The Corner

The Great Deficit-Neutral Reserve Fund Debate of 2013

Following a report in National Review Online, a relatively obscure provision in the Ryan–​Murray budget deal has become a major point of dispute between proponents and critics of the deal.

NRO first reported that the agreement includes language eliminating the ability to raise a budget “point of order” in the Senate that sets a 60-vote threshold to offset a spending increase with new taxes.

That much — that the budget deal removes points of order under certain circumstances — is undisputed by all sides.

Senator Jeff Sessions of Alabama, the ranking member of the Senate Budget Committee, has said this language “legitimizes tax and spend.” But the authors of the deal, House Budget Committee chairman Paul Ryan and Senate Budget Committee chairman Patty Murray, have sought to downplay the importance of this point of order in the arsenal of weapons available to the Senate minority to stop tax increases.

Murray’s office has noted that other points of order, which are specific objections available to senators that require a set amount of votes to overcome, are also available under certain circumstances.

The Washington Post’s fact-checker, Glenn Kessler, also weighed in, primarily citing the input of Steve Bell and G. William Hoagland from the Bipartisan Policy Center to assess the claim as deserving of three “Pinocchios.”

The extremely technical nature of the debate ensures that there are only a few hundred people — perhaps a few dozen — with the expertise to speak knowledgeably about the matter. But as I have continued to discuss this with the top experts in Senate procedure, it has become even more clear that Sessions’s objections have merit — and could possibly result in the “worst-case scenario” of a tax increase passed through the Senate with only a bare-majority vote.

First, some background. A congressional budget sets spending limits by “function,” or purpose. Under normal rules, spending is capped by the Budget allocation for that function. If the cap is reached, the only way to increase spending for any given area would be to cut spending somewhere else in the function.

Enter the “Deficit Neutral Reserve Fund.” These funds, known in budget parlance as DNFRs, offer committee chairmen flexibility to spend more money than the budget caps — specifically, by allowing them to raise new taxes to pay for the new spending, rather than cutting other spending.

“Those reserve funds give committees more leeway in terms of finding ways to pay for things,” says Cheri Reidy, the retired former staff director for Senator Judd Gregg on the Budget Committee. “Without a reserve fund, you would have to pay for spending increases with spending cuts in your own jurisdiction. With a reserve fund, you don’t necessarily have to do that. You can pay for them with tax increases,” says Reidy, who worked for the budget panel for 29 years.

In the Ryan–Murray deal, there are dozens of DNFRs covering all different sorts of topics.

The DNFR that is potentially the most dangerous to Republicans allows flexibility vis-á-vis the sequestration budget caps of the Budget Control Act. That DNFR makes it impossible to raise what’s called the ”302(f)” point of order to enforce the rule against using tax increases to pay for for spending above the caps. 

Murray’s office, working with Ryan aides to dismiss criticism about the provision, has assured reporters that other points of order will always remain in play for Republicans to object to such a bill.

One such objection available is the “306″ point of order, which says any bill that comes under the purview of the Budget Committee must be reported, or approved, out of the Budget Committee.

It’s easy enough to send a bill through the Budget Committee. But any bill that would “pay for” busting the sequestration caps faces a kind of Catch-22: Because of the “origination clause” in the Constitution, all tax bills have to originate from the Ways and Means Committee. After passing the House, such a bill would be referred to the Senate Finance Committee. From there it would go to the Senate floor, where Sessions could raise the 306 point of order, establishing a 60-vote threshold through another means because it hadn’t come through the Budget Committee.  

However, Sessions and his staff at the budget committee fear Democrats could work around the 306 objection fairly easily: all they’d have to do is send a tax-related bill through the Budget Committee after it came out of the Finance Committee. Holding an actual Budget Committee meeting would require a 48-hour notice period, but Majority Leader Harry Reid may be able to avoid even that by ordering it reported “forthwith.”

Would it work? Sessions would undoubtedly raise the 306 objection anyway, prompting a ruling by the Senate parliamentarians. It’s unclear how they would come down on the issue, because the question is unprecedented.

Beyond the sequester caps, the Ryan–​Murray budget deal also includes dozens of other DNFRs that are not subject to a 306 point of order. Some Republicans say those provisions are actually more dangerous than the sequester DNFR because they aren’t subject to the 306 backstop. The fear is that Democrats would pay for, say, an education-funding bump by closing the tax loophole on corporate jets, allowing them, if not to pass the bill, an opportunity to demagogue on the issue.

Ryan’s office, in responding to Sessions’s criticisms, has noted that the Senate GOP still retains the general right to filibuster all bills, which is true. In order for any legislation to pass through the Senate, Reid has to clear the bill through several 60-vote thresholds that are separate from any points of order.

Another caveat is that, beyond 302(f) and 306 points of order, there are other possible objections that could derail the bills, putting up major hurdles to any Democratic attempt to jam Republicans by this method.

“There’s all kinds of different ways that legislation can be tripped up,” says Reidy.

“A lot has to happen for a reserve fund to work. There’s been a lot of reserve funds in budget resolutions, but very few have actually been triggered by the Budget Committee chairman to help legislation move forward,” she says. Other objections include “Paygo,” if the spending increases aren’t revenue-neutral, and unfunded-mandate objections, if the legislation creates new requirements for state and local governments. Those may or may not apply to different legislative situations. Presumably, Reid could work to avoid them. And two other potential points of order raised by Murray’s office, the “314(f)” and “312(b)” points of order, appear not to apply to these direct circumstances, experts told me.

With the DNRFs in place, here’s how the Senate could take up a tax increase with only a bare majority. First, the Senate would take up a bill — say, a veterans-funding bill — that doesn’t yet raise taxes, and invoke cloture, closing off debate and the chance to filibuster the bill.

This is often difficult, and Republicans aren’t likely to go along with invoking cloture on a bill they suspect will be used to raise taxes. Still, as the September debate over the CR showed, there are instances in which Republican senators will help invoke cloture as part of a process that will change the legislation in a way they say they oppose. In that case, it was to remove language defunding Obamacare, but the same pattern could apply to any number of situations.

With cloture invoked, Reid could then use a procedure called “motion to strike” to amend the bill after debate has been cut off. Again, this is what happened in the September CR debate.

It’s then that Senate Democrats may move to “pay for” new spending with a tax increase under the authority of the DNRFs in the Ryan–Murray deal, allowing them to pass a tax increase through the Senate on a bare-majority vote.

“That scenario could happen,” Reidy says.

Again, there are difficulties. Any such amendments are subject to a requirement that they be germane. “That germaneness test under cloture is very tight. You may find that you can’t put together a germane amendment that has a tax increase in it to pay for the education-spending increase,” Reidy says. Sessions at the Budget Committee is concerned and doesn’t want to find out it’s possible when Reid is able to pull it off. 

It’s a highly technical subject, and there are varying, good-faith views about how serious a threat this scenario is. But it’s undisputed that the Ryan–Murray bill removes a tool previously available to stop just such an action.

Ryan’s office noted that Republicans who control the House wouldn’t go along with a tax increase passed through the Senate, anyway, which provides its own backstop.

That’s true. But critics offer a few rejoinders. First, Senate passage of a bill has, in many recent instances, put pressure on the House to follow suit. In some cases, such as the Violence Against Women Act, Boehner has capitulated and passed legislation with mostly Democratic votes. In other cases, such as the Senate immigration bill, House Republicans haven’t gone along. But it’s not as if the pressure — and its resulting leverage — doesn’t exist.

Second, if the provision were in place and Democrats took control of the House, it would offer a potential opportunity to bust the sequester budget caps with a House majority and 51 Senate votes.

Sure, there are lots of hurdles and other ways to object. And the final ruling by the Senate parliamentarians is uncertain, at least on sequestration. But critics wonder if this was really a good idea to put in the deal?

To that end: why did Murray want it in the budget deal? Her office says it was because DNRFs offer solace to senators who didn’t get everything they want. With a DNRF, they can tell constituents that they’re fighting to spend more on some project or department and if they can just find a tax loophole to close, they may be able to do it.

That strikes Sessions’ staff as unlikely. This deal was struck after the two parties have been engaged in years of brutal trench warfare on spending. If it were a symbolic gimme for senators to sell the deal back home, it seems like it wouldn’t have been a deal-killer if Ryan had insisted it be thrown out. He at least might have thought to give Sessions a heads up about it. He did not.

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