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Jingle Bells Mean We Should Put the Budget Year in Perspective

This is the time of year when you can’t listen to the radio or go into a shopping mall without hearing Brenda Lee’s “Rockin’ Around the Christmas Tree,— Jose Feliciano’s “Feliz Navidad— and Paul McCartney’s “Wonderful Christmastime.— That means it’s time to take a look back at what’s happened on the federal budget over the past almost 12 months and think about what’s ahead for the new year that’s only a few weeks away.

[IMGCAP(1)]As I wrote back in October, despite the loud and angry noise some made about it over the past year, the $1.4 trillion fiscal 2009 deficit should be considered an absolute triumph for the federal budget and policymakers. With the very low interest rates set by the Federal Reserve having little effect on economic activity, businesses and consumers not spending, and financial institutions not lending, increased federal spending and reduced taxes, and therefore, a much higher deficit, were the only tools available to deal with the recession — and they were used.

The fact that the White House and Congress were willing to increase the deficit despite the obvious perils involved in doing so should be a point of pride for them and something those of us who observe, analyze and comment on the budget process should readily agree was both economically correct and politically courageous. The nominal record-level red ink might not have been what some preferred, but a deficit of at least that magnitude was what was needed given the economic situation.

At least some of the congratulation policymakers are entitled to receive this year has to be tempered with the notion that spending more and taxing less is always generally easier to do than the opposite. It’s important to keep in mind, however, that none of the votes on the things that raised the deficit were political slam-dunks. To the contrary, in Washington, D.C., governing often takes a back seat to the desire to score partisan victories, and that meant every fiscal policy debate was painstaking and each vote was politically excruciating. Because of that, those who ultimately supported and voted in favor of the fiscal policy put in place deserve credit for doing so.

There were a number of other positive aspects of this year’s budget debate. The most notable are that Congress passed a fiscal 2010 budget resolution and that health care reform is being debated on a pay-as-you-go basis.

The fact that Congress passed a budget resolution this year shouldn’t be noteworthy. After all, there’s a statutory requirement that a budget resolution be adopted every year, so at least in theory, it’s supposed to be routine, except when the budget resolution includes an extraordinary change from current policies.

But budget resolutions are not routine. To the contrary, despite the statutory requirement, Congress has often considered the adoption of a budget resolution to be optional rather than mandatory. This has especially been the case when, like this year, the deficit projected in the resolution makes the vote politically difficult and Members of Congress would prefer not to go on the record in favor of it.

Given the size of the deficit, the adoption of the fiscal 2010 budget resolution on April 29 was impressive. In light of the typical delay in the submission of the Obama budget to Congress because of the transition, the fact that the budget resolution was adopted only two weeks after the April 15 deadline is also newsworthy. That this was the third year in a row a budget resolution was adopted also deserves to be noted.

Even if you don’t like or believe the specific spending cuts and revenue increases being discussed as offsets, the fact that health care reform is being conducted on a pay-as-you-go basis is significant and deserving of praise. In fact, compared to practically all of the other major policy changes that have been considered over the past decade — tax cuts, Medicare Part D, economic stimulus bills, bailouts and military and other activities in Iraq and Afghanistan — health care reform is the only one where there has been any insistence that the deficit not be increased. Given the magnitude of what’s being considered, that’s definitely a positive as far as the budget is concerned.

Unfortunately, health care reform also points the way to next year’s budget debate: extreme acrimony bordering on outright hostility at every step in the process, even when the antagonism is based on contradictory and inconsistent statements. For example, the health care reform debate has shown it’s possible to insist the deficit not be increased but also to oppose anything that would make the bill deficit-neutral … and to take great pride in taking both positions.

This likely will manifest itself in the fiscal 2011 budget debate in a number of ways. The most obvious will be that many of those who complained about the deficit this year will be among those who next year most vociferously oppose the proposals to reduce it.

This will be sad because next year may well be one of the best opportunities for Congress and the president to make progress on the deficit for many years to come. Assuming the economy continues to recover, the deficit will likely fall from 2009 to 2010 by $200 billion or more. The baseline will show it falling even further from 2010 to 2011. And with uninterrupted economic growth projected, the White House will likely propose a deficit reduction plan that it has already said will be its primary legislative focus next year.

That could mean that the deficit reduction moon, stars and planets will be in alignment. The question is whether budget and election year politics will allow the new age to begin or whether its arrival will still be pending when the holiday songs begin to play again next year.

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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