INSIGHTS: CONGRESS: PASS A BUDGET FIRST
By Guest Columnist, Mattie Duppler Springer:
Senior Fellow for Fiscal Policy at National Taxpayers Union
Reprinted with permission.
This month all eyes in Washington are focused on the Big Six and the release of their tax reform framework. But tax reform proponents cannot afford to let this highly-anticipated release distract Congress from first completing the essential task of passing a budget. The Big Six’s outline should increase the resolve of congressional Republicans to pass a budget and unlock the reconciliation process, which is a critical part of the tax reform effort.
Tax reform is Congress’ most important fiscal priority, although the FY 2018 House Republican budget includes many other worthy reforms the conference has supported in the past – reaching spending balance in under a decade, prescriptions on how to secure lasting reforms in entitlement spending, to name a few. This year’s budget goes even further by writing mandatory spending instructions that require committees to find at least $203 billion in savings. These instructions would demand 11 different committees find savings in their mandatory spending programs – a reduction so broad it would result in the largest mandatory spending reform package in 20 years.
With each new day and the chaos it usually brings on Capitol Hill, the punditry class forecasts the end of the conservative policy era in Washington. There couldn’t be a better time for Republicans to demonstrate a strong vision for governing — swift passage of the FY 2018 budget gives them the opportunity to do just that.
The budget process has always been an exercise designed to illuminate, not exhaust, the prerogatives of the ruling party. Prior to gaining control of the House in 2010, the conservative Republican Study Committee produced an annual budget that gave Republicans an opportunity to cast a vote for conservative policy objectives and provide a stark contrast to the tax-and-spending blueprints the Democrat-controlled House would pass.
When Republicans took over, the RSC continued to produce a budget that was similar to the Budget Committee product but typically pushed further to the right on spending reductions and reforms. Even so, RSC leadership promoted a “yes yes” approach to budget votes, prompting members to support both budgets to accomplish the twin objectives of goal-setting and governing. In a statement to Budget Committee Chairwoman Diane Black this year, RSC Chairman Mark Walker made clear the RSC budget was designed to be “a complementary, not a competing, proposal.”
This exercise gives members the latitude to negotiate policy reform while accumulating a voting record that paints a clear picture of their governing philosophy for voters. At a time when there is more noise than ever crowding out the nuanced policy work done on Capitol Hill, lawmakers could hardly be better served than by voting on the House Republican Budget that makes clear they share the priorities of the constituents who sent them to Washington.
What message will Congress be sending to these Americans if it rejects the opportunity to set the course for how it will govern now? The RSC 2018 budget says, “The first priority of tax reform should be to focus on eliminating government-imposed obstacles to economic growth.” No one has made this case more frequently than President Trump himself, who has relentlessly argued that tax reform is a necessary condition for repositioning the United States as the unquestioned global economic leader. Absent Congress agreeing to a budget, it is difficult to see how this shared priority between the president and conservatives in Congress is accomplished.
In 2012, both the House and Senate brought President Barack Obama’s budget to the floor for a vote. In both chambers, the number of votes to support the president’s agenda was the same: zero.
In contrast, Republicans provided a unified vision for how they would govern, and were rewarded with both policy and political victories. Lawmakers were able to maintain the sequester spending caps and make a large majority of the Bush tax cuts permanent. They were awarded control of the Senate the following year and the White House in the subsequent cycle.
The question of what Republicans do with the power to chart bold progress can be put to rest with the unified passage of a budget now.
ON THE ECONOMY: EYE OF THE TIGER
By John Dunham, Managing Partner:
John Dunham & Associates
Rising up, back on the street, did my time, took my chances. Went the distance, now I’m back on my feet, just a man and his will to survive. So many times it happens too fast, you trade your passion for glory. Don’t lose your grip on the dreams of the past, you must fight just to keep them alive. It’s the eye of the tiger – It’s the thrill of the fight. Rising up to the challenge of our rival. And the last known survivor, stalks his prey in the night, and he’s watching us all with the eye of the tiger. Who can forget when this ballad by Frankie Sullivan and Jim Peterik of the band Survivor brought us all to our feet during the movie Rocky III. The song was actually commissioned by Sylvester Stallone and became a Billboard number one hit.
Remembering the plot, of Rocky III, we see Rocky as a lazy celebrity fighter. He is challenged by a young and hungry (and huge) fighter played by Mr. T, who completely stomps him, knocking him out in the second round. Following his defeat, Rocky calls for a rematch, and after being trained (to the sounds of Eye of the Tiger) by former nemesis Apollo Creed, Rocky defeats Mr. T in a furious and energetic bout.
The American economy is a lot like Rocky in the third movie. Over the past decade, the economy has become lazy and sluggish. It is true that there has been growth in employment for about eight years, but it does not look like our economy has really been winning. In fact, its opponents have been taking a fall, just like Rocky’s. Our blog post featured in the Monthly Manifesto shows that once Federal debt is stripped out of GDP (yes debt equals increased GDP), the economy has actually been shrinking for the past decade. Simply put, the economy has been goosed by huge amount of federal borrowing and extremely loose monetary policy. It’s as if the economy has been given a 5-round advantage going into the fight.
Just last week, third quarter GDP numbers came out, and miraculously for two quarters in a row now, reported GDP growth has exceeded 3 percent. But while this sounds spectacular, especially considering the weak levels of growth over the prior 8 years, digging deeper into the numbers shows that the economy is still suffering from the same malaise.
For starters, about a quarter of net growth was due to increases in inventories. In other words, had companies not produced a bunch of stuff that they could not sell, GDP growth (as it is measured by consumption) would be just 2.3 percent, about on par with that reported in 2014 and 2015. Another scary sign was that investment by government (in other words infrastructure spending) was down, accounting for reductions in GDP of -.23 percent. In other words, had infrastructure spending in the 3rd quarter been the same as in the second quarter, reported GDP growth would be 3.23 percent.
The one piece of really good news coming out of the GDP figures for the past two quarters has been the surge in investment. Non-residential investment, or spending on equipment, structures, software and machinery fell in 2016, down by 0.6 percent in real terms. Overall investment (including housing) fell in the first quarter of this year as well. However, in both Q2 and Q3 investment has surged, up by 3.9 percent last quarter and a whopping 6 percent in the third. This is really the most important component of the GDP figures as it reflects production rather than consumption.
Another surprisingly good statistic coming from the GDP report is that wage and salary income as a percent of total income has been increasing for three straight quarters, after having fallen for about 3 years. This means that workers are sharing in the growth, which also reflects positively on the production side of the economy.
Both the growth in wage income and in fixed investment suggests that businesses might finally be starting to invest capital in America again, rather than simply buying back shares. This could reflect the more business friendly environment in both Washington and in many states, and the start of a deregulatory push on the part of the Trump Administration. It takes investment in both people and things to grow the economy and this has been lacking in the past recovery.
It should be remembered, that these are the initial GDP numbers and the BEA does tend to issue very large adjustments. The figures could either rise or fall; however, from this initial report it seems as if the news is somewhat better than might be expected. The economy is still weak and actual GDP growth after accounting for inventory adjustment was not much larger than it has been over the last few years. We are; however, happy to see growth in investment outstripping overall GDP growth as that is a good sign for the future. Just like Rocky had to get the Eye of the Tiger to beat Mr. T, so too does the economy if it is going to achieve the kind of long run growth that Washington is counting on to go the distance, and get back on its feet.
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