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Homer’s Budget

[Update 6pm: The House passed the not-quite-reconciled budget by 5 votes, and passed the Senate by the tie-breaking vote of VP Cheney.]
The Congress is today voting on two version of a $2.27 trillion federal budget. For those not familiar with the usual process (and the unusual trick employed this week), I though I would illustrate with a quick example: The case of the Simpsons (Father Homer, wife Marge, son Bart, and daughters Lisa and Maggie).
The basics of their budgeting go something like this. Suppose that, for several years, the Simpsons have been running up credit card bills. One night they sit down and decide that they should really get their finances in order to start to pay-off their credit cards (or at least try to stop the debt explosion).
So, in an effort to restrain the family budgetary excess, Homer and Marge get together to try to come up with a budget. They lay out generally how much will be spent spend on things like food, allowances to the kids, car payments, slushies at Apu’s, etc., and agree to stick to the overall plan. They often have different ideas about how much to spend on various items, but they compromise and come up with a solution they can both agree to.
Makes sense so far, right? The federal government (usually) does roughly the same thing every year by passing a budget “resolution” which lays out the general overall budget amounts for spending and taxes. (Actual spending on specific areas is done via various appropriations bills).
Now, just like Homer and Marge sometimes differ initially, the House and Senate often pass different versions of bills. When this happens, representatives from each group get together in a “conference” to write a final version of the bill, which is often (but not always) a compromise between the house and senate version. This final version is then voted by the House and Senate before being sent to the President’s desk.
Now here’s where it gets weird. Suppose Homer and Marge, when making up thier budget, each have their own idea about how much to earn and spend. Most years, they get together to agree on a single number. This year, however, they can’t agree on a compromise and go about making their decisions separately, each using their own numbers!
Congress is playing some similar games with the current budget. The House of Representatives initially passed over $700 billion in cuts, primarily in the form of a dividend tax cut, white the Senate passed $350 billion. These bills went to conference, and what came out was… well… not so much of a compromise.
The “reconciled” bill gave a $550 billion figure to the House, and a $350 billion figure to the Senate. Huh?
It looks like the reason for the strange hybrid was a bid to delay the tough decisions until moderate Republicans (who are balking at greater revenue reductions) can be convinced to change their votes. (Attached were also a set of rules to make it likely that the final result would be closer to the $550 billion number.)
Now, I realize that this kind of a procedural maneuver is primarily the concern of inside-the-beltway types (like myself!), but what should be clear to everyone is that there are a lot of gimmicks being employed to try and force through a controversial budget. (See article below)
[Update: 4/12 12pm. The NYTimes is reporting that the budget passed only “…when Senator Charles E. Grassley, the Iowa Republican who is chairman of the Finance Committee … promised on the Senate floor that he would not permit, under any circumstances, a law this year that would reduce taxes by more than $350 billion over 10 years.”]
Now back to the Simpsons.
Suppose both that, this year, Homer and Marge decide it’s ok to run up some extra credit card debt – say because Homer has worked fewer overtime hours at the power plant recently, plus Bart got into a fight with Nelson, the local bully, and there were some unexpected medical bills to pay.
Sounds reasonable. When the economy goes into recession, overall tax revenue is lower, and expenditures are higher, so it makes sense to run a temporary deficit.
Now here’s where it gets weird again. In typical Homer fashion, he decides the best strategy is to work less and thus take in less income – for the next 10 years and beyond, with the hope that perhaps they might spend less money in the future. However, they know that there are going to be additional expenses coming up soon (Bart needs braces, Lisa keeps talking about going to college, and Maggie’s eating more everyday).
What will be the result of this action on the Simpson’s household budget? At best, huge credit card debts probably delaying Homer’s retirement. At worst, a repossessed car, no college for Lisa, and Bart’s overbite stays.
What about the economy? While a temporary deficit is OK in times of recession, current policies will drag the budget into deficit into the distant future. These deficits caused by revenue reductions, measured in the hundreds of billions, are especially concerning since there are important and necessary expenses on the horizon. Iraqi war and reconstruction costs, prescription drug benefits, and social security reform, to name a few, will cost many hundreds of billions. In addition, the deficit itself is a drag on private investment.
(A recent NYTimes editorial by Concord Coalition members Bob Kerrey, Sam Nunn, Warren B. Rudman, Peter G. Peterson, Robert E. Rubin, Paul A. Volcker: No New Tax Cuts provides a better summary ot these arguments.)
I’m afraid Homer would be proud of the current budget!

GOP Leaders Strive for Unusual Deal On Budget (washingtonpost.com)

Under the proposed deal, the House and Senate would pass a $2.2 trillion budget resolution by week’s end calling for a $350 billion tax cut in the Senate and $626 billion in the House. Late last night, however, GOP leaders were warned that the Senate parliamentarian might not allow the unorthodox deal to go through as planned, two GOP aides said. A senior House GOP leadership aide said it could fall apart at an emergency meeting of top Republicans this morning.
A final decision is expected today. Never before has Congress passed a budget resolution with different tax numbers for the two chambers.
House and Senate members must settle on one number before they can send a tax cut bill to Bush for his signature. The easiest way for Republicans to achieve a big tax cut is to approve a budget resolution, which would set the parameters for spending and tax cuts for 2004. Under Congress’s budget rules, Republicans would need 50 votes in the 100-member Senate for a tax cut if a budget resolution has been passed. Without a resolution, they would need 60 votes, a dubious proposition in the narrowly divided chamber.
Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) accused his GOP colleagues of simply “passing the buck” because budget writers couldn’t “figure out” a compromise between conservatives who want large tax cuts to spur economic growth, and liberals and moderates who want smaller tax reductions to keep a lid on budget deficits.
Most Democrats oppose the GOP’s unorthodox solution. “There will be an uproar of some magnitude if somebody tries to do this,” said Senate Minority Leader Thomas A. Daschle (D-S.D.). The Republicans’ strategy is twofold: They want to appear fiscally responsible by passing a budget resolution by the April 15 statutory deadline and providing Bush more time to woo four Senate Republican opponents of his tax cut plan. It now will take Congress weeks, if not months, to settle on a final tax number.

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Filed under: Economy, Fiscal Policy, Policy, Politics, Recession

One Response - Comments are closed.

  1. Is Homer Republican?

    For an allegorical take on the budget mess on capitol hill these days, check out John Iron’s excellent piece. ArgMax Economics Weblog: Homer’s Budget

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