The Good, the Bad, and the Ugly in the Bipartisan Budget Act

On Wednesday, we published an analysis of the Bipartisan Budget Act, which would replace a portion of the FY2014 and FY2015 sequester with mandatory cuts and user fees. Based on our analysis, the legislation would increase the deficit in the short run, modestly reduce it over ten years, and save about $100 billion in the second decade.

The legislation includes some admirable elements but also some troubling ones. Below, we walk through the good, the bad, and the ugly takeways from the bill.

The Good

• The budget agreement adheres to PAYGO principles by fully offsetting its costs and going further to actually reduce deficits over the next decade.
• The budget agreement replaces some temporary spending cuts with permanent deficit reduction and, as a result, reduces deficits by about $100 billion in the second decade.
• The budget agreement would reduce the upfront sequestration cuts, which will improve short-term economic growth and allow appropriators to better prioritize spending.
• The agreement reduces unfunded pension liabilities through reforms to federal worker retirement programs and the Pension Benefit Guaranty Corporation, which insures private pensions.
• The agreement replaces mindless cuts with better targeted savings.
• The agreement shows that the parties are capable of working together to craft better budget policy rather than governing by showdowns and crises.

The Bad

• The deal does not have a noticeable impact on the debt. We project that the debt under this plan would reach 78.7 percent of GDP in 2030, as opposed to 78.9 percent had the sequester been left in place entirely.
• The agreement does not include or set up a process for entitlement or tax reforms
• The deal relies heavily on temporary savings. About 65 percent of the gross savings come from temporary policies, including more than 55 percent from policies that explicitly expire after 2023. Ideally, savings would be permanent to help address the long-term debt problem.
• The deal could make further sequester replacement less likely by depleting most low-hanging fruit and creating a glide path to future sequester spending levels.

The Ugly

• The deal includes a $6 billion budget gimmick that counts military retirement savings both toward deficit reduction and for discretionary spending relief (see our blog on this issue here) and the accompanying three-month "doc fix" package includes a $2 billion budget gimmick which makes 2024 cuts in 2023 instead. Absent these gimmicks, the two pieces of legislation would save about $10 billion less.
• The deal represents an incredible missed opportunity to reach a comprehensive budget agreement that could have ultimately led to a permanent replacement of the sequester, further spending cuts, a slowing of health care costs and retirement programs, and a comprehensive re-write of the tax code.

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CRFB hopes that lawmakers will build on some of the bipartisan measures agreed upon in the conference committee to work out solutions to our underlying fiscal challenges, which for the large part remain untouched. Health care costs, retirement costs, and an outdated tax code will take true leadership to address. This package of reforms is a step in the right direction, but much more needs to be done.