December 11, 2013

Budget Deal doesn't sound great

The Washington Post has a rundown on many of the details in the plans to sideline the sequester and return to increased spending from government.  That sentence alone provides enough reason to be skeptical about the deal struck by Paul Ryan and Patty Murray.  But there are other reasons too.

Firstly, spending goes up:
Under the terms of the deal, spending for the Pentagon and other federal agencies would be set at $1.012 trillion for fiscal 2014, midway between the $1.058 trillion sought by Democrats and the $967 billion championed by Republicans. The Pentagon would get a $2 billion increase over last year, while domestic agencies would get a $22 billion bump, clearing space for administration priorities such as fresh investments in education and infrastructure.
More taxes (sorry, 'premiums'), less for student loan recovery (more on that some other time) and less strategic oil reserves:
That cost would be covered through a mix of policies to be implemented over the next decade. They include $12.6 billion in higher security fees for airline passengers, $8 billion in higher premiums for federal insurance for private pensions, $6 billion in reduced payments to student-loan debt collectors and $3 billion saved by not completely refilling the nation’s strategic petroleum reserves.
There will also be some interesting unintended consequences that come out of this. Most notably, the Medicare provision:
On top of sequester replacement, the deal calls for an additional $22 billion in deficit reduction by extending a small part of the sequester into 2022 and 2023. That shift would primarily affect Medicare providers, who would face an additional two years of 2 percent across-the-board cuts.
Curious timing, given the ongoing Obamacare drama. Another area that may lead to some backlash is government pensions:
Another large chunk of savings — $12 billion over the next decade — would come from reduced contributions to federal pensions, split evenly between military retirees and new civilian workers who start after Dec. 31.
It's interesting that the "new civilian workers" might also be younger - the same ones in many cases getting hit by Obamacare. There will likely be some backlash around that as well. However,Democrats may be able to effectively punt that issue (at least the pension portion of it) ahead a number of years as the cumulative impact to younger workers won't be as noticeable on the pension side as on the Obamacare side of the equation.

The deal doesn't sound like much of a win for fiscal conservatives.  The GOP may be plotting to not come across as fiscal extremists leading into a midterm election where they stand a good chance of making gains in both the house and senate.  They are playing it safe politically, even though it may not be what's best for the country and is sure to anger many conservative voters or at least leave a bad taste in their mouths.  


Check out the interesting albeit brief Zero Hedge article on the above graph.

But the Republicans with major victories in 2014 could effectively take control of both houses of congress and be better positioned to make a difference between 2014 and 2016.  If they can pull that off, then this could be regarded as a win.  But that's certainly no guarantee. Given that, the deal is not a great deal for the country or for fiscal sanity, and perhaps not even the GOP.
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