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Forbes.com

 

Have House Republicans Finally Found a Productive Fiscal Strategy?

January 26, 2013

By Avik Roy

The Republican decision to pass a temporary extension of the U.S. debt ceiling, without any corresponding spending cuts, could be seen as a capitulation. After all, plenty of GOP politicians had been promising that they would not vote to increase the debt limit without substantial fiscal reforms. But the "No Budget, No Pay Act," which seeks to extend the debt limit through May, is in fact an encouraging sign that Republicans have become realistic about their political leverage. Indeed, they may have found a way to persuade Democrats to work with them to reduce the deficit.

The fact that House Republicans flinched on the debt limit is, unequivocally, a good thing. While some conservatives have argued that breaching the debt ceiling wouldn’t result in default, because payments on the debt could be prioritized over other government spending, this is wishful thinking. Markets would react negatively to a breach of the debt ceiling, leading to higher interest rates on U.S. government debt, which in turn would drive up government spending on interest payments—one of the largest line items in the federal budget.

The 1995 government shutdown was quite mild compared to what a breach of the debt ceiling would have caused. And the political blowback that Republicans faced after that Newt Gingrich-led episode resulted in a decade of Republican capitulation to Washington’s big-spending ways. No thank you.

Where is the Democrats’ budget?

What’s great about the No Budget, No Pay Act is that it holds Senators’ salaries in escrow until the Senate passes a budget resolution. The last time the Senate passed a budget was on April 9, 2009. "The last time Senate Democrats passed a budget," noted Sen. John Thune (R., S.D.), "the iPad didn’t even exist." The law requires both the Senate and the House to pass budget resolutions each year, something that Senate Democrats have boldly flouted since 2009.

This has been a political windfall for Democrats. While Paul Ryan persuaded House Republicans to pass two versions of his Path to Prosperity, including significant reforms of Medicare and Medicaid, the Democrats have done nothing. As Rachel Weiner of the Washington Post has described, the law requiring the Senate to pass a budget resolution has no means of enforcement. In addition, passing a budget would "put political pressure on moderate and conservative Democrats, many of whom already have an eye on their re-election races in 2014."

Liberal Democrats have long vowed that Medicare and Medicaid are untouchable, whereas centrist Democrats have supported changes to these programs. "Former Senate Budget Committee Chairman Kent Conrad (D., N.D.) repeatedly drafted budgets and attempted to bring them to the floor," notes Weiner. "But pressure from liberal Democrats on one side and conservative Democrats on the other made it a struggle." Now, Senate Democrats will be required to make the hard choices: should we raise taxes, reduce spending, or expand the deficit?

Most importantly, once the Democrats have put their thoughts to paper, the Senate and the House can work together to forge a compromise. You can’t compromise when only one side has proposed a budget.

Orrin Hatch’s constructive proposal on entitlement reform

Sen. Orrin Hatch (R., Utah), the ranking Republican on the Senate Finance Committee, has put forth his own set of proposals for entitlement reform, proposals that draw from past bipartisan agreements, the Simpson-Bowles recommendations in particular.

Hatch wants to raise the eligibility age for Medicare to 67 by increasing the threshold by two months a year. He wants to modernize the design of Medicare’s cost-sharing provisions, by merging Medicare Parts A and B, providing catastrophic coverage, and limiting wasteful Medigap plans. In addition, he suggests introducing competitive bidding into Medicare, something along the lines of what Mitt Romney proposed during the campaign.

He has also proposed significant Medicaid reform, by introducing per-capita caps into the program. Per-capita caps are a form of block grants that were first proposed by Bill Clinton in 1995. There has been some momentum behind reviving this idea; Rep. Bill Cassidy (R., La.) introduced a per-capita cap proposal into the House last year, and the Obama administration has granted Oregon a waiver with which to introduce per-capita caps into that state’s Medicaid program.

When Clinton proposed this approach in 1995, all 46 members of the Senate Democratic Caucus wrote the President to express their strong support for per-capita caps. "We are writing to express our strong support for the Medicaid per-capita cap structure in your seven-year budget," the Senators wrote. "Your current proposal is fair and reasonable, and is consistent with what we have advocated on the Senate floor. We are prepared to offer any assistance you may need in this regard." Among the undersigned were Sens. Ted Kennedy, Tom Daschle, Paul Wellstone, and Joe Biden.

As I wrote last September, per-capita caps aren’t problem free—if not set up correctly, they might encourage states to game the system to get more federal money without improving patient care.

To govern is to choose

What the House Republicans have done is put some teeth behind the requirement that the Senate produce a budget resolution. In response, Sen. Chuck Schumer (D., N.Y.) has already promised that Democrats will pass a budget this year. That budget will reveal a lot about Democratic priorities, and will allow the public to decide which approach to fiscal reform they prefer.

Original Source: http://www.forbes.com/sites/aroy/2013/01/26/have-house-republicans-finally-found-a-productive-fiscal-strategy/

 

 
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