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What the Federal Budget Debate Did on Its Summer Vacation

The federal budget debate returned from its summer vacation this week to find that this year’s deficit will be a bit smaller, the longer-term deficit will be higher, reconciliation is a little more of an issue now than it was when Congress left town for the August recess, and some people are saying we need to start reducing the deficit immediately.

[IMGCAP(1)]In other words, not much has changed over the past month.

The mid-session budget review released a few weeks ago by the Office of Management and Budget and the budget update released by the Congressional Budget Office both revised the deficit outlook so that it looks better now and worse later.

The new 2009 projections were made about six weeks before the end of the fiscal year so they should be considered to be very close to what actually will happen. The truth is that there’s not much Congress and the White House can do at this very late point in the year to change the numbers in any meaningful way. It’s roughly the situation a major league baseball player finds himself in when he would like to raise his batting average at the end of the season.

The increase in the deficit for 2010 and beyond that the OMB forecast and the CBO confirmed obviously is troubling and, if accurate, will make the job of dealing with the deficit that much harder when the time comes. It’s important to keep in mind, however, that longer-term federal budget numbers not only are almost always incorrect, they sometimes are notoriously inaccurate because they usually are based on straight-line extrapolations of existing policies that almost certainly will be changed and economic forecasts that beyond a year are more like art than science.

Some budget hawks said immediately after the OMB and CBO reports were released that the long-term numbers understated the deficits that were likely to occur. But it’s also possible that, at least for 2010, the White House may have projected a deficit that is far more likely to be re-estimated downward rather than upward.

The revised economic outlook, for example, seems to have been based on the worst-case scenario the administration could plausibly offer, so any revisions made between now and the end of the next fiscal year may very well show improvement rather than deterioration. The administration followed this same general strategy when it included a large second financial bailout package that wasn’t needed in the initial budget it submitted last February, so it hardly would be surprising if it used that plan again for 2010.

Meanwhile, the federal budget term “reconciliation,— which most people outside the Washington Beltway probably had only used when talking about marital problems, became part of the political vernacular this summer as discussions about whether it was appropriate for the Senate to use it to consider health care reform became commonplace.

Health care reform proponents, many of whom had opposed the previous use of reconciliation when it was applied to something they didn’t want, said they supported the idea. Those against health care reform, many of whom had used reconciliation in the past to adopt legislation they liked, said they opposed it.

There also were multiple stories about the usually-hidden-from-public-view Senate Parliamentarian, who will be at the center of the reconciliation debate. But weeks later nothing has actually been settled and the debate largely remains the same.

For the record, reconciliation is not a gimmick or a way around Senate rules and procedures. To the contrary, reconciliation is part of a statute that was put in place 35 years ago when the Congressional Budget Act was signed into law. Although it wasn’t used in the earliest years of the Congressional budget process, it quickly became a favorite of Ronald Reagan administration OMB Director David Stockman who, as a former House Member, understood its value much better than most of his previous Congressional colleagues.

In fact, using reconciliation became so popular during the Reagan years that additional safeguards had to be established so that it wasn’t abused. That’s why the Byrd Rule, which was designed to stop the previous practice of nonbudget-related “extraneous— items included in reconciliation bills and, therefore, not subject to a filibuster, came into being.

In other words, the precise issue those opposing the use of reconciliation for health care complained about during the summer has actually already been dealt with and a procedure exists to determine if a provision can be included.

Not only will the debate over reconciliation continue now that the summer is over, it’s almost certainly going to intensify substantially as the moment when a decision about whether to use it actually has to be made.

The third major budget debate that took place over the summer occurred when some on Capitol Hill and elsewhere began to insist that the stimulus should be scaled back and the deficit addressed immediately. In the wake of the revised deficit numbers provided by the OMB and CBO, deficit hawks also insisted that the administration should submit a deficit reduction plan now to demonstrate its commitment.

Neither of these is likely to happen. As last Friday’s unemployment report showed, the U.S. economy may be better than it was, but the recovery is not yet at the point where a fiscal policy change is justified. That point will likely come, or be more broadly recognized, later this year. That makes the administration’s fiscal 2011 budget, which is supposed to be sent to Congress by Feb. 1, the right time to shift gears and propose the deficit reductions the hawks seem so desperate to see.

Stan Collender is a partner at Qorvis Communications and author of “The Guide to the Federal Budget.— His blog is Capital Gains and Games.

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