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The “Business as Usual” Budget Baseline: No Excuse to Not Fix Things

August 21st, 2011 . by economistmom

This explanation by Brookings’ Bill Gale of the difference between the policy-extended (”business as usual”) baseline and the current-law baseline is the best one I’ve ever heard. (Other video clips and transcript from last week’s Brookings event can be found here.) Let’s actually lose weight this time. (And let’s do it with a combination of diet and exercise–or spending cuts AND revenue increases–by the way.)

6 Responses to “The “Business as Usual” Budget Baseline: No Excuse to Not Fix Things”

  1. comment number 1 by: Vivian Darkbloom

    Well, yes. And Gale is right that use of the current law baseline is better if one’s real objective is to reduce the deficit through the Committee of 12. Here’s Gale on the “current policy baseline”:

    “So, it’s kind of a business as usual baseline. It’s a really good measure if you want to see what path we’re on if we don’t change our ways. It’s the 45 pounds gaining over the next decade if we continue to eat badly, okay, so for — Alan and my point over the last decade has been, we’re headed in this bad way and here’s the evidence, here’s the current policy baseline.

    You don’t want to use that as a baseline, though, if you’re cutting — if you’re trying to reduce the budget deficit. Once you reduce the budget deficit, or once you want to reduce the budget deficit, that’s the equivalent of saying, hey, I need to go on a diet, right, and I’m not going to build in 45 pounds of $4.5 trillion of increased weight or increased budget deficits before I start cutting the deficit.”

    Now, here’s Gene Sperling arguing that the Committee is free to use any other baseline it wants:

    “Second, the Committee can consider the kind of revenue raising tax reform that has broad and growing bipartisan support.

    The argument against this second claim is based on a misrepresentation of what is called “the baseline.” The “baseline” is what deficit reduction is measured against. Reports have suggested that the Committee would have to use a “current law” baseline—a baseline that assumes that all of the 2001 and 2003 tax cuts expire along with relief from the Alternative Minimum tax. That would mean that any tax reform effort that raised less revenue than allowing all those tax cuts to expire would be scored as increasing the deficit. Even conservative Republican proposals for “revenue neutral” tax reform would be scored under this approach as increasing the deficit by more than $3 trillion. “

    However the claim that the Committee is required to follow this approach is simply false.”

    http://www.whitehouse.gov/blog/2011/08/01/baselines-and-balance

    And, here’s Congressman Ryan’s response, which points to the actual text of the law arguing that the current law baseline is required:

    “Sperling wrote that the Budget Control Act does not “preclude [the new Joint Congressional Committee tasked with deficit reduction] from requesting [Congressional Budget Office] estimates based on alternative baselines and using those estimates for purposes of the certifying the deficit reduction achieved in the Committee.”
    In fact, the legislation explicitly instructs the Committee to use CBO projections and explicitly references current law requirements to estimate how the Committee’s proposal “will affect the levels of such budget authority, budget outlays, revenues, or tax expenditures under existing law” (Section 401(b)(5)(D)(ii) of the Budget Control Act & Section 308(a)(1)(B) of the Congressional Budget Act).

    The distinction is very important: Scoring the Committee’s deficit-reduction proposals using alternative baselines, as the White House would prefer, would allow it to propose the kind of large, job-destroying tax hikes that the President tried so hard to get during this round of negotiations. By contrast, scoring the Committee’s deficit-reduction proposals using existing law, which already assumes tax increases, would create significant structural impediments to raising taxes.”

    http://www.speaker.gov/Blog/?postid=254854

    That language seems pretty clear to me, too. And, which of these persons do you think is therefore more serious about cutting the deficits?

  2. comment number 2 by: AMTbuff

    >which of these persons do you think is therefore more serious about cutting the deficits?

    Ryan has proposed explicit and large reductions in promised health care benefits. Sperling has not. Such reductions are the essential foundation for fiscal balance. Therefore Ryan in more serious about achieving balance.

    The foundation must come first. Anything you build without a foundation will fall.

    Regardless of baseline, there is nothing except political will stopping the Committee from making a Grand Bargain to achieve long-term balance. Ryan’s Medicare plus Bowles-Simpson tax and SS reform plus repeal of Obamacare would do it. Throw in some tax increases if necessary to finish the job.

  3. comment number 3 by: Underwriterguy

    What is needed is an “elevator speech” explaining the implications of which baseline is used to measure any proposed spending cuts/tax increases; and the chances of any change reducing the current of accumulated deficit. If I, as a regular reader here, fine the whole thing challenging, how will the general public know what is being proposed? One shouldn’t need a Jesuit education to deal with this.

  4. comment number 4 by: Dave

    You know, it’s interesting. Nothing can ever be done in D.C. without first deciding which juked baseline to begin with.

    In all my years in the private sector, I’ve never seen anyone in middlemarket to small business refer to, let alone depend upon, a baseline.

    If you need to cut $3 trillion, you make the hard choices and do it. Who cares how that compares to something someone else did in previous terms? Or relative to some previous (also juked) budget.

    Sort of like when they tell you that the economy’s growing under their administration. ‘OK, well, so what I meant was, the rate of increase in the decline is going down.’

    Yeah, that’s called ‘…still in recession’, and no amount of rephrasing will change it.

    If only D.C. would start exporting its BS to the agricultural third world, crop yields would double from the fertilization.

  5. comment number 5 by: Vivian Darkbloom

    “You know, it’s interesting. Nothing can ever be done in D.C. without first deciding which juked baseline to begin with.” Etc.

    Unfortunately, I agree. Choosing a “baseline”, even in good faith, is really choosing a lesser evil and whatever baseline you choose it focuses on the wrong, or at least inferior metric.

    We would not need baselines if the requirement were to merely balance the budget, full stop. We should be choosing ceilings, not baselines. A ceiling on spending and a ceiling on debt-to-GDP, for example, enforced by strict PAYGO-type rules that apply before legislation can be enacted, rather than focusing on fixing the damage after it has occurred.

  6. comment number 6 by: SteveinCH

    Maybe so but if we are going to use baselines, I prefer ones related to the macro economy. I’d prefer to use inflation plus population for spending growth and a blend of wage and corporate profit growth for income growth.

    Policies proposed should be measured against those baselines.