spending will likely increase less than it would have. So technically it’s a win, a ridiculously anemic win.

    But the deal is not a spending cut. It’s a budget cut. Let’s be clear.

    The trajectory is a couple percent better than it would have been, but reckoning still looms. As Ron Paul put it:

    This is akin to a family “saving” $100,000 in expenses by deciding not to buy a Lamborghini, and instead getting a fully loaded Mercedes, when really their budget dictates that they need to stick with their perfectly serviceable Honda.

    43 cents of every dollar Uncle Sam spends is borrowed. Until that ratio moves closer to zero cents by more than a percentage or two, I think party hats are a bit premature.

  • Brad Warbiany


    Did I post a picture of me wearing a party hat? I certainly don’t recall posting a picture of me wearing a party hat.

    But I do believe it’s better than the status quo (a clean debt ceiling increase). And frankly, I believe it would have been better than not raising the debt ceiling at all, because a 40% drop in spending overnight is something we’re NOT prepared to deal with. And the backlash from that could have scuttled any future cuts, while this possibly emboldened those in favor of spending cuts.

    You’re right that it’s an anemic win. But it is a win. And given the trajectory of the last 2 1/2 years, that’s at least the start of a nice trend.

  • Akston

    “And given the trajectory of the last 2 1/2 years, that’s at least the start of a nice trend.”


    And while I want that 43% reduced to 0%, I realize that doing it instantly isn’t feasible while still avoiding total collapse. I also realize that limiting the damage is not as good as actually working to pay the debt down. Only actual spending cuts enacted in the same years that legislators and presidents are in office will start to do this. Cuts “over 10 years” (years that body is no longer guaranteed to be in power) is only meaningful for the one to five years those politicians will still be in office to enforce them, and perhaps not even that long.

    Washington seems only capable of action when the alternatives to dithering and political posturing are perceived as catastrophic. All the incentives in place encourage largess with the fruits of your labor. Demonized “radical” elements like Tea Party house members seem to be the only faction putting the brakes on at the moment. And while this deal will be a sorry excuse for brakes, it is indeed better than more accelerator. So I support it to that extent.

    So, yay.