Dollars and Sense: Linda Bilmes on the Federal Budget Deal

December 16, 2013
by Doug Gavel

Both the House and the Senate have now approved an $85 billion bipartisan budget deal aimed at keeping government agencies funded through the Fall of 2015 and averting another government shutdown, at least in the short run.  Linda Bilmes, Daniel Patrick Moynihan Senior Lecturer in Public Policy, is a leading national expert on financial and budgetary issues, and we spoke with her about the implications of this deal.

Q: Please analyze this budget deal. What does it accomplish?

A: The immediate accomplishment of this deal is that it avoids another government shutdown in January. Without the Ryan/Murray deal the funding for the federal government was set to expire on January 15th, so without any action, the federal government would shut down again.

Second, it provides some continuity for government programs through the 2014 election cycle. Even though this is a pretty modest achievement, it has to be measured against the fact that for the past 3 years the government has been funded by a series of short-term “continuing resolutions,” leaving many agencies on constant tenterhooks and driving everyone crazy. It has also been very wasteful, with most government agencies devoting vast numbers of hours just to figuring out how to get by, spending money on expensive short-term contracts, and preventing any kind of innovation or longer-term planning . The Ryan/Murray compromise will enable people at the local and state level who disburse most of the federal funds to have some predictability and to run their programs accordingly.

Third, and most importantly, it provides a glimmer of hope that Democrats and Republicans in Congress can actually govern. The specifics of this bill are that it raises $85 billion in fee hikes and other deficit-reduction measures to offset $62 billion in spending increases. These are not hard numbers; they are simply estimates of revenues and spending over the next decade. But in short, it means that the Republicans have had to curtail the draconian spending cuts imposed under the sequester. Speaker Boehner has finally repudiated some of the more extreme elements in his party in order to keep the government functioning. The Democrats have had to sacrifice –at least defer – extending unemployment benefits for 1.3 million Americans, and to agree to cuts in federal pensions. This is a deal with modest aspirations. It’s not trying to solve big problems – it just aiming to keep the government open. But the signal to the country – to the business community, the public, and the world – is that Congress is capable of reaching a compromise. That transcends the details.

Q: What does the deal fail to accomplish? Is it kicking certain big issues down the road?

A: The Ryan/Murray agreement is modest. It does not deal with the major problems facing the country. My bucket list includes tax reform, immigration reform, investment in infrastructure, fixing Social Security, and streamlining the Pentagon, especially the TRICARE system. In addition, the entire federal government is in need of management reforms. We spend money inefficiently, and there is waste, duplication, and a lack of alignment with state and local government programs. The basic processes of government, including procurement, budgeting, the tax system and accounting, need to be overhauled.

Two of the most urgent problems that are left sitting on the table: extending unemployment insurance, and taking advantage of historically low interest rates to invest in rebuilding America’s infrastructure. The economy is just beginning to recover from the worst recession since the 1930s, but most of the benefits are going to the top 10% of Americans, and even to the top 1%. If we don’t help get to grips with this situation, we will face social instability in the future, and impair future US competitiveness. This means we need to take a hard look at the tax system –today, we subsidize the wealthy through a complex web of tax deductions.

Another pressing issue is the debt ceiling. The US borrowing will hit the debt ceiling again in the first few months of 2014 and this could precipitate another round of destructive partisan fighting. But the “debt ceiling” is completely arbitrary. The goal of economic policy should be to grow the economy faster than we increase borrowing, not to focus on some capricious metric. Our efforts should be focused primarily on how to boost economic growth.

Q: Is there still hope for a "grand bargain" budget deal anytime soon?

A: This agreement may be a stepping stone toward progress on other issues. Congressional staff will be freed up from spending all their waking hours on short-term budget extensions, so they may simply have more time and energy to devote to other matters. If moderate Republicans can marginalize the extreme wing of their party, there is some hope that a coalition of centrist legislators from both parties can reach agreement on issues including immigration reform and shoring up Social Security.

Q: What are the most urgent problems that must be addressed if a "grand bargain" is to be successful?


A: There is nothing magical about a “grand” bargain, but the concept has some appeal because it would allow members of Congress from both parties to find a politically acceptable way to vote for certain common sense reforms. For example, the Social Security system could be made viable for the next generation if Congress approves a few changes to some of the benefit and eligibility rules. This would be difficult to enact – politically – without broad bipartisan support. Health care reforms are even more complicated, because the demand for health care is infinite, and medical care is delivered by a combination of public and private sector providers at the state and federal levels. Therefore it might make sense to bundle some of the tougher issues into a compromise package that helps individual legislators to stand up to special interests so they can vote for it.

However, the proposals that have been circulated, such as the Simpson-Bowles commission report, are too sweeping to be enacted, and they contain arbitrary limits, for example on “total expenditures” that are too prescriptive. I would prefer to see serious, thoughtful reforms in specific areas (such as infrastructure investment, immigration reform, tax reform, entitlement reform) with the compromises achieved within the specific areas of legislation.

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Photograph of Linda Bilmes

Linda Bilmes, Daniel Patrick Moynihan Senior Lecturer in Public Policy

"This is a deal with modest aspirations. It’s not trying to solve big problems – it just aiming to keep the government open. But the signal to the country – to the business community, the public, and the world – is that Congress is capable of reaching a compromise. That transcends the details." -- Linda Bilmes