Washington budget watchers couldn’t be blamed for banking on lawmakers riding to the rescue in the lame-duck session and blocking over $100 billion in spending cuts from kicking in just after the holiday season, since Congress has never allowed such austerity to happen before.
But if Republicans retake the House in the midterms as many expect, this time could be different as the GOP looks to make its mark on fiscal policy.
Some argue Democrats will only have themselves to blame for the 2010 pay-as-you-go law’s budget ax by passing big, partisan spending bills, mainly the $1.9 trillion 2021 pandemic relief law. As the conservative Heritage Foundation’s Matthew Dickerson wrote recently, “Congress can do nothing at all” and end up “reducing inflationary government spending by more than $100 billion.”
At stake are as much as $37 billion in cuts to Medicare payments next year, on top of other scheduled cuts to health care providers that have hospital and physician groups up in arms. Other at-risk funds include $12 billion in payments to the military retirement fund for veterans who also receive disability benefits, $11 billion for farm price supports and much more, according to analysts at Piper Sandler, an investment bank.
U.S. Citizenship and Immigration Services could lose its funding for processing immigration applications. Justice Department crime victims’ assistance and compensation funds and grants to states for social services and helping disabled individuals find jobs could be wiped out.
Student loan origination fees, which advocates call a “hidden student loan tax,” could rise sharply at a time when Democrats are trying to ease student debt burdens.
Hitting the deficit brake, in theory
The 2010 pay-as-you-go law was enacted to try to impose some fiscal restraint on lawmakers as part of a measure raising the statutory debt ceiling.
Under the law, the White House budget office tallies up the net deficit increase enacted each year over both a five- and 10-year period, and takes the greater of the annual impacts, typically the five-year number. The Office of Management and Budget then figures how much would need to be cut from each program to eliminate the following year’s portion of that deficit increase.
During the 2021 legislative session, for example, the OMB counted a net $1.85 trillion deficit increase over five years, and $1.87 trillion over 10, mostly resulting from the massive pandemic relief law. That worked out to $370.6 billion in required cuts each year for five years, which is greater than the $187 billion for each year over a decade and thus is the amount that would have to be cut annually.
The OMB then sends out an order triggering across-the-board cuts, known as a “sequester,” starting 15 days after the end of the previous session. For this year, that would have meant cutting $370.6 billion from a broad swath of “mandatory” programs, or accounts that don’t rely on annual appropriations, if Congress hadn’t stepped in.
Some of the largest federal programs are exempt from such cuts, including Social Security, Medicaid, food stamps and most veterans benefits. Of the remaining $1.05 trillion the OMB estimates is subject to sequester cuts, Medicare makes up 90 percent. But by law cuts to that program are capped at 4 percent annually, so the remainder of nonexempt programs must bear the brunt.
Still, Medicare is so large that its share of cuts is around $37 billion, according to Piper Sandler, on top of nearly $19 billion in Medicare cuts already scheduled under a separate deficit-reducing law and others that health care providers are lobbying Congress to overturn.
“Hospitals are facing crushing financial challenges,” the American Hospital Association says in a fact sheet about the looming sequester, citing diminished federal support and higher costs for supplies and labor. “Without a critical lifeline from Congress, hard choices will need to be made regarding services, staffing and patients’ access.”
Flouting the 2010 law, lawmakers have routinely stepped in to prevent such cuts.
House Budget Committee Democrats last year tallied up some three dozen instances of statutory pay-as-you-go cuts being turned off in one form or another. Typically, such provisions are included in the underlying bill and clear with bipartisan support given the Senate’s 60-vote threshold.
But when Congress enacts deficit-increasing budget reconciliation laws, which only require a simple majority in the Senate, that chamber’s “Byrd rule” barring extraneous provisions means reconciliation bills can’t include pay-as-you-go exemptions. So sequesters need to be blocked in separate measures that can get 60 votes.
Last December’s law preventing the $370 billion in cuts from being triggered in January 2022 was necessary because Democrats cleared the pandemic relief package separately using the reconciliation process.
The December 2021 law simply rolled the entire pay-as-you-go “scorecard” balance to the following year, meaning nearly $742 billion in cuts could be triggered this coming January, by OMB’s latest tally. Since that’s far more than actual spending available to cut, the total damage is more realistically closer to the $120 billion or $130 billion ballpark, according to independent estimates.
Piper Sandler pegs the total at roughly $132 billion. “A major sequester could be triggered in January. It probably won’t, but there is a real chance it will,” the firm’s analysts wrote in a Sept. 29 note to clients. “The dynamic in the lame duck session is not going to be conducive to compromise, so this is an issue worth keeping an eye on.”
Piper Sandler analysts Andy Laperriere and Don Schneider wrote that the most likely outcomes are another one-year delay or possibly a few months’ delay if lawmakers can’t agree on an omnibus package and decisions are punted into 2023. But they note that last December “most Republicans did not vote to delay the sequester” and that concerns about the pandemic’s impact on Medicare services “will no longer apply.”
Last December’s pay-as-you-go fix law included delays to other scheduled Medicare cuts as well as an expedited process for considering a separate debt limit increase with a simple majority vote in the Senate.
Just one House Republican, retiring Rep. Adam Kinzinger of Illinois, backed that legislation. On the key Senate vote, 14 out of 50 Senate Republicans voted to end debate, effectively guaranteeing its passage. Of those 14, three are retiring: Roy Blunt of Missouri, Rob Portman of Ohio and Richard M. Burr of North Carolina.
Some of those who were among the most vocal about the cuts’ impact ultimately opposed the pay-as-you-go fix. Senate Agriculture Committee ranking member John Boozman, R-Ark., voted “no” after saying in March 2021 that by triggering the pay-as-you-cuts, Democrats’ pandemic relief law had “recklessly put the farm community at risk just when the agriculture economy is starting to turn a corner after several difficult years.”
That view is in keeping with a tradition of blaming the other party for putting popular programs at risk.
A day after then-majority Republicans in late 2017 cleared a $1.5 trillion tax cut package using reconciliation, similar barbs came from minority Democrats during debate on the stopgap funding law that Republicans inserted a pay-as-you-go exemption for the tax law into.
“Republicans passed their tax scam knowing it was fiscally irresponsible and that it would trigger cuts to Medicare, the crime victims fund and other vital programs, and trigger an increase in federal student loans,” Rep. Betty McCollum, D-Minn., said on the House floor Dec. 21, 2017. “Now they are asking Democrats to help bail them out.”
On that 2017 stopgap spending law, the two parties’ roles were largely reversed. All but two Senate Republicans voted for the measure and its pay-as-you-go fix, while 30 out of 47 Democrats opposed it. In the House, just 14 Democrats supported it while only 16 Republicans opposed it.
It remains to be seen what kind of pressure to avert the cuts Republicans will be under after this November’s midterms. Last December, most Republicans voted against blocking the sequester because the debt ceiling provision attached to the legislation was politically toxic after they pledged to oppose raising the borrowing cap without also reining in spending.
Sen. Marco Rubio, R-Fla., who leads by 4 points in the RealClearPolitics average of recent polls in his reelection race against Democratic Rep. Val B. Demings, voted against the measure last year even though Florida has more Medicare beneficiaries than any state save California.
Rubio said at the time there was no real risk of Medicare cuts being triggered because the bill was going to pass anyway. “I don’t know anyone here who supports those reimbursement cuts. So that was never in danger,” he said.
If what Rubio said last year continues to hold true, then decoupling the pay-as-you-go fix from the debt limit debate next time may be the best outcome for those affected by potential cuts.
But delaying the cuts by a few months until Republicans settle into their majority, should they win control of the House, could risk entangling the issue in the next round of debt limit brinkmanship, with the Treasury likely to hit the new $31.4 trillion ceiling next year.
Debt subject to limit topped $31 trillion for the first time on Tuesday, according to Treasury data.
Peter Cohn and Lindsey McPherson contributed to this report.