Saturday, March 21, 2009

The Daily Strike-3/21/09-The Budget Springs Eternal

Good Saturday night and welcome to the first entry in the Spring. Tonight's entry will be quick.

RECONCILIATION INSTRUCTIONS: George Stephanopolous of ABC News had a very interesting tidbit yesterday on how the administration and Congress plan to move their signature health and energy reforms through Congress. Because each of these issues are particularly controversial, it will be very difficult to find 60 votes in the Senate to break a Republican filibuster, unless the bills become watered down. The Democrats have been exploring the idea of using the reconciliation procedures. We talked about this before, but reconciliation is an expedited procedural tool for considering bills that change overall revenue levels. The way it works is that the majority party will include "reconciliation instructions" in the annual non-binding budget resolution (which should be coming up for a vote in the next couple of weeks) that instructs specific committees to bring mandatory spending levels in line with pre-set limits. Once the committees make the required cuts, the bill is considered and voted on in each house of Congress. The reconciliation process was created to make it easier for Congress to do necessary, but politically unpopular things (like raise taxes or cut spending). Fortunately, it's also possible to use reconciliation instructions to raise revenue or lower taxes. Bush used the reconciliation process to get his tax cuts through Congress in 2001.

The question for the Obama administration is whether to use the reconciliation procedure to pass health care reform or energy legislation. The "Byrd Rule" (named after Senator Robert Byrd) forbid the reconciliation process for being used on bills that don't change overall revenue levels, and it also forbids the reconciliation process if the bill produces "a change in outlays or revenues which is merely incidental to the non-budgetary components of the provision."

I'm not sure whether these two measures would satisfy that second requirement, but let's say it does. On the one hand, it would seem like Democrats would be stupid not to use the reconciliation process. They only have 58 votes in the Senate, so if they used reconciliation, they could even lose a few moderates and get universal health care and cap and trade. A couple of problems have arisen that complicate this problem. First, there are some Democratic Senators who are "morally" against using reconciliation (especially for cap and trade) because they don't want to shut Republicans out of the legislative process. Additionally, Republicans would not be in the mood to compromise on other important legislation if they get steamrolled by the reconciliation process. In my view, these concerns are very "inside baseball." These problems are too important for us to be worrying about hurting the Republicans' feelings. If reconciliation is the best way to get the bills done, use it. If it's not, don't use it.

Anyways, the report yesterday indicated that Democrats will not use reconciliation for cap and trade, but might use for health care. Nate Silver had a very good analysis of this. During an economic downturn, people have much less desire to protect the environment. Any threat of a temporary increase in energy prices is scary for people who are living paycheck to paycheck. On the other hand, an economic downturn makes me people much more interested in comprehensive health reform. A free public option sounds a lot better when you're forking over thousands of dollars a month on health care bills and prescription drugs. According to the ABC News report, Democrats will try and come up with a comprehensive health care proposal that appeals to some Republicans. In this environment, when even big business seems interested in reform, it's not entirely out of the question. However, Democrats should reserve the option of using the reconciliation process. At the very least, the threat of the reconciliation procedure might make it more likely for Republicans to compromise.

Anyways, we'll find out exactly what Democrats decide to do when they release their budget proposal next week.

That's it for tonight. Stay tuned tomorrow when we'll talk about the Treasury's new plan to buy out toxic assets.

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