By Erik Wasson and Peter Schroeder - 02/10/14 06:00 AM EST
Deficit hawks who have dominated the Washington agenda since the 2010 midterms suddenly find themselves in the backseat.
Congress passed a two-year budget including $1.1 trillion of spending this year alone, compared to the $967 billion favored by some conservatives.
Tax reform, to simplify the code, raise revenue and lower some rates, appeared to die last week. On Thursday, Sen. Max Baucus (D-Mont.) left the Senate for China, while on Friday President Obama signed a farm bill that includes more subsidies for wealthy farmers than he wanted.
Tough talk on cutting the deficit is so rarely heard that Alan Simpson and Erskine Bowles might as well be in the witness protection program.
The stunning turnaround suggests that deficit hawks have lost their battle to fix Washington’s balance sheet.
“It is tough to make the case we are winning the [fiscal] war, maybe a battle here and there,” said Sen. Jeff Flake (R-Ariz.), one of the hawks. “Somebody could say with deficits coming down we are doing better, but when you look at the accumulated debt it just keeps going up.”
With near-term deficits shrinking — they are forecast to rise in the long term — both parties are talking more about economic fairness than about fiscal prudence; the buzz is about inequality, ObamaCare and immigration.
The Congressional Budget Office (CBO) reported this month that the 2014 deficit will fall to $514 billion, more than halving the $1.4 trillion of 2009, but still higher than any deficit before Obama.
The president used his State of the Union address to hail the recent budget agreement that undid some of the sequester, saying it left Washington “freer” to pursue new jobs initiatives. That pleases liberals who say deficit hawks have won too much already.
“They’ve had their way all the way up to lately,” said Rep. Raúl Grijalva (D-Ariz.), co-chairman of the Congressional Progressive Caucus.
Rep. Jim McGovern (D-Mass.) wants a backlash against the hawks so Congress “can reverse some of the damage” by raising infrastructure spending.
Professional deficit hawks concede that their outlook has darkened since Obama and Speaker John Boehner (R-Ohio) abandoned talk of a $4 trillion compromise on debt at the end of 2012.
Some voices say that although the recent focus on deficit cutting brought some progress, spending remains on the wrong track, especially when it comes to entitlements.
“On discretionary spending you can say deficit hawks have won, even over-won,” said Bob Bixby of The Concord Coalition. “On entitlements and tax reform we have clearly lost.”
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, added, “I am incredibly disappointed ... the ability of the political system to under-deliver sadly comes as no surprise.”
Some hawks say spiraling debt will spur a grand bargain eventually.
According to the CBO, by 2022 annual deficits will again exceed $1 trillion as entitlement costs balloon. By 2024, the total national debt will rise from $17 trillion today to $27 trillion.
Some conservatives believe the tide has not shifted against them fundamentally, but that election-year calculations are uppermost.
“I think there’s a truce because the Senate’s in play,” said Rep. Cynthia Lummis (R-Wyo.). “Many people just want to catch their breath and see how this year plays out.”
Republicans are focusing their midterm message not on the deficit, but on the sluggish economic recovery and ObamaCare’s shortcomings. They are avoiding the fiscal brinkmanship that battered their poll numbers during debt fights and the October government shutdown.
Republicans such as Lummis believe that taking back the Senate in 2014 could force Obama to accept a debt deal on GOP terms. And if that does not work, a Republican president will make it happen after 2016.
Centrist Republicans, especially on the Appropriations Committee, which allocates money, say caps on discretionary spending will spur a grand bargain. Congress’s inability to swallow sequester spending levels proves to them that the only course is a comprehensive deal.
“We wrote appropriations bills to [the sequester] level and couldn’t pass them in the House,” appropriator Rep. Mike Simpson (R-Idaho) said. “We are never going to get this deficit under control simply by cutting discretionary spending.”
Appropriations Committee Chairman Hal Rogers (R-Ky.), no stranger to these issues, said the deficit fight is a years-long issue.
“We are nowhere near the end of that question,” he said.
A senior GOP aide said the two-year budget deal from December was the first baby step toward dealing with entitlement spending, as it touched on retirement benefits for civil servants. But the other change to mandatory spending, a military retirement cut, has proven tough and is already the subject of bipartisan repeal attempts.
House Budget Committee Chairman Paul Ryan (R-Wis.) plans to publish another budget soon. He is expected once again to propose sweeping changes to Medicare.
Ryan has previously proposed switching the system from one in which Medicare simply pays fees for medical services rendered to the elderly, into one in which tax dollars subsidize seniors’ premiums.
He argues that such a system would contain costs; Democrats complain that it would shift the burden on to seniors.
“House Republicans have offered commonsense solutions and made it clear who stands up for seniors. Chairman Ryan has worked across the aisle to protect and strengthen Medicare, and he will continue to advocate for real reform,” spokesman William Allison said.
Jared Bernstein, the former economic adviser to Vice President Biden, argued that while deficit hawks had a good run, they overdid it.
“The deficit hawks won a Pyrrhic victory,” said Bernstein, now at the Center on Budget and Policy Priorities. “They pushed for a level of deficit reduction that was clearly damaging to an economy that needed fiscal tailwinds and got fiscal headwinds.”
But he said the time could be ripe for a grand bargain later.
“There’s absolutely a time for deficit reduction ... but it’s when the economy is firing on all cylinders,” he added.
Deficit hawks insist they aren’t going away.
“The issue’s not going away, and so people who are working on it can’t either,” MacGuineas said.