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The Good, The Bad, and The Ugly of the Budget Conference

With the budget conference complete, it is now up to each chamber of Congress to pass the FY 2016 concurrent budget resolution. We've already written about the House and Senate budgets in detail, and the final budget resolution aims to find compromise between the two.

As CRFB President Maya MacGuineas said in a press release today:

Congress should be commended for actually having a budget this year and for proposing to put the debt on a sharp downward path relative to the economy. Unfortunately, the budget fails to give lawmakers the tools to accomplish this important goal, and in some areas actually facilitates higher deficits.

Below we take a more detailed look at the good, the bad, and the ugly of the final product.

The Good

A Balanced Budget: The conference committee budget calls for enough savings to balance the budget by 2024 and keep it in balance thereafter. By choosing a tough goal, the conference committee showed their support for reducing deficits and putting debt on a sharp downward path relative to the economy.

Improved Budget Enforcement: The compromise budget borrows important enforcement tools from both the House and Senate resolutions. For one, the budget begins to limit phony savings from Changes in Mandatory Programs (CHIMPs), although these limits are watered-down relative to those in the Senate budget resolution. Additionally, the conference agreement maintains a provision scoring the cost of a general revenue transfer to the Highway Trust Fund (HTF) from the House’s budget, to be applied only in the House. This is important given that the HTF running out of money is the next Fiscal Speed Bump we're set to hit at the end of May.

A Sequester Replacement Reserve Fund: The budget contains a Deficit Neutral Reserve Fund (DNRF) to "strengthen America's Priorities," which, while vague, could allow for fiscally responsible defense and non-defense sequester relief and confirms Congress' commitment to paying for modifications to the sequester. Utilizing this reserve fund to replace sequester cuts with more thoughtful reforms – as was done in the Ryan-Murray budget agreement – could help to reduce long-term deficits and would be far preferable to using gimmicks from CHIMPs and OCO to circumvent budget caps.

Increased Long-Term Focus: The budget resolution adopts several of our suggestions to improve the focus on the long-term budget situation. For example, it requires supplemental long-term estimates for major legislation, an advisory long-term score for changes in the highway trust fund or discretionary spending caps, and the inclusion of projections of spending, revenues, and deficits over the next 30 years in CBO's Budget and Economic Outlook. In addition, it includes a point of order in the Senate against increasing deficits by more than $5 billion in any of the four decades after the ten-year window and a point of order in the House against similar increases in future mandatory spending. Somewhat discouragingly, however, the agreement includes a loophole in the Senate for legislation “growing the economy” (i.e., tax reform) and a loophole in the House for changes related to the Affordable Care Act.

The Bad

Limited Reconciliation Instructions: Although the House budget had called for the use of "reconciliation" for virtually every Committee in order to facilitate deficit reduction, the compromise budget took the Senate’s approach and includes only reconciliation instructions to the committees with jurisdiction over the Affordable Care Act (ACA).The conference report further makes it clear that reconciliation will be used for ACA repeal. This fact is unfortunate, not only because it is unlikely to result in legislation signed by the President, but because it means the budget resolution provides Congress with few tools to enact the deficit reduction it promises, pay for sequester relief, or to offset the $140 billion cost of the recently-enacted "Doc Fix" legislation.

Lack of Specific SGR Offset: According to the conference report, "the conference agreement accounts for the full cost of H.R. 2 [the Doc Fix legislation]." Yet while the report acknowledges the costs, it provides no specific offsets to pay for this cost. Identifying $140 billion in health savings should not be hard, but it is notably absent from this budget resolution.

Inconsistent Revenue Levels: The budget conference agreement assumes current law revenue levels, despite its supporters calling for significant reductions in revenue. The resolution itself, for example, calls for repealing the taxes from the Affordable Care Act without a plan to pay for these cuts. Perhaps more importantly, the House of Representatives has already passed over $400 billion of unpaid for tax cuts, including an estate tax repeal and extension of various "tax extenders." Congress appears to be legislating from one baseline while using a different baseline to declare balance.

Unspecified and Unrealistic Spending Cuts: The budget puts debt on a sharp downward path without showing how it would or even could achieve this goal. The combination of large savings numbers, minimal specificity on how those savings could be achieved, and lack of reconciliation instructions to facilitate such savings call into question the likelihood the savings can and will be enacted into law. In some areas, there may actually be no plausible policies to achieve claimed savings. The budget also purports to cut non-defense discretionary spending by nearly $500 billion below sequester levels, which could prove quite difficult given the already tight caps and the call from many to increase spending above sequester levels.

The Ugly

The End of the Conrad Rule:  While this budget’s reconciliation instructions are for deficit reduction, the budget includes a potentially dangerous provision repealing the "Conrad Rule." The rule prevents reconciliation legislation from increasing the deficit in the first ten years. Because the rule will remain repealed in Senate rules unless it is readopted, future reconciliation instructions could increase the deficit in the first ten years.  The rules around reconciliation legislation are intended to make it easier for Congress to enact the difficult policy changes to reduce the deficit and should not be used to further facilitate action on legislation increasing the deficit.

An OCO Slush Fund to Pad Defense: The conferenced budget continues to circumvent caps in the Budget Control Act by setting Overseas Contingency Operations (OCO) funding levels $38 billion above the President’s request for FY 2016. It also appears to call for the continued use of OCO as a slush fund by setting future OCO levels above both the President's projected request and the CBO plausible war spending scenario for subsequent years until 2021. And finally, the compromise removes a point of order in the Senate resolution against spending above the President's request. These decisions represent a clear abuse of the OCO designation meant to evade the spending caps both parties agreed to abide by or offset under current law. 

Read more of our extensive coverage of OCO in both the House and Senate budget and why OCO shouldn't be used as a defense slush fund.

For additional budget process resources including specific options for reform, visit our Better Budget Process Initiative home page.