By some accounts, the House Budget Committee has delivered a budget that is bold and exciting, even if one finds it objectionable or worse. It would enact a major reduction in the number of income tax brackets (from seven to two) and would cut taxes most dramatically for top income earners and corporations. It completely restructures Medicare and Medicaid and presumes that the Affordable Care Act is dead or at least defunded and on life support – though given that the law has already survived political and legal challenges, that is indeed a suspect presumption. The budget that emerged more recently from the Senate Budget Committee is cautious, vague, and “small c” conservative; some say it’s timid and boring in that it projects a future that is pretty much on a trajectory consistent with current tax and spending priorities.
Is it “mission impossible” for House and Senate negotiators to find a middle ground between the two documents? Despite being perhaps the most divided Congress ever, the two chambers are likely to at least go through the motions of marrying the two documents. The following charts and analysis lay out how the two budget proposals stack up against one another. For nonprofits concerned about the health and welfare of the working class and the poor, the issue is not just one of what they propose for the future as revenues and expenditures, but competing visions of the breadth and inclusiveness of government’s role in helping and protecting vulnerable people.
Two Budgets, Two Divergent Interpretations of Reality
The House FY 2014 federal budget plan, otherwise known as the “Ryan budget,” is named after Rep. Paul Ryan (R-Wisc.), the House Budget Committee chair. The Senate FY 2014 federal budget plan, also known as the “Murray budget,” is named after Sen. Patty Murray (D-Wash.), Ryan’s counterpart in the Senate. Trying to compare the two is a bit like Plato’s allegory of the cave: we are all trying to interpret the realities of the two budgets by looking at shadows on the wall. The more you look for hard facts, the less you find, especially since the two budgets use different baselines for current spending and tax policies and different projections on their budget proposals’ impact on the growth of the economy.
Nonetheless, the Senate and the House have both passed budgets, albeit radically different budgets that are unified by little more than an absence of specifics in some areas. Typically, when the House and the Senate pass differing legislation on the same topic, both would nominate members to a conference committee to work out the differences. Good luck with that!
Making it more difficult is the fact that President Barack Obama hasn’t really weighed in. By law, the president is supposed to submit his own budget sometime between the first Monday in January and the first Monday in February. That’s the budget document that the House and Senate budget committees are supposed to wrestle with before generating their own budget proposals. In this instance, the president has missed his legally required deadline. Reportedly, the White House will submit the president’s FY 2014 budget proposal on April 8th, nine weeks after the document was due.
While there may or may not be good reasons for the president’s delay depending on one’s political outlook – defenders of the president point to unusual circumstances such as the sequester, the all-consuming fiscal cliff, the continuing resolution, and the upcoming raise of the debt ceiling – the result is nonetheless a reversal of process. Both houses have adopted budgets with the president’s proposals sight unseen. One can imagine the president’s budget becoming a third document to be masticated by the members of the House and Senate conference committee.
Neither the House budget nor the Senate budget is likely to find its way into legislation as is. Comparing the two documents on a variety of issues of direct and indirect interest to the nonprofit sector, the differences appear so stark and so wide that the budgets read, as in Plato’s cave, like fundamentally divergent interpretations of reality.
However, budgets are statements of values and belief. If you want to know what a nation considers important and worthy of support, look at its national budget. The money – revenues and expenditures – paints a picture of national priorities. Knowing that it is all but certain that neither the Ryan nor the Murray budget will ever become the law of the land, what visions of America do they contain? How do those visions compare to the concerns and priorities of the nonprofit sector?
Nonprofit Sector Budget Priorities: An Analysis of the Murray and Ryan Budgets
What’s important to the nonprofit sector in the Ryan and Murray budgets? The real answer is “everything,” but we will cull out broad and narrow elements of interest to the nonprofit sector, starting with what both budgets will give the federal government as capital to use to carry out defense and non-defense functions.
Table 1: Total Budget Outlays
Total FY 2014 Outlays
The theory of the Ryan budget is to reduce federal spending as a percentage of GDP to between 19 and 20 percent, roughly what federal spending has been since World War II[v]—but for the Reagan years, when there was a huge military build-up, and recession years, when the government had to put more money into stimulus, whether it was called that or not. The Murray budget basically puts federal spending at around 22 percent of GDP, not far from the current level of 22.4 percent, maintaining the federal government’s spending as a component of the economy.
Total Outlays FY 2014-18[vi]
Total Outlays FY 2014-23
Outlays as an aggregate constitute one budget message of importance to the nonprofit sector, but there is also an important distinction to be made in the proportion of those outlays that go to domestic programs versus the amount spent on the enormous military might of the United States. This analysis is complicated by the way both budgets define what is or isn’t included in discretionary defense spending and how they calculate the savings to be achieved by the reduction of military actions in Iraq and Afghanistan, the two wars that were paid for, unlike previous wars, not with a tax increase or surcharge, but by simply adding to the nation’s debt.
Table 2: Discretionary Defense Spending
Discretionary Defense Spending FY 2014
Ryan’s budget basically eliminates the sequestration of defense expenditures, returning close to the pre-sequester defense spending caps in the Budget Control Act of 2011 (BCA).
Total Defense Outlays—Discretionary FY 2014-23
According to our calculations, there is not a huge difference between the Democratic and Republican budget estimates for the ten-year period. Neither budget will make a serious dent in the U.S. military’s massive size compared to the next dozen largest military-spending nations combined nor undermine the role of the U.S., sustained by the Pentagon’s budget, as responsible for more than three-fourths of the global arms trade.
Discretionary expenditures on the domestic side, however, are treated very differently in the two competing budgets. The value statement is clear: Ryan’s budget leaves sequestration in place, but reallocates the burden of sequestration from the Pentagon to domestic programs. The Murray budget replaces sequestration with a mix of spending cuts and revenue increases, still leaving many programs vulnerable and not undoing past budget cuts, but clearly doing much more to sustain domestic programs than the Republican version.
Table 3: Discretionary Domestic Spending
FY 2014 Domestic Discretionary Spending Outlays
It isn’t difficult to see the stark difference in the two budgets right here. Essentially, the Democratic budget, with domestic spending $150 billion below the BCA cap, still runs $1 trillion more than the Ryan budget over 10 years.[vii] This no-holds-barred focus on cutting spending is where the Ryan budget anticipates savings.
Domestic Discretionary Spending Outlays FY 2014-23
These are fundamentally different views of the scope and emphasis of the federal government. Few nonprofits view themselves as cogs in the military machine. Most are firmly entrenched in the domestic side of the economy and, to the extent that they utilize government money for the delivery of programs and services, many are tied to the domestic side of the federal budget. Despite public statements about consensus and compromise, it is difficult to see where the compromise is here between very disparate views of the role of government.
Nonetheless, the devil is in the details, or in the specific line items in the budget. It is especially important to note the items that are discretionary expenditures, meaning that Congress and the White House can choose to increase or decrease them.
Table 4: Medicaid and Medicare Budget
Medicaid and Other Health FY 2014[viii]
Medicaid is a signal difference between the two budgets, partially reflecting the Ryan budget’s assumption that the Affordable Care Act is wiped out, including the ACA’s expansion of Medicaid to cover the health insurance needs of lower income individuals and families. The Ryan budget eliminates the subsidies for insurance purchased via health exchanges.
Medicaid FY 2014-18
Medicaid and Other Health FY 2014-23
Medicare FY 2014-18
The Ryan and Murray budgets look very similar on Medicare, but looks are definitely deceiving. That is because it is in FY 2024 that the Ryan budget foresees Medicare being converted into a lump sum payment that seniors will be able to use to purchase private health insurance. The Ryan formula has the Medicare lump sum keeping up with increases in the cost of living but not necessarily with increases in the cost of healthcare.
Medicare FY 2014-23
Essentially, the Ryan budget is built on the elimination of the Affordable Care Act and the expenditure provisions necessary for turning national health care reform into a reality for tens of millions of uninsured Americans. The Ryan budget’s alteration of Medicaid is quick, sharp, and deep; it would also fundamentally change Medicare coverage for seniors, though not until after a 10-year period.
Medicare and Medicaid are the big-ticket items on the domestic side, but there are several specific program areas that human service and community economic development nonprofits know well and will have to monitor.
Table 5: Human Service, Community Development, and Economic Development Budget
$100 billion for infrastructure and worker training “to boost the economy in the short term while tackling our deficit and debt responsibly over the medium and long term.”
The Murray budget recognizes that austerity measures can slow down and stall a weak economy. Since the current progress of the U.S. economy has still left tens of millions of Americans underemployed and unemployed, the Senate budget deploys the $100 billion as follows: $50 billion for repairing transportation infrastructure (roads, bridges, airport, mass transit); $10 billion for repairs or dredging dams and ports; $10 billion for an infrastructure bank to leverage investment from the private sector for infrastructure projects; $20 billion “to jump-start repairs and technology infrastructure investments in schools that are crumbling or lack critical educational tools like broadband;” $10 billion for worker training programs. In the cautious approach of the Murray budget, one has to wonder if this stimulus proposal is big enough to drive Republicans out of the room (especially since it is short-term deficit spending), but too small to satisfy most economists’ calls for a larger and heftier stimulus package in the wake of the expiration of the American Recovery and Reinvestment Act of 2009.
SNAP (previously known as food stamps)
Calls for “allow[ing] states to customize SNAP to address the needs unique to their citizens” by converting SNAP into a block grant after 2019 when employment has (theoretically) recovered.[ix] Outlays from FY 2014-23 of $760 billion. Total reduction is approximately $134 billion.
Protects SNAP programs and benefits
Essentially, the Ryan budget changes the rules of the game in this otherwise means-tested program. The Ryan budget cut—roughly 18 percent over 10 years—presumably disincentivizes states from signing up too many food stamp recipients. If the Ryan cut were enacted through reducing the food stamp rolls, it would eliminate between eight million and nine million food stamp recipients.[x]
Pell Grants (and other higher education tuition assistance)
Freezes Pell grants at current levels for 10 years by eliminating annual inflation adjustments, capping the maximum Pell grant at $5,645; this amounts to an estimated reduction in Pell grant outlays by $170 billion between FY 2014 and ’23. On student loans, calls for returning to pre-2007 financial formulas requiring larger contributions from students’ families.
Maintains scheduled inflation increases for Pell grants, removes student loans from sequestration, and calls for legislation maintaining affordable interest rates on student loans.
The current maximum Pell grant award is $5,550, perhaps one-third or one-fourth of the tuition costs of a four-year state college.
Fannie, Freddie, and Federal Housing Authority (FHA)
Privatizes—or eliminates, in their current form—Fannie Mae and Freddie Mac and reduces FHA subsidy formulas.
Calls for “smart and measured reform of the housing market [that] should include stabilizing and ensuring the long‐term solvency of FHA’s Mutual Mortgage Insurance (MMI) Fund, and determining the appropriate role of government‐sponsored enterprises, like Fannie Mae and Freddie Mac.”
Neither party is willing to grapple with how to preserve opportunities for middle income homeownership nor the role that government-supported enterprises (GSEs) have played in creating and sustaining a secondary market for home mortgages (which crashed badly during the larger economic crash and needed bailouts). The Republican budget chooses the default option of privatization, while the Democratic budget offers a murky and generalized vision of reform.
For these and other programs, we hunger for the budget submission from the White House, which is typically much more detailed than these two proposals, with program lines delineated in a way that allows nonprofits to figure out what the aggregate department budget estimates really mean. Wrapped with loads of gauzy rhetoric, the two budget proposals’ lack of specifics leaves one with the noncorporeal feel of Plato’s wall shadows.
What is clear, however, is that the two budgets cross swords in a major way over tax reform and deficit reduction. Both have an air of unreality to them. The Ryan budget imagines that its recommendations will lead to a balanced budget in 10 years, while the Murray budget would take the nation to a deficit that is approximately only 2.2 percent of GDP.[xi] Ryan’s strategy relies entirely on spending cuts for reducing the deficit. Any revenues generated through the Republican budget’s call for tax reform get applied not to deficit reduction, but to reducing personal and corporate taxes. The Murray budget would raises revenues through tax reform and some more modest spending cuts, allocating the savings to deficit reduction. With limited ability to guesstimate whether either budget’s formula on the deficit is realistic, we turn to an issue that may be of greater importance to nonprofits: taxes and tax reform.
Table 6: Tax Reform Budget Proposals
Personal Income Taxes
Proposes to overhaul the tax code, leaving just two rates for the personal income tax: 10 percent for families making less than $100,000 per year, and 25 percent for families making more than $100,000 per year.
Supports the increase in the top tax rate to 39.6 percent and essentially endorses the fiscal cliff deal enacted in early January, but leaves the door open for additional consideration of revenues.
Even though the fiscal cliff legislation reached an accommodation with Republicans on the top tax rates, the Ryan budget aims to reverse that. By collapsing seven individual tax brackets into two, Ryan takes a big leap toward a flat tax approach, but the end result looks to be a large tax increase for many people who can’t afford it and a large tax cut for many people who don’t need it.
Corporate Income Taxes
Proposes to reduce the federal corporate tax rate from 35 to 25 percent.
Attributes the problem primarily to offshore tax breaks given to corporations, which it says should be “addressed.” It also calls for the elimination of “other unfair tax breaks—such as the special depreciation rules enjoyed by corporate jet owners and the favorable tax rates applicable to hedge fund managers’ compensation.”
To Ryan, U.S. corporate taxes (combined federal and state) are the highest in the industrialized world. To Murray, something doesn’t click, given that a substantial proportion of large corporations find themselves with paying zero in income taxes some years. The Murray budget notes the anomaly that “when both are measured as a share of the economy, that after‐tax corporate profits are at an all‐time high but corporate tax revenues remain near an all‐time low.” It is entirely unclear how the Ryan budget can imagine knocking 10 percent off the corporate tax rate, but the Democratic budget is not much more specific on what it might do regarding closing corporate tax loopholes.
Ultimately, both plans talk about tax reform and closing tax loopholes. This may be the area of their most significant convergence, because they both call for reform but say little in terms of specifics.
Table 7: Tax Loopholes and the Charitable Deduction
Calls for tax simplification so that corporations don’t have to “engage in elaborate tax planning because the current tax code puts them at a competitive disadvantage compared to their foreign competitors.”
Calls for “deficit reduction of $975 billion to be achieved by eliminating loopholes and cutting unfair and inefficient spending in the tax code for the wealthiest Americans and biggest corporations.”
The Ryan budget doesn’t say where he and his Republican colleagues would fix tax loopholes—and in fact, it only includes the term “loophole” to refer to a gimmick Congress uses to circumvent spending limits through advance appropriations. The Murray budget, as we have noted before,[xii] chooses to punt this issue to the Senate Finance Committee, insinuating that specifics on this score are above their pay grade. The Murray budget suggests possible alternatives such as a potential limit on the tax expenditures that might be claimed by the top two percent of high income taxpayers, either by limiting the rate at which they can benefit from deductions and other tax preferences, or establishing a dollar cap on allowable deductions. Another alternative is the Simpson-Bowles notion of converting certain itemized deductions into tax credits. In other words, the Murray budget doesn’t take a stand this way or that.
There should be no surprise here. There are no champions in Congress for specifically touching the charitable deduction and several champions ready to stand up as its protectors. Even without an election in the near term, no one seems prepared to take the lead on going after this sacrosanct part of the tax code.
Can an Obama Budget Provide a Better Focal Point for Negotiations?
Does any of this really matter, or is it all just kabuki theater? The full Senate approved the Senate budget only last weekend. It passed by the narrowest of margins, 50 to 49, with four Democratic senators voting against it. All four of these Democrats—Finance Committee chair Sen. Max Baucus (Mont.), Sen. Kay Hagan (N.C.), Sen. Mark Pryor (Ark.), and Sen. Mark Begich (Alaska)—have some commonalities. They’re all up for reelection in 2014, and they all represent states that were carried by Mitt Romney in the 2012 presidential election. Meanwhile, senators offered some 500 amendments and modifications to the budget resolution, many of them having only the most tenuous of connections to the budget if they had any at all. It was, as Capitol Hill wags called it, a “vote-a-rama,” after which the entire Senate decamped for a two-week spring recess.
Since the Ryan and Murray budgets stand little chance of emerging from a congressional conference committee as one consensus-infused document, perhaps the president’s budget, if it is a serious effort meant to be enacted, will become the focal point for negotiating a real budget, thereby pushing the budgets of the two chambers out of the picture. In the end, the Murray and Ryan budgets are political documents, laying out markers around a vision of the nation’s future. For Ryan, that future entails a radical restructuring of many of the institutions of government. For Murray, that future looks like an affirmation of the general trend of fiscal planning we have seen from the Obama administration, albeit a direction that has taken shape largely without the passage of an official budget since 2009.
When the president’s budget is submitted to Congress, we will add another column to the table, with parameters that ought to become grist for the houses of Congress to understand, endorse or modify, and pass. Hopefully, congressional negotiators will be dealing with something real and concrete, not the ephemeral fiscal shadows of Rep. Paul Ryan and Sen. Patty Murray.
[i] Detailed tables and charts on the House FY 2014 budget are at http://budget.house.gov/uploadedfiles/fy2014_house_budget_function_.pdf
[ii] The text of the House budget proposal, titled The Path to Prosperity: A Responsible, Balanced Budget, is available here: http://budget.house.gov/uploadedfiles/fy14budget.pdf
[iii] Detailed tables and charts on the Senate FY 2014 budget are at http://budget.senate.gov/democratic/index.cfm/files/serve?File_id=c2426bed-9825-4ce5-89f5-3168ddf95788
[iv] The text of the Senate FY 2014 budget, titled Foundation for Growth: Restoring the Promise of American Opportunity, is available here: http://budget.senate.gov/democratic/index.cfm/files/serve?File_id=c951a802-7600-4111-97c9-20bccc9c69d8