The Baucus bill makes Washington live within its means again.

Notes from the political sidelines.
Oct. 11 2009 9:06 PM

The End of the '00s

The Baucus bill makes Washington live within its means again.

Max Baucus. Click image to expand.
Sen. Max Baucus

Assuming the Senate finance committee approves the Baucus health reform bill as planned, Tuesday will be a red-letter day in health care history, bringing comprehensive reform nearer the finish line than ever before. By producing a bill that meets the standards President Obama set forth last month, the finance committee will provide the closest approximation yet of what will probably emerge on the Senate floor and in a House-Senate conference. But the Baucus bill represents a crucial turning point for another reason: For the first time in nearly a decade, Washington will get back to paying for the major initiatives it passes.

If the 1990s were Japan's "Lost Decade," in many respects the 2000s have been ours. American incomes were lower in 2008 than in 1999, the first decline over a 10-year span since the Great Depression. Sharp drops in the housing and stock markets mean that most Americans' nest eggs are worse off than they were 10 years ago, too. Washington turned in the worst track record of all. When George W. Bush took office in 2001, the national debt was $5.7 trillion and shrinking. Now it's $12 trillion and rising. Apparently, this decade was called the '00s for a reason.

Many factors contributed to the stagnation of American incomes and plunge in assets. But the debt soared primarily for one simple reason: Washington stopped even trying to make ends meet.

In the 1990s, presidents and Congresses of both parties managed to agree on the sound operating principle that Washington had to offset any tax cuts or spending increases by cutting other spending or finding other revenue. This pay-as-you-go standard served as the basis of three crucial budget agreements in 1990, 1993, and 1997. Living within their means went against both parties' natural instincts and required courage and discipline from both ends of Pennsylvania Avenue. But pay-as-you-go also made it easier for each party to stop the other's worst ideas, and by the end of Bill Clinton's second term, both sides could appreciate the results: the first balanced budgets in 30 years and historic surpluses that made it possible to begin buying down the national debt.

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The diet worked so well that when the current decade began, Washington was on the brink of establishing an even stricter standard—Al Gore's famous lockbox, which would have required balancing the budget without dipping into surpluses from the Social Security Trust Fund. Had we adhered to that kind of discipline, we could have solved Social Security's prospective troubles and put ourselves in a much better position to deal with Medicare's as well.

But because its top domestic priority was a $1.5 trillion-plus tax cut, the Bush administration abandoned pay-as-you-go in favor of the same fuzzy math that had made pay-as-you-go necessary. The Reagan revolution in 1980 and the Gingrich revolution in 1994 had both implied that tax cuts would make government smaller, but in both cases, Republicans discovered that the country would never accept budget cuts deep enough to offset the tax cuts they had in mind.

After the collapse of pay-as-you-go in 2001, unpaid-for we went. Each year of his first term, Bush pushed big tax cuts with no offsets. The 2003 Medicare prescription drug bill cost hundreds of billions more, as Karl Rove convinced a Republican Congress to create a new entitlement with no pay-fors. Discretionary spending rose faster than it had under LBJ. Breaking the tradition of every previous American war, the Bush administration opposed efforts to pay for Iraq and Afghanistan—and for the first time in our history, cut taxes in wartime. Compassionate conservatism turned out to mean kindness to profligacy of any form, whether tax cuts or spending.

When the financial crisis hit, Washington had no choice but to take emergency measures without offsetting savings. The economic recovery package was designed in part to stave off steep budget cuts by states that are constitutionally bound to pay as they go.

But as President Obama said in his Inaugural, strengthening America for the long haul will require hard choices—and health reform is the first time this decade that Congress will make them. In order to bend the health-care cost curve, Washington first has to bend the don't-pay-you-as-you-go curve.

Make no mistake: Governing is much harder when you have to pay for it. While other flashpoints have dominated the debate at town halls and on cable, the toughest debate for health reformers behind the scenes has been over the offsets. Republicans who used to plead for Medicare cuts now attack Democrats for daring to touch the program. Unions want Congress to let them hold onto tax breaks for the Cadillac health plans that health reform is designed to discourage. Providers have offered a pound of flesh but don't want to get skinned alive.

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