Art of the Budget Deal | Dr. Paul Winfree

Summary

Podcast Summary: Hold These Truths with Dan Crenshaw

Episode: Art of the Budget Deal | Dr. Paul Winfree
Date: February 22, 2025
Host: Dan Crenshaw
Guest: Dr. Paul Winfree, President and CEO of the Economic Policy Innovation Center (EPIC)

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Main Theme and Purpose

This episode offers a deep dive into the intricate workings of the federal budget process—specifically, budget reconciliation. Congressman Dan Crenshaw and budget expert Dr. Paul Winfree break down the history, mechanics, limitations, and politics of the reconciliation tool and explore its role in advancing major policy priorities (such as tax cuts and entitlement reform) in a closely divided Congress. The conversation is rich with policy expertise and practical insight for both political insiders and the general public trying to make sense of Washington’s budget battles.

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Guest Introduction & Path to Expertise

[00:24–09:35]

• Dr. Paul Winfree leads the Economic Policy Innovation Center (EPIC), focusing on pro-growth federal economic policy and educating members of Congress on legislative tools like the budget process.
• Paul describes his career trajectory: from antitrust work at DOJ, to think tank fellow at Heritage (studying economic mobility), staff role on the Senate Budget Committee, to senior White House roles in the Trump administration guiding major domestic and budget policy.
• Winfree reflects on the practical challenges—and personal sacrifices—of working in high-pressure federal roles, sharing moments about balancing family life and public service.

Quote:
“As the deputy director of DPC, I spent about probably half of my time acting as a marriage counselor between the agencies who were constantly fighting each other over all sorts of things.” — Dr. Paul Winfree [08:49]

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Insights on Economic Mobility

[10:08–12:39]

• Winfree summarizes key findings from his research on economic mobility:
  • For most Americans, single factors like financial capital or neighborhood only matter so much; but for the most disadvantaged (“bottom 5%”), everything that could go wrong, does go wrong.
  • Economic mobility policy is most effective when it empowers successful local efforts, rather than relying on top-down federal interventions.
• Crenshaw highlights persistent challenges such as family structure and fatherless homes, noting their strong correlation with mobility struggles.

Quote:
“For the bottom 5% that have everything going wrong in their lives… everything matters so much that you really can't tease out any single thing. They're in survival mode and tend to be not particularly economically mobile.” — Dr. Paul Winfree [10:33]

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The Evolution of the Federal Budget Process

[13:03–21:18]

• Crenshaw and Winfree deconstruct the history of America’s budget process, including the 1921 Budget and Accounting Act (institutionalized the executive budget and GAO/OMB) and the 1974 Congressional Budget and Impoundment Control Act (response to Nixon’s misuse of impoundment).
• Winfree underscores the largely improvisational and evolving nature of the process, shaped not by constitutional design but by responses to political or financial crises.
• The 12 appropriations bills and reconciliation originated with the 1974 Act, which was driven by a Democratic majority.

Quote:
“There’s an idealism surrounding passing 12 appropriations bills… but just to be clear, that’s what some Democrat majority in 1974 wanted. That’s arbitrary.” — Dan Crenshaw [22:04]

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Understanding Budget Reconciliation

[21:39–32:25]

• What is reconciliation?
  • Originally, a tool to align (“reconcile”) federal spending with congressional priorities, allowing some budgetary measures to bypass the Senate filibuster and pass with a simple majority.
  • Initially broad, then restricted by the Byrd Rule (introduced in the early 1980s), which limits reconciliation to measures with a budgetary impact (prevents “extraneous” policy provisions).
• Historical examples:
  • Major tax cuts (Bush, Trump), Medicare Part D, welfare reform (1990s), as well as some parts of Obamacare and Democratic spending packages (e.g., American Rescue Plan Act, Inflation Reduction Act).
• Limitations:
  • Only budgetary items qualify; regulations and wide-ranging policy reform are constrained.
  • The process is shaped as much by Senate culture and parliamentarian rulings as by explicit rules.

Quote:
“Now [reconciliation] means only reconciling budgetary matters. That gets into expectation management—what we can actually accomplish.” — Dan Crenshaw [29:17]

Memorable moment:
Winfree details how many precedents are set not by law but by which points of order are raised—or left unchallenged—on the Senate floor, noting the increasing secrecy of today’s process:
“Often the deliberation on whether a point of order applies…happens in the majority leader’s or the parliamentarian’s office behind closed doors instead of on C-SPAN. I don’t know that that’s good for the process.” — Dr. Paul Winfree [34:42]

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How Reconciliation Is Used—and Its Political Realities

[32:25–43:03]

• Senate Process:
  • Applying the Byrd Rule is not automatic; requires a Senator to raise a point of order, which can only be overridden with 60 votes.
  • Debate over the “culture” shift from open precedent-setting to private decision-making.
• Recent Reconciliation Examples:
  • Trump’s Tax Cuts and Jobs Act; Democratic spending bills (e.g., IRA, ARPA).
  • Crenshaw criticizes public confusion about why some major efforts (like Obamacare repeal in 2017) failed—the limitations of reconciliation were pivotal.
• Budget Windows and Gimmicks:
  • Legislation is scored within a 10-year window; sunset provisions (as with Bush/Trump tax cuts) are often used to meet deficit neutrality rules, despite widespread understanding these tax cuts are intended to be extended.

Quote:
“The page count in an omnibus shouldn’t make it good or bad; what’s in it does. That’s your job as a legislator—decide if there’s too much bad in it for you to vote for.” — Dan Crenshaw [24:04]

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Mechanics: How Many Reconciliation Bills?

[43:23–47:41]

• A budget resolution typically yields at least one, sometimes two, reconciliation bills per fiscal year—one for spending, one for revenue, sometimes more if deficit/debt are separately instructed.
• There’s maneuvering over whether to use previous or current budget resolutions to maximize legislative options.
• Enforcement gets trickier as time passes; using older budget windows can compound challenges.
• The political—rather than procedural—debate among Republicans: whether to pursue two separate bills (for easier wins and complex items in sequence) or a single “big, beautiful bill” (to maintain leverage, especially given a tight House majority).

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On Tax Cuts, Scoring, and the Real Deficit Drivers

[48:29–54:37]

• Crenshaw and Winfree discuss the philosophical and practical issues around “paying for” tax cuts:
  • By rules, letting people keep current tax rates is scored as lost revenue, even though historical data shows federal revenue is fairly stable as a share of GDP.
  • Winfree critiques the CBO’s “current law baseline” for biasing against tax cuts and shrinking spending, noting that “the markets have already baked in the cost.”
• Emphasis on Focus:
  • Both agree the dominant fiscal challenge is growth in mandatory spending—Medicare and Medicaid—not taxes alone.
  • Interest payments on debt now eclipse the defense budget; unless long-term spending growth is constrained, fiscal sustainability is in danger.

Quote:
“We need to keep the focus on the drivers of the long-term fiscal imbalance—which is the big spending programs, in particular the health care entitlements.” — Dr. Paul Winfree [53:49]

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Entitlement Reform: The Political Imperative

[54:08–58:40]

• Medicare & Medicaid are “the big ticket” items; Crenshaw laments how political rhetoric prevents reasonable reforms, risking an unfair generational transfer of wealth if left unaddressed.
• Committee work:
  • Concrete reform ideas focus on Medicaid reimbursement rates for “expansion populations” (not the most vulnerable), untangling hidden fiscal transfers, and attempting to find savings to pay for tax reform.
• Tax system ideal:
  • Winfree shares his (cautious) preference to tax consumption rather than income or savings—via “universal savings accounts” rather than sales tax. Observes U.S. tax code is rife with reverse incentives and complexity.

Quote:
“I wouldn’t tax income or wealth creation. What I’d tax is consumption… The problem with the tax system we have today is that it just taxes all the things that we shouldn’t be taxing.” — Dr. Paul Winfree [58:51 and 61:23]

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Medicaid and Fiscal Federalism

[62:16–67:40]

• Big new problem: Medicaid now serves as a vehicle for states to funnel federal money into unrelated projects; since 2013, states receive a majority of their “general revenue” from the federal government or non-tax sources.
• Expansion population loophole: Crenshaw describes the incentive structure that leads states (except Texas) to expand Medicaid for a generous federal reimbursement, regardless of local need.
• Fiscal consequences: Massive inflows of unrestrained federal money (especially via ARPA) contributed “fire hose” funding that fueled recent inflation and breakdown of state accountability.
• Policy imperative:
  • Both endorse limiting this pipeline as necessary for federal fiscal health and healthy state-level governance.

Quote:
“States have not collected a majority of their general revenue… through direct taxation since 2013… They’re receiving more money from the federal government and through other sources than they are from direct taxation.” — Dr. Paul Winfree [64:27]

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Notable Quotes—At a Glance

• “There’s an idealism surrounding passing 12 appropriations bills… just to be clear, that’s what some Democrat majority in 1974 wanted. That’s arbitrary.” — Dan Crenshaw [22:04]
• “For the bottom 5%…everything matters so much that you really can’t tease out any single thing. They’re in survival mode.” — Paul Winfree [10:33]
• “Deliberation on whether a point of order applies…happens behind closed doors… I don’t know that that’s good for the process.” — Paul Winfree [34:42]
• “We need to keep the focus on the drivers of the long-term fiscal imbalance—which is the big spending programs, in particular the health care entitlements.” — Paul Winfree [53:49]
• “The problem with the tax system… is that it just taxes all the things that we shouldn’t be taxing.” — Paul Winfree [61:23]
• “States have not collected a majority of their general revenue… through direct taxation since 2013.” — Paul Winfree [64:27]

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Key Timestamps

• 00:24–09:35 — Paul Winfree’s background and path into budget policy
• 10:08–12:39 — Economic mobility: why it’s so hard to “fix” from Washington
• 13:03–21:18 — A crash course in U.S. budget history, process creation
• 21:39–32:25 — What is reconciliation? Evolution, scope, and the Byrd Rule
• 32:25–37:09 — Why Senate rules matter and the cultural shift in budget lawmaking
• 39:25–43:03 — Recent reconciliation bills, rules, and budget window gimmicks
• 43:23–47:41 — How many reconciliation bills? Budget instructions and political strategy
• 48:29–54:37 — Tax cuts, the CBO baseline, and real deficit drivers
• 54:08–58:40 — Medicare, Medicaid reform, and tax code philosophy
• 62:16–67:40 — Unchecked Medicaid spending, fiscal federalism, and causes of inflation

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Tone, Language, and Takeaways

Crenshaw and Winfree keep the conversation accessible but unflinchingly honest—calling out both the arbitrary origins of sacred budget “rules” and the realpolitik that limits big change. Their tone is candid, explanatory, sometimes wry, and deeply skeptical of budget mythology. This episode provides listeners with not only a lucid education on “budget reconciliation” but a sharp, insider’s critique of Washington’s perennial fiscal gridlock.

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For listeners seeking to understand how big legislative deals actually get done—or undone—in Washington, this episode is an indispensable (if sobering) guide.

Transcript

[A]

We hold these truths to be self evident that all men are created. As a member of Congress, I get to have a lot of really interesting people in the office, experts on what they're talking about.

[B]

This is the podcast for insights into the issues.

[A]

China, bioterrorism, Medicare for all. In depth discussions, breaking it down into simple terms.

[B]

We hold.

[A]

We hold.

[B]

We hold these truths.

[A]

We hold these truths.

[B]

With Dan Crenshaw, the eagle has landed.

[A]

Welcome back, everybody. Joining me today is Paul Winfrey, President and CEO of the Economic Policy Innovation center, which we'll refer to as EPIC because that's a good acronym. He's a budget expert and we're going to talk about a lot of nerdy stuff regarding the budget today. So get ready. Paul spent up quite a bit of time in and out of federal government. We'll hear all about that shortly. Served in the Trump administration as Deputy Assistant to the President for Domestic Policy, Deputy Director to the Domestic Policy Council and Director of Budget Policies. So you know what you're talking about. And we're bringing you on today to talk, to break down something I think a lot of the public has heard about recently but might not fully understand, that is budget reconciliation. So let's give some context. First, President Trump obviously has a, has a bold mandate and a bold vision, the big comprehensive bill to tackle his priorities on taxes, which we should say means letting you keep your tax rate as is. It should be said right off the bat that your taxes are about to go up by law, if we don't do anything. We also need to raise the debt limit. We need to tackle our policies on energy, make energy, make America, energy dominance and border security. So these are the big priorities. But there's a roadblock, of course, which is for any piece of legislation, you still need 60 votes in the Senate. We don't have 60 votes in the Senate. Democrats are not going to give us everything we need. So there's this thing called budget reconciliation. Reconciliation is a tool that allows us to pass a certain budget related piece of legislation with just 50 votes in the Senate, bypassing the filibuster, which is obviously necessary when we only have a 53 seat majority in the Senate, and that's not likely to change anytime soon. So that's how we advance Trump's agenda. Paul's here to break it all down. What the reconciliation process is, how it works, what it can and can't do. I think more importantly, because I think expectation management's an important part of this conversation and which parts of the agenda we might actually be able to push through. So get ready for a nerdy conversation made as as interesting as possible. Thanks, Paul, for being here.

[B]

Yeah, we're going to try to make it as interesting as possible. Thanks for having me though.

[A]

Well start with your yourself. So what EPIC does and how you ended up in the administration, what you did there. And, and, and I, I think another interesting question would be, you know, what the lessons learned from that administration and how they're going to apply it into this one. You got a much more experienced administration, I think, generally speaking.

[B]

Sure. Great questions.

The Economic Policy Innovation center focuses on exactly what it sounds like, economic policy at the federal level in particular. We see our mission as empowering members of Congress and other elected officials and being educated around what good economic, in particular pro growth, pro empowerment economic policy looks like. Then also the tools that you have at your disposal, like the federal budget process to begin to execute policy, to be, be able to legislate and actually move stuff that's going to change lives and empower people and really free them to do whatever it is that they do best and that they know best.

As you mentioned, I served in the first Trump administration. I was there on day one in 2017 and left shortly after the Tax Cuts and Jobs act was enacted.

Through a reconciliation process. Through reconciliation process. Process. That's right. So I was the deputy director of the Domestic Policy Council, which is really just a fancy way of saying that I was pretty much the number two point man giving the president advice on all things domestic policy.

[A]

How did you end up in that position?

[B]

That's a great question.

Stars align.

[A]

How does somebody, I mean, now so many people want to get hired in the administration. They're still hiring. Yeah, like I don't, I, I'm still unclear on how the process, how did you end up there?

[B]

So I have a PhD in economics. And when I was going on to the job market about 20 years ago, I realized that I didn't want to go into academia in part because academia even then was, was going off of the deep end. But at the same time, like the things that I wanted to work on were much more practical than, than something that I think that I could have been employed at.

And so I started to look at policy jobs in Washington, D.C. and I actually got a fellowship, a short term fellowship at the Department of Justice doing antitrust policy. So I come to Washington, I take that job from, I'm originally from southeastern Virginia, near Williamsburg. So I'm in that job for about two weeks and I go out with a mutual friend of Mine and another friend that I had in the past who actually worked at Cato at the time, and as you would expect anybody from Cato to say, said, you have a job in the federal government. You don't want to work in the federal. You don't want to work in the federal government. There are lots of jobs in the think tank world, which I knew nothing about, that are just more interesting and they pay more. And let me set you up with some folks. And so he introduced me to a guy named Stuart Butler, who's now retired, but he was at the Heritage foundation at the time, and he had just gotten a big grant to study economic mobility in America. And so I had this conversation with Stuart, and Stuart said, look, I'm going to be working on this project for the next two years. It's probably going to culminate in a book, and I'd love your help in doing that. And again, my intent was never to necessarily stay in this track, but to figure out what else I wanted to work on during that process. And so anyway, I went to Heritage, I worked on this book, the Pew Charitable Trust, ended up popular publishing it in, I think, 2007 or 2008, literally, on the determinants of economic mobility in the U.S. and we explored all sorts of things from social capital and economic capital, financial capital.

Things like.

How your social networks led to your ability to be either upwardly or downwardly economically mobile. These big, you know, big sort of philosophical but also economic questions. And I did that for a few years. And then Heritage offered me a full time position. And.

Then, and this is where those White House stars began to align.

I had met this gentleman who had sponsored some of that work, who had worked in the Bush Ombudsman, and he had just recently gotten hired to go be the chief of staff at the Senate Budget Committee. And so he asked me to join him on the Senate Budget Committee. I did. I was there for most of the Obama years. And the longest tenured ranking member that we had during my time there was Jeff Sessions. And as you know, back in 2015 and 2016, Jeff Sessions was one of the sort of first allies that Trump had went on to go become his Attorney general. And when things started to come about and Trump started to become a more viable candidate, some of the folks who had gone from Sessions World to work on the Trump campaign contacted me to do some campaign work. And then when the formal transition started, they asked me to lead the Ombuds Budget side of the transition, which I did. And, and then there was this question about whether or not I would go into OMB or whether or not I would go into the White House. And quite frankly, I just, I thought that going into a White House role would, would be a bit more fun and, and get me engaged with, with more, more, more things and broader policy decisions too.

[A]

OMB is very particular.

[B]

Exactly. Yeah, exactly. And so I did, and it was a great experience and I learned quite a bit. But my joke is that as the deputy director of dpc, I spent about probably half of my time acting as a marriage counselor between the agencies who were constantly fighting each other over all sorts of things.

And so I have a young family, I have three kids, and my wife actually works in the U.S. senate. It for Ted Cruz and, and it just, you know, it was, you know, working 100 hour, you know, weeks with, with young kids was something that I, I didn't, didn't want, didn't want to do forever.

[A]

How old are they now?

[B]

10, 7 and 2 and a half.

[A]

Okay. Oh, yeah, so like really young. So at this time, like really young kids.

[B]

Really young kids. Yeah.

[A]

Yeah, we have a one and a half year old now. Yeah.

[B]

So you know what it's like.

[A]

Yeah. Imagine living in two places. Oh, yeah, it's, it's a lot.

[B]

But so I told, you know, when I, when I left right after tcja, I said, you know, I mean, we left, I left on good terms.

I, you know, I said, I'm willing to jump back in once we, you know, get things a little bit under control on the home front. And he ended up appointing me to the Fulbright Foreign Scholarship Board, where I went on to serve three terms as chair, which with a bunch of illustrious members like Sarah Huckabee Sanders and Hope Hicks and Johnny Destafano and Derek Lyons and others. And so that was also a great experience, seeing as a domestic policy guy, seeing the foreign policy side through the State Department up front during my tenure there.

[A]

Yeah, we could do a whole podcast on economic mobility. I mean, that's an interesting subject. These days, with all the disruption with AI and service sector manufacturing, I mean, there's a whole conversation to be had about that. I don't know, maybe in a short answer. What are your findings there? You wrote that book back in 2007 about cares what the, what the conclusions were back then and maybe how they've changed over time.

[B]

Now, for the vast majority of people, the determinants of economic mobility, whether or not it's access to financial, you know, financial capital or, you know, living in the right neighborhood or things like that really don't matter all that much. But for the bottom 5% that have everything going wrong in their lives, you know, to sort of just be candid with you, everything matters so much that you really can't tease out any, you know, single single thing. So it's not just that they're living in the wrong neighborhoods. It's not just that they have detached families. It's not just that they don't have access to financial capital. It's that everything is going wrong for them. And they tend to be, they're in.

[A]

Survival mode all the time.

[B]

They're in survival mode and they tend to be the, you know, not particularly economically mobile, but, but the rest of.

[A]

Society might maybe define economic mobility, you know, the, the ability to, to move up in.

[B]

Yes. Yeah, that's right. Yeah.

[A]

And okay, so does that mean there's just no hope for the, for that particular.

[B]

I don't think that there's no hope. I do think that there's, there is, you know, speaking from, from a federal policymaking perspective, there's little that you can do using this top down approach. Really what we have to do is empower people at the local level who we're seeing have success. And if we can do that and we can do it at scale, then you can see people make progress.

[A]

But I wonder if there's like local cities that have done it better than others. Because, I mean. Yeah, it's like there's a hierarchy of needs issued there where it's the first things first is the safety. Yeah. You know, and, and family. And there's not an obvious government policy that makes families stick together or, or, or make fathers stick around.

[B]

That's right.

[A]

We haven't quite figured that out yet. The, the fatherless homes tends to be a pretty significant factor though. Yes, that we certainly see exactly right. When we figure that out, we'll have you back on. Yeah. Talk about it.

[B]

Sure.

[A]

But for federal budget process, I mean, let's explain to the layman what the federal budget process is. If you get, it's like, it's like a, I always, I joke with lawyers. I, you know, I spent some time at Harvard Law, so I'm basically a lawyer. I did half credit, half credit. Like when I was at Kennedy School. I did a half credit at Harvard Law on the federal budget and frankly, none of it made sense.

[B]

Yeah.

[A]

Until I actually started doing it in a practical manner. It's, it's, it's a little, it's a little confusing. Yeah, it's confusing for Members, frankly, until, you know, you're year two or three or four.

[B]

Yeah.

[A]

You start to learn it. But, you know, we're operating off of what, the 1974 Budget Act. Yeah, maybe. Maybe we go through that really quickly to help people understand kind of how this process even starts.

[B]

Well, I think that's a good, great place to start. You know, we can also go all the way back.

[A]

Right.

[B]

And the reality is, is that there's no set budget process for the United States. Right. The Constitution empowers Congress to have spending and tax authority, authority over debt management, and then it leaves it up to you to figure out what the actual process looks like. And so one of the things that we've seen with the budget process is that there's been this evolution over time. And usually that evolution occurs when whatever process in place can.

[A]

No longer works, for it doesn't seem effective anymore.

[B]

Exactly. Whatever the crisis moment of the day is.

[A]

And that's a feeling more than anything else. In 1974, it was the impoundment. Is Nixon doing the impoundments that resulted in this new process we have. Which doesn't seem to work either. Exactly.

[B]

So really, the 1974 act was something that came out of the 1921 act. And what existed before the 1921 act was this collusion that occurred between agency officials and members of Congress. So, quite literally, what would happen is the agency officials would run around the White House and they would come up with whatever they thought their budget needed to be for whatever activities they wanted to engage in that year. They would go to their allies in Congress, and they would ask them to pass appropriations bills that gave them those resources. Well, around the same time that the general public began to become more concerned with corruption in the business world, they also became concerned with corruption in politics, public corruption. This led to.

Different.

Things that came out of the Progressive Era. But the biggest thing for the budget process that came out of the Progressive Era was essentially a bunch of ideas that were tested by this group in New York City called the New York Municipal Research Board. And what they wanted to do is basically professionalize the budget process, which, for folks who know anything about the Progressive Era, should sound like something that they've heard of before, because they were trying to do this in all aspects of business and in the public world. But they had a problem. And the problem was is that nobody cared about the budget process. It was pretty boring. And so what they did is that they went and hired a bunch of former government employees to come help them put on these fairs in The New York City area, where they talked about different instances of public corruption and inefficiencies. And they got the public spun up about budget reform. That led to a presidential commission to recommend what we now know as executive budget process, or the thing that provides for the President's budget in what year?

[A]

We're still talking progressive errors.

[B]

So we're talking. This all started. Well, actually, it started before then. And so it started in.

Those fairs that occurred were in 1910 and 1911.

And then the commission was in 1911 and 1912. But nothing happened for a while. And then World War I happened and the public got excited again about people who were getting rich off of different types of public corruption related to the war. There was some shady things going on with debt management, some shady things going on with certain people getting war contracts and things like that. And so there was this basically public outcry to do something. And the nerds at the time went, well, we've got this plan that we've been working on for the last decade to institutionalize the budget process through the executive. And so this is the requirement for the President to produce a budget. It also created two institutions that are still with us today, what they called the General Accounting Office, which is now the Government Accountability Office, which is essentially the government's auditor. At the time, it was the first auditor out of the Treasury Department. It's since been moved and is now an entity of Congress or part of the Legislative branch. And then it also created the Bureau on the Budget, which we now know as the Office of Management and Budget.

Basically that dictated that law. The Budget and Accounting act of 1921 in the Executive budget process is still what we more or less live under today. Well, fast forward, as you mentioned, to the 1970s. And basically what happened in the 1970s is that people got excited about public corruption again. And in particular, what was going on with the Nixon administration and Watergate at the same time. Members of Congress were very concerned with how the Nixon administration was using this thing called impoundment, which is basically the non spending of resources that have been appropriated.

[A]

Yeah, you've appropriated it, but I'm not going to spend it.

[B]

Exactly. Which is something that every President used going all the way back to George Washington, but nobody used it to the extent that Nixon did. So Nixon impounded about a tenth of all congressional appropriations. And he. And he. And he basically conditioned that on, you know, I'm only going to release these funds when you give me what I want. So he was using it as a, as a. As A bargaining chip as leverage. And, and so anyway, the political stars aligned and Nixon ends up having to resign. And three weeks before he resigns, he signs the Congressional Budget and Impoundment Control Act. And everything in the Congressional Budget and Impoundment Control act can be tied back to things that Congress was excited about in 1974.

[A]

Right.

[B]

Including limitations on impoundment and the transferring of money between budget accounts and all of these things that the Nixon administration was doing in the early to mid to mid-70s. And that's more or less what we live under today. But the reality is, like, things have changed. Right.

The problems that we have with the budget process and government spending and revenues are all very different today than they were in 1974.

[A]

Yeah, that's. That's for sure. True. I've always been curious how.

One. What you think about empowerment just generally is whether it's legal or not. Because in theory, you could argue this both ways. You know, in theory, the President has the. The right to execute the law as he sees fit. Of course, it's supposed to do so faithfully according to the Constitution. So you might argue that you signed, you signed the budget, you could have vetoed it.

[B]

Sure.

[A]

But if you don't veto the whole budget, then you're. You're obligated to actually implement it.

[B]

Sure.

[A]

And so I suppose that's where the fight comes from. I wonder what got him to actually even sign the Impoundment act, because it's quite a, quite a, quite a political reversal for him.

[B]

Yeah.

[A]

I don't know the history of that.

[B]

Well, he was on his way. He was quite literally on his way out the door. I don't know that he knew that he was going to be resigning three weeks later, but his political capital was absolutely.

[A]

He had lost the battle.

[B]

Exactly. He.

[A]

Keep in mind, too, you've got, like, for, for decades, you've got majorities. Congress is a Democrat Congress. That's right. This has always been the fight.

[B]

Yeah, that's right. And also the Congressional Budget and Impoundment Control act passed without a single dissenting voice in either the House or the Senate.

[A]

Wow.

[B]

So you really had Congress say, like, we, we're. We're going to be. We're going to be changing things here.

[A]

Yeah.

[B]

And really the way that I think about the Congressional Budget and Impoundment Control act is not so much a replacement of the old executive budget process, but rather an attempt by Congress to just put itself back in the driver's seat. And that's where reconciliation comes in. And one of the reasons why reconciliation is so important.

[A]

Okay. This is also where we get 12 appropriations bills as science law. And I like to remind people all the time because we get really wrapped around the axle, around, well, we got to pass 12, and this is the way to do it. And we vote on them individually. There's this idealism, I think, surrounding that. And I'm like, well, maybe that's the right way. But also that's just to be clear, like, that's, that's, that's what some, that's what the Democrat majority in 1974 wanted.

[B]

That's right.

[A]

So you're defending a system that was just created by a bunch of Democrats in the early 70s.

[B]

Just, just to be clear, that's arbitrary.

[A]

And it is a little. And it's. Yeah. And when you look at the, how we divvy up those appropriations bills, does it even make sense? I mean, you know, we don't argue about that enough and there's not enough consensus these days to change it. Yeah, but I have to, I feel like I have to remind my own colleagues all the time, like, you know, that that's, that's not constitutional. That's not. Yep. Jesus didn't. It's not written in the Ten Commandments. It's, it's, it's, it's very arbitrary and it's written by Democrats. So let's just, let's let's rethink how we approach this before we just nail each other all the time and refuse to even pass our own budgets because it's, it doesn't work. I think we passed five or seven appropriations bills.

[B]

Yeah.

[A]

Just out of the Appropriations Committee. And we couldn't agree on the rest just, just amongst Republicans. So let alone before you even get to the necessary negotiation you have to have with Democrats, because you have to have it because the 60 vote threshold. So it's. What's the perfect budget process? I, I don't know if you know. I don't think any of us know. But I, but I, I explain all that to people just to.

Why you always end up with an omnibus.

[B]

Yeah.

[A]

From the Senate. I'm like, this is why. Because you've got an arbitrary process that was created by some Democrats in the early, early 70s that is almost designed not to work.

[B]

Yeah.

[A]

It's, that's why you end up. And plus, even if you had 12 appropriations bills that you managed to send to the Senate, there's going to be that horse trading between all of those bills and that's how you end up with an omnibus and we, we can say it's the most evil thing in the world, but it's, it's, it's, it's, it's a budget. What do you want? You know, you know, the page, the number of pages in it should not be indicative of whether it's bad or good. You know, what's in it should be indicative of bad or good. And then that's what you decide on when you vote on it. Is there too much bad in this for me to vote?

[B]

Yes.

[A]

Yeah, that's your job as a legislator. Okay. And then reconciliation also came out of that, that law.

[B]

Yeah.

[A]

Like the, the idea of reconciliation. So.

All right, so we've got, we've got reconciliation. Let's, let's move on to that then. So why, why did they decide to put reconciliation in there as a legislative vehicle?

[B]

Oh, think about it. So if, if what you're trying to do is put Congress back in the driver's seat over the executive budget process, then the way that it, that it, it worked in their minds is that, is that the President still produces a budget.

He or she then submits that budget to Congress. Congress then considers the budget and has a process to make amendments to it. These are the congressional budgets that the House and Senate pass. And then they get together and they agree on one budget. And then what that does is if the House and the Senate, if the Congress can agree on amendments to the President's budget, then ultimately they need to be able to make changes to the President's budget. But there's this thing called the Senate filibuster that is tricky to get around. And again, if what you're trying to do is putting in a process in place to put Congress back into the driver's seat, then their minds at the time were like, well, we can't be held down by this Senate filibuster. So what we need is a fast tracked approach to be able to enact the will of Congress on federal programs. And when reconciliation was initially conceived of, it was, I mean, the word quite literally means you're trying to reconcile what the government does with what Congress's plan to do might be right, with Congress's budget. And so there was no real restrictions on that. Right. Because most of what the government did at the time is what we would now consider to be discretionary. And so, and the first reconciliation bills quite literally.

Changed regulations and repealed discretionary programs. And, you know, really touched, you know, quite frankly, everything that the government does. But those reconciliation bills were, were used so effectively by the Reagan Administration.

And David Stockman, who was the director of the Office of Management and Budget at the time that it upset the Democrats in the Senate.

[A]

How did the Reagan administration use reconciliation? I mean, it's a legislative vehicle. Let me explain that.

[B]

They saw it, and this is where Stockman actually comes in particular, being a former member of the House, they saw it as being the powerful tool that it was initially envisioned to be, which nobody had tried to use reconciliation.

To make such sweeping policy changes as the Reagan administration had so chose to do during the Carter administration, who is really the only other administration to have an opportunity to do anything with budget reconciliation. And so those first a couple of reconciliation bills were really quite, quite far, quite far reaching.

[A]

But how, but there was Democrat majorities. So, like, this was, so was reconciliation an executive tool at first? This is what I'm confused.

[B]

No, it was not. It was not, it was not an, it was not an executive tool, but it was a tool that, that OMB saw to getting the Reagan agenda through the legislative process.

[A]

Okay. They still needed Democrats.

[B]

They still need, they still needed Democrats. They still needed Democrats.

But so anyway, so basically, fast forward a couple of years and they're approaching a debt limit, which is something that happens every few years where Congress has to raise a statutory limit on the debt. And the senators who had more or less been ignored or pushed to the sideline at the very beginning of the Reagan administration decided to attach, as a Senate rule, restrictions to reconciliation that we now know as the Byrd rule.

[A]

Yeah. So prior to the bird rule, like you said, you could change regulations, you could enact policy through reconciliation. That's not the world we live in now.

[B]

Yes. It's not the world that we live in now. And so now there are these restrictions that you have to abide by if you want to use reconciliation in the Senate. In the House, there's no bird rule. They have no conforming rule.

[A]

No, but we have to abide by it because we know it's a, it's, it's not a lawmaking exercise if we send something to the Senate that, that, that doesn't abide by the bird rule. So, so we abide by it. Naturally. Anyway. That's right. And that's an important thing to note because it's, you know, it's what I guess when reconciliation used to mean reconciling everything.

[B]

Yeah.

[A]

Now it means only reconciling budgetary matters.

[B]

Yes.

[A]

And so that gets into, like, expectation management on what we can actually accomplish with, with reconciliation. And maybe we go through a few examples. So.

Let'S some of the most notable reconciliations in recent history. Obviously the Trump tax cuts, the tax cuts and jobs acts. That's a reconciliation bill.

[B]

Yeah.

[A]

And you can do that because it. Well, it had to do with taxes, which is by its very nature a budgetary item.

[B]

That's right.

[A]

You're either raising revenue or you're spending it.

[B]

That's right.

[A]

So that's one. What are some others that we should be thinking of as just kind of past historical examples as we look into our next reconciliation bill?

[B]

I mean, the biggest reconciliation bills that have happened over the last 20 years are the tax cuts that were passed at the very beginning of the Bush administration. There were some changes that were made to student lending programs at the end of the Bush administration. The creation of Medicare Part D was done through reconciliation. During the Bush years, a lot of folks think that Obamacare was done through reconciliation. But really what happened was that the main heft of the big provisions in Obamacare were actually done through regular order because his Democrats had 60 votes until Ted Kennedy had passed away. And the reconciliation part of Obamacare is all of the conforming amendments that they enacted in March of 2010 so that the House would be comfortable with passing the ppaca, what we now know as the Affordable Care Act. In 2017, Republicans and President Trump tried to use reconciliation to repeal and replace the Affordable Care Act. But when we did that, when we went through that exercise, it ultimately failed. We learned the hard way in some cases that there are real restrictions about what you're able to do. So for instance, in 2017, we were limited in how many insurance rules and regulations that we know increase premiums and ultimately federal outlays we could go after in reconciliation because non budgetary items are prohibited, or at least items that, where there's a budgetary effect, that budgetary effect is not directly related to the provision that you're changing.

[A]

Yeah, that's actually a pretty interesting point that I think a lot of people don't know on perhaps why that failed. And so you're, you know, you. What was it called? The American Health act or. It was something very bland like that. And it. I wasn't in Congress at the time, thank God. That was, that was a hell of a time to be.

[B]

It was a rough time in my personal life.

[A]

Yeah, but, but, you know, again, expectation management, so people expecting things to change, but you can't really change it. So you end up just doing what you can, which isn't enough, which almost makes the situation worse, which was why it was so I think volatile to begin with if you can't enact true policy changes. Yeah.

[B]

And here's another just wrinkle in all of this. So unlike other points of order that are enforced in the Senate, all budget points of order, including the Byrd points of order, are not what we call self enforceable. So what that means is that if there's an offending provision in a reconciliation bill that should be stripped out or prohibited by the Byrd rule, a senator actually has to go down to the floor and raise that point of order. And there has to be a ruling from the presiding officer, which is either the Vice President or whoever's sitting in the chair at the time, with the advice of the Senate parliamentarian, which is basically an employee of the Senate, whose job it is to make sure that the presiding officer knows how things have been done in the Senate in the past. But what that means, it's the most.

[A]

Like professional of professional legislators.

[B]

Exactly.

[A]

Parliamentarians.

[B]

Exactly.

[A]

Important role.

[B]

Exactly. And what that means is that if something has happened in a previous reconciliation bill but no point of order has been raised on it and no vote has been taken and no decision has been made, then, then there's no precedent that's been set. And so one of the things that I often hear from legislators is they'll go dig up some reconciliation bill from 1993 or 1996 or 97. There are actually lots of very important reconciliation bills that were enacted in the 90s. Welfare reform was done during reconciliation. There are major changes made to taxes and Medicare that were made in 1997. The last time the gas tax was increased and the earned income tax credit was changed was in 1993, at the very beginning of the Clinton years. And they'll dig up these pieces of legislation and they'll say, well, this thing happened then, therefore I can do something similar today. Well, not necessarily. And here is.

Sort of a side note on that. That's also very important. It used to be the case that most of this deliberation on whether or not a point of order applied or the Byrd rule was in order happened on the Senate floor with senators actually doing their jobs.

[A]

Right.

[B]

Going to the floor, having debates, having arguments, offering points of order, having rulings and voting. Today a lot of the deliberation happens in the majority leader's office or in the Senate parliamentarian's office behind closed doors. And what, what that means is that there isn't this precedent setting exercise that we can go and track over time that really I think and have argued in the past is important. To the process and in how members engage with the budget process and with the reconciliation process in particular.

[A]

Why do you think that's happened? Is it just out of necessity for efficiency? Like, you know.

Is the idea that, like, let's, let's hammer this out behind closed doors before we, because, because we know how it's going to turn out on the floor or it's going to fail or not fail. I don't know. I don't wonder why. Or is it maybe the Senate's voting rules are just too arcane because it's always a roll call vote and it just takes too much damn time? I don't know.

[B]

I think there's, there's some of that. I think if I'm, if I'm going to be cynical, I think that that part of the problem is that there's, there are more and more decisions being made out of the leadership suites in the Senate than there were in the past. There used to be much more devolution. The committee chairs were more powerful than they, than they are today. I think that there's a little bit of that that's changing in today's Senate for the good, quite frankly.

In a lot of ways, those changes are occurring because the members are demanding that the changes occur. They'd be more involved with the, with the process of the day.

[A]

But these aren't structural changes in any way. These are, these are cultural changes.

[B]

These are cultural changes, but it also has to do with.

COVID.

And political cover.

And just member management and making sure that some of these tough debates don't actually happen in the open on, on C Span. Right. That they happen behind closed doors. And, and, but I don't know that that's good for the process. I really don't.

[A]

Yeah. And in the, but that's interesting, too, that, you know, we, it's a lesson that we could be bolder than maybe we think we can. You know, there's an assumption that, you know, we have a policy that we want to put in this reconciliation bill and, you know, that, that, that particular policy maybe isn't, you know, you could argue on the fringes, it's budgetary in nature. But.

You'Re saying we could actually put that up for a vote.

[B]

Sure.

[A]

And now that, now how do you win that vote? That's a Senate question. That's a Senate parliamentarian question. So if they, so if so, if that point of order is made, is it a 50 plus one vote or is that still a 60 vote to win?

[B]

60 vote to win.

[A]

Okay, so you're going to lose that on party lines probably most of the time anyway, if it's in order.

[B]

But what I'm saying is that there used to be this culture where there was more debate on the applicability of the Byrd rule before the point of order was even found in order. And you can go back to the Senate record and look at the debate over the 1993 bill, which was actually pretty contentious, and the 1996 bill and the 1997 bill and just quite literally see it playing out where senators would come down to the floor and they would make speeches and they would say, no, it doesn't apply, or yes, it does apply, and the presiding officer would take those arguments in and based on advice that was given by the parliamentarian at the time, ultimately make a ruling. But that's the way the process is supposed to play out. Right. I mean, that's the way the Senate is built.

But it does take time and it takes members actually knowing about the process to do that.

[A]

Yeah. And also there's a different political reality of that time, too. You have a Democrat president. What was it? It's a new Gingrich's speaker at this time. 96 Senate is refresh my Senate. Democrat or Republican?

[B]

I can't remember.

[A]

Well, either way, it's, you got to. Either way you've got mixed power.

[B]

Yeah.

[A]

So when, when you have mixed power and you're trying to do reconciliation like that.

[B]

That's right.

[A]

It's a, it's a very different dynamic culturally. So I would expect those, those debates to play out in a way that I will not expect them to play out on this particular reconciliation bill because it's we, we have the House, Senate and, and that's not how it's played out for the last few.

[B]

That's right.

[A]

Precisely because. Well, it's Republicans have the House Senate and presidency, Tax Cuts and Jobs act, then Democrats had the trifecta. They passed the ira. That's I guess our next big one to talk about. We don't have to talk about it too much. It's a bunch of spending. That's what it is.

[B]

Yeah.

[A]

So that's the one thing you can do in reconciliation. You can, you can spend a bunch of money.

[B]

Yes.

[A]

And let's maybe let's explain how they got passed because it's now, again, they weren't able to do a lot of damaging policy, which is, you know, the lucky part, but they were able to fund a lot of existing grants, programs, massive amounts of money.

[B]

Yeah.

[A]

You know, it's a helicoptering of money is essentially what Democrats do with reconciliation.

[B]

Yeah.

[A]

Oh, and some tax increases like. That's right. Let's not forget those.

I don't know if you want to add anything to the ira, but.

[B]

Yeah, well, it was both, both the IRA and ARPA were both done through reconciliation. And they, basically what they did was they created a bunch of SL funds for the agencies to go fund discretionary programs and, and we're still living with them.

[A]

Right.

[B]

I mean, there's still a lot of money out there. Doge seems to be finding some of it in the couch cushions and trying to eliminate it. But a lot was also spent before the, before the Biden administration, you know, left and. Yeah, I mean, one of the peculiar things about the budget process is that the budget process, the budget's really set for a ten year period. You can also set it for a five year period, but it's usually set for a ten year period. And Congress can more or less make up whatever their budget lines are going to be for the next 10 years. And so you can bake in a bunch of extra spending, which is what the Democrats did in 2021, and still say that you're reducing the deficit because. Well, we're reducing the deficit relative to all of the, you know, new spending that we plan to do over the next 10 years. But there's this restriction in the Byrd rule which says you can't add to the deficit after the budget window ends. So starting in year 11.

[A]

That's where the budget window even comes from.

[B]

That's where the budget window even comes from.

[A]

Yeah.

[B]

And so it's another arbitrary number. But the budget window is, you know, the, the budget, the budget resolution says that you need, you have to produce a budget. The Budget act says you have to produce a budget that includes this fiscal year and the next five fiscal years and then the rest is up to you. So you could produce a 10 year budget resolution, as I said, which is what is often done. You could do a 20 year, a 30 year, a 50 year. Senator Ron Johnson in the past has proposed 30 year budget resolutions. Again, it's just arbitrary. It's whatever Congress wants to come up with, with.

[A]

Yeah. And you can produce the resolution and vote on it and get it passed and, and the next Congress and next president can totally change it.

[B]

That's exactly right. As we see happen normally.

[A]

Yeah, yeah. So, so it's again, not obvious what the right answer is when you consider this, but when we talk about budget gimmicks in the ten year wind like that's that's what people are talking about. They're talking about this idea that, well, it saves money here. And so I guess Democrats argued for the ira and you're talking about the American rescue plan. Yeah, you know, the spending, the deficits over time get, get canceled out because of, I suppose, an increase in taxes or however they, I can't remember honestly how they, they justified it. I just know we were against it. But it's, that's how they do it. And the way the Trump tax cuts worked was. Well, they sunset it. That's right. That was, that was the only way to, to make that work in the out years.

[B]

That's right. That's right. And it's the same thing happened with the Bush tax cuts that expired in 2012 and 2013. And that's, that's, that's why we're dealing with the expiration of the tax cuts and Jobs act this year.

[A]

Yes, we are. And since Trump's priority to make sure that they, that they are permanent, I mean, that's, that's the goal. So.

[B]

Yeah.

[A]

Okay, so we went over the bird bath roll and all that. What do you think about the, the benefits of one bill versus two bills? So actually, let's start with some the basic rules here. You can do one reconciliation bill. You can't just keep doing reconciliation bills by law. Right.

[B]

So the budget resolution, first of all, you need a budget resolution. And the budget resolution has a bunch of instructions to committees that tell them.

More or less what, what to do.

[A]

Right.

[B]

Really what it does is it provides them a path to end up producing a title that goes into making the reconciliation bill. And the instructions that can be provided are a spending instruction, basically Committee X, go out and reduce or increase spending by some amount of money, a revenue instruction, ways and means go out and raise money or cut taxes or a deficit instruction. You can also have a debt limit instruction. And the budget resolution can trigger as many reconciliation bills as you have instructions. So if you have a spending instruction and a revenue instruction, then it can trigger two different reconciliation bills. That's exactly what happened, actually.

In 2003 and 2004. So the 2003 reconciliation bill that cut taxes, that was the second half of the Bush tax cuts. And then the 2004 reconciliation bill that did things like create Medicare Part D. Those were all triggered by the same budget resolution that was passed back in 2003.

[A]

You can do at least two in a fiscal year. There's a limitation on fiscal years.

[B]

You can do. Yes, you can do at least two based on the budget resolution. So the thing that we have today, though, and.

This is actually something that I contributed to back when I was on the Senate Budget Committee during the Obama years. So when we all thought that we were gonna have President Romney and Vice President Paul Ryan, there was this question, could we use last year's budget resolution to do Obamacare repeal and then this year's budget resolution to do whatever else we wanted to do? And so we went and asked the Senate parliamentarian at the time, who's actually the Senate parliamentarian still today, Elizabeth McDonough, and she said, yeah, you can do that. There's nothing restricting you from being able to do it. It hasn't been done before in the past, but you can do that. And so what people are talking about today is potentially digging up last year's budget resolution, which the Democrats didn't, you know, the, the Republican House and the Democrat said Senate didn't come together and pass a budget resolution. So you can still use that one.

[A]

Yeah, we haven't passed yet.

[B]

Deadline's March, so you can, you can, you can pass that one. And that triggers.

[A]

We're trying to do it this week. It doesn't seem like it'll happen.

[B]

Yeah, well, yeah, that's.

[A]

That.

[B]

That seems to be where this is going. But you could do that and then you could pivot to next year's budget resolution and trigger another set of reconciliation bills. The trouble with this, the problem with this is that the more time that passes, the harder enforcement of the budget becomes in the Senate. Because you're using last year's budget window, right? So you're using outdated budget numbers from CBO and all this stuff. So the more time that you bleed into this year, the harder it becomes to go back and do last year's budget resolution.

[A]

Hence the rush.

[B]

Yeah, exactly. The other question that has never been answered, and I don't know the, I don't know the answer to, is if you were to do the next year's budget resolution, the fiscal year 26 budget resolution that triggers reconciliation instructions, could you then go back and do last year's budget resolution to trigger another set of reconciliation bills? I don't think so. But that question, to my knowledge, has never, never been asked. So. So this matters, right? Because if you're going to do this two bill approach or two budget resolution approach, then you've got to start with last year's budget resolution without having to, you know, basically ask the parliamentarian and get a bunch of answers that you're probably not going to like.

[A]

Yeah.

[B]

About what you can and can't do well.

[A]

Yeah. And actually I haven't heard that because our part of the debates, it seems to be mostly political. It's like, you know, what's, what is politically possible and more feasible is when we talk about one bill versus two bills. I think there's general consensus that it has to be the last year's buzzer resolution first. If you're doing two bills at all, it's more of a debate over, you know, it is really more between the House and the Senate. It, Trump doesn't seem, you know, Trump is like just, just get it done. Yeah, that's, that seems to be his position on it. I just, I have priorities. I want them done. Yeah. I get, I get his portion of it, I think. So there's the, the idea is that some senators at least believe that there should be two bills because you want to get some easier wins on, on the scoreboard.

[B]

Yeah.

[A]

And then, and then deal with the hard stuff later. I think the, what Speaker Johnson would, would, would, would rebuke that with is our majority is too tight. We can't. If we get the easy stuff done, you're never going to get the hard stuff done. So we have to, we have to force members to vote on this in one big, beautiful bill. And that logic seems pretty good considering our problems in the House with a very, very, very tight majority and in. So, you know, the basic state of play with reconciliation here is you've, and you know, when you can help people understand this. I mean, we've again, because the rules require what the deficit to zero out after a certain window. Cutting taxes or even keeping taxes the way they are is scored as a cost. And there's a philosophical question as to whether that's even correct. You know, letting, letting people keep their money at the, at the, at the current tax rate is considered a cost. Yeah, but our own rules force that. And I mean, is there something maybe you could comment on that portion of it? I mean, is there even a way to, to change that or should we even change it? Because the reality is we're as Republicans, we're trying to cut deficits anyway. So trying to pay for those task us isn't the worst thing in the world. And trying to find savings. This is the time to do it. And each committee has its, is slowly getting its instructions on what to do on energy and commerce. Like, you know, we're working through that. And every, every, every committee has its own, has its own set of, of ways to save money in order to, in order to meet the costs. And, and some of those costs are border related. You know, we're talking about perhaps $80 billion of border related funding that's required. So that's a cost that has to be paid for.

Energy. Not as much except, you know, but there's, there's a cost, I suppose, in repealing certain taxes on the energy industry, but there's not a huge amount of costs there that we're talking about. But the big costs are letting people keep their tax rates. Yeah, it's in the trillions.

[B]

Yeah.

[A]

And so finding that money is difficult. In theory. We could, we could simply write another law, but you would need 60 votes in the Senate to change that. But I guess I just answered my own question. You need.

[B]

Well, I think that, that there's a bigger problem that you're not going to solve in this reconciliation process, but that 100% should be solved and that I know that Jody Arrington, the Budget Committee Chairman, is, is working on. And that is, is that baseline that the Congressional Budget Office is, is required to construct. We usually refer to it as the current law baseline, but it's actually not a current law. It doesn't reflect current law. It's biased towards.

Making tax cuts look worse than they would otherwise they do in the real world. And it also has all of this spending that's baked into it, which, which is great if you want to keep increasing spending and making it look like you're not. But if you want to reduce spending or if you want to cut taxes, then it always makes the fiscal picture look a little bit worse than it actually would otherwise be. Look, the reality is, and Jody has.

[A]

A lot of the Budget Committee shown us a lot of graphs of like, look, the CBO is wrong every single time, especially when it comes to revenue.

[B]

And they know they're wrong. Like if you, if you ask Phil Swagle, the.

The Director of the Congressional Budget Office, who was the Assistant Secretary for Economic Policy during the Bush administration, he will tell you flat out, like, we know this, but it's not up to me to make the determination on what I'm required to do. You all have to change the law to instruct me to do things in a different way. But the reality is on the tax issue is that the US has had.

Different tax systems over the course of our history. But if we go back to just the different tax systems that we've had since the Second World War, they've been dramatically different. Right. The marginal tax rates on upper income people, really on everybody after the second World War were dramatically higher than they are today. They were dramatically higher in the 70s than they were in the 80s, and they were higher in the 80s than they were today. But the reality is, is that the federal government raises about 17 to 19% of GDP in revenue every year, regardless of the tax system that we have in place. And so, you know, could we have a different tax system that raised more revenue? Yes, but through economic growth, not because it would raise, you know, a higher percentage of GDP in revenue. And so, you know, talking about, you know, paying for the tax cuts, in my view, in some ways this is where I'm sort of a classic Reagan conservative.

Is just irrelevant. It's just, it's, you know, you know, first of all, the markets have already baked in the cost of the tax cuts into the baseline. They think that you're going to keep people's taxes where they are. And if you, and if the taxes are allowed to go up, then you're going to see a reduction in aggregate demand because people are going to have less money in their pockets. And even though that revenue line may come up just a little bit, like it's going to hurt the economy, it's.

[A]

Going to be temporary.

[B]

And it's going to be temporary.

And so really what we need to do, in my view, is keep the focus on the drivers of the long term fiscal imbalance, which is the big spending programs and in particular what the federal government contributes to the, the federal health care entitlements.

[A]

Yeah, and that's our, that's going to be our big ticket item on, on enc because we control Medicare and Medicaid. And, and that's also where the biggest political fight is. And it's something we have to talk to the President about a lot too. It's just, you can't take all this stuff off the table. We won't be able to pay for the tax cut. And again, I, and you know, and anyone could argue back, well, why do you have to pay for tax cuts? Agree with you, but it's also a good chance to, to get us on a better fiscal trajectory.

[B]

That's right.

[A]

Even, even pretending that we have to pay for tax cuts.

[B]

That's right. I can play. I don't disagree with you at the same time, I mean, like one of the things that, this is one of the things that I've told, not the President directly, but people around the President, is that one of the big differences about the economy today relative to where we were when I was in the White House in 2017 is that the interest rate on federal debt is a lot higher than it was then. I mean, it's about twice as high today. Just the, just the interest rates. I mean, the interest costs are four times as high today than they were back in 2017. But the interest rates are much higher. Yeah.

[A]

More than what we pay for defense.

[B]

That's right.

[A]

First time that's, that surpassed that.

[B]

That's right. So, you know, the rate I think on 10 year treasuries is around 4 and 4.5%. In 2017 it was about 2 and a half percent. So once you adjust for inflation, it was near zero. Right. Back in 2017, the last time that we, you know, did something like this. And, and, and what, what that reflects in part is either higher inflation out in the future because the people who buy US debt are going, look, you know, we're getting closer to the point of no return. I mean interest payments are already, you know, the trillion dollars a year and there's only one way out of this inflation. Right. And so I'm going to demand a little bit of a higher price in order to buy, to buy U.S. debt. And so I think it's more likely that that number is going to keep going up than it is that it's going to go down. And the best signal that we can send to the bond markets is to start to bend that long term cost curve. It's to say, look, we know that we have long term fiscal challenges. We just need to start reducing the growth and spending out and out into the future. That'll, that'll help keep that, the, the price of debt from going up too much.

[A]

Yeah. And it's, again, it's, people don't want to hear this, but it's, it's the largest, the largest numbers are in Medicare and Medicaid.

[B]

That's right.

[A]

Yeah. There's, there's no way around that. Yeah, yeah. How we, how we flesh that out in our debates is going to be an interesting one. Yeah, I guess that remains to be seen. But it's, it's going to be controversial. And you know, on our committee, we're really focused on Medicaid mostly because the President doesn't, you know, he's made promises in the campaign. We're not, we're not touching Medicare. Now of course, a lot of us would argue you can, you can reform Medicare without cutting people's benefits. This is something everyone needs to hear. Everyone needs to hear this because it's, you know, if you care about your grandchildren.

[B]

Yeah.

[A]

And you Know, if you want to keep voting Democrat, young people, well then expect them to, to fix this problem by raising your taxes while you're trying to start a family and trying to start your, your life and business and they're, they're transferring that money directly to your grandparents who've had their whole lives to save.

[B]

Yeah.

[A]

And it's, this is, this is a very unfair system. And that's a, that's a, that's me talking as a millennial.

[B]

Yeah.

[A]

Not as a Republican or anything. That's just me talking as a millennial. It's an extremely unfair system. Yeah, you got to deal with it, you know, to the extent we are able to deal with it in this Congress remains to be seen. But you know, I'd like us to see is there are, there is some low hanging fruit. I, Low hanging is not the right word because it's all politically fiery. But you know, you talk about reimbursement rates and Medicaid, things like that. So that's what we're looking at on energy and commerce. It's really our only tool. Yeah. And then you've got ways and means. They've got, they've got the tax cuts they have to pay for by, by rescinding other, other tax benefits. You know, and so that's going to be controversial because every tax benefit, whether it's a deduction or credit that has a constituency or taxing things that are, you know, we might view as less pro growth. And that's, you know, where we look to tax experts. I mean, if you had to just, if you had to create a country right now and, and, and, and, and fund the government. What's, what's the, I like to ask this question to all economists. What's, what would be your, your preferred way of taxation?

[B]

You're trying to get me attacked by all the people who are going to be tuning into this podcast. I once, I was once asked this question at a, at a town hall like event.

[A]

It's just an academic question.

[B]

And, and I thought there was a woman in the front row who was going to take her shoe off and throw it at me when I said so. I have to be careful with this. I mean, first of all, I wouldn't tax the things, I wouldn't tax income and I wouldn't tax wealth creation, what I would tax as consumption. And that doesn't mean that I would implement a national sales tax. I think that there are lots of problems with the national sales tax. But one somewhat creative.

Way to think about this, that's been thrown around in Congress in the past. Kevin Brady, who is a former chair of Ways and Means, had worked on this idea at one point is to create something that looks like a universal savings account. So right now people are used to contributing to a 401k or health savings account where the money comes in from their paycheck and rather than paying taxes on it, it goes into this account that they only pay taxes on in retirement or when they spend it on, you know, things unrelated to health care. In respect to the hsa. Well, a universal savings account would, would be something akin to that where, you know, your income would, would come in, it would go into the USA and it would only be taxed when you withdrew it to buy a car or a, you know, a house or, you know, however you were using your money, spending it in the real economy. That way you only tax the income once when you're spending it and ultimately you're incentivizing savings, which is something that, you know, we, I think, as a, as a country are going to need.

[A]

Because it's not a sales tax.

[B]

Not a sales tax.

[A]

You can pull out the money anytime you want.

[B]

Yeah.

[A]

And as soon as you do, it's taxed at whatever your. I guess we could maintain the same income tax rates. That's right. Yeah.

[B]

You would just have to set the threshold much higher than what the current 401k thresholds or HSA thresholds are. I mean, basically let people put all of their, all of their income into this. And, and yeah, it would basically be tax free. As long as you're saving it, it'll only be taxed once when you would, when you withdrew it. Also, the IRS pretty much knows how to do it, do this right now because they're already doing it with 401ks and HSAs and FSAs and things like that.

[A]

So that would be the ultimate tax. Bill 2.0 is just a, just a massive reform of, and a very pro growth. I mean, I get the same. I mean, to be fair, I don't know why you're attacked, but I generally get the same answer from any economist that we, that we ask this question to. It's just, you know, why we can't do it.

[B]

It's.

[A]

And I guess the reason why you can't do a lot of it is everyone loves their, that particular tax credit that becomes a, that becomes a constituency.

[B]

Yeah, the, the problem with the tax system that we have today is that it just taxes all the things that we shouldn't be taxing. I mean, like, like, I mean, it's, it's, it's like, you know, and there's this idea that, that has come out of Democratic circles in the last, you know, presidential election about taxing unrealized gains. Yeah, it's just nuts.

[A]

That would be insane.

[B]

It would just be, it would be crazy. You know, and, and even the capital.

[A]

Gains taxes, it's this boogeyman for, for Democrats. And yeah, you got to raise it. You got to. Okay. I mean, they just don't care about the trade offs, I think associated with, with, with doing that. And it's, I don't know, there's not a lot of economics classes being taught, I guess in some of these. No universities.

[B]

Yeah, yeah.

[A]

If they're taught, they're just quickly forgotten about or forgotten about for the sake of some kind of social justice ideology, which is really what it comes down to. It's a feelings over facts kind of thing.

[B]

But can I talk about Medicaid for just a second? If you're interested. So one of the. So you're exactly right in that Medicare and Medicaid are two of our biggest challenges. And I think that they're actually very different challenges. And so we'll set Medicare for. Aside for a minute. If you look at Medicaid and one of my former colleagues in the White House, his name is Brian Blaize, he runs the Paragon Health Institute these days, is much more sophisticated and much more of an expert on this than I am. But one of the things that he likes to point out is that states have used Medicaid and gotten more adept to using Medicaid over time to basically funnel federal resources to states to do stuff that has absolutely nothing to do with health care.

[A]

Yeah, I think we had Paragon on the podcast. Correct me from. Yeah, yeah.

[B]

And, and that, you know that that's something that, that we should be looking at curtailing. Right. It's something that.

[A]

It's on our list. I don't, I don't get into too much detail because, yeah, we haven't done it yet, but sure, I'll get into all the details when we decide and I have to defend it. But yeah, there's a lot of stuff like that.

[B]

So Brian, Brian and I have recently team teamed up. We haven't published anything yet, but we've up at just looking at this breakdown in fiscal federalism over the last 15 years and how states are not just using Medicaid, but all of these other programs to again, just funnel, funnel money in and just a quick statistic expansion.

[A]

Population is a massive example of that.

[B]

The expansion population.

[A]

You know, it's a 90% reimbursement rates, which, which, which bribed states into taking it. Texas being an outlier here, which is why it's easy for me as a Texas Republican to say that's where our savings are. You know, we need to change what's called the F map. It's like, I don't even know what, I forget what it stands for. It's. It's a reimbursement rate. Yeah, yeah. Change it for expansion population. Because the expansion population is by definition not the poorest people.

[B]

That's right.

[A]

So you're not going after the poorest people or the kids.

[B]

That's right.

[A]

You're going after the expansion population. And also people who aren't. They don't even know they're on Medicaid. They got a new job. And I think what people don't realize is the Medicaid program is still paying into like an HMO or something, you know, a fee even if that person is not using Medicaid when they go to the doctor. Yeah, and there's other. There's other. Yeah, so we continue.

[B]

No, but so get this. So states have not collected a majority of their general revenue, the money coming into the states through direct taxation since 2013. So, so what, what that means in like in lay terms is, is that they're get. They're receiving more money from the federal government and through other, other sources, bonds and things like this than they are through direct taxation and have been doing that since well before the pandemic and then during the pandemic in particular during the Biden administration.

[A]

Is that true? Just with every state.

[B]

With every state, Every single state, they hit the gas on this. So, So a big. So for instance, there was a major program that was created during the, in arpa, the first reconciliation bill that passed during the Biden administration called the State and local Fiscal Rec Recovery Fund, which was basically a 350 billion dollar slush fund for treasury to just go dump money into states and local governments. And they've just, they've just been spending.

[A]

Like where does inflation come from? I can't understand it.

[B]

This, like, I mean, like this.

[A]

Right, Exactly.

[B]

You know, and, and I was like.

[A]

I was laughed with. Like, how does it. So inflation wasn't our fault. It was covet. I was like, look, yes, but well, to be fair, supply chains being constricted by Covid. Yeah. Also your fault because you're the ones who. Because you're the ones who Wanted lockdowns. You wanted lockdowns. Yeah. Which up.

[B]

Supply chains. Yeah.

[A]

So still your fault. Like it's all still yours. And then you added a bunch of money to vast. I don't know. I'm not an economist, but I'm pretty sure when you vastly increase demand and also simultaneously constrict supply. Yes. You get higher prices. Yes. Is that. Is that I win?

[B]

Bingo. One you do. That is exactly what's happening right now. And it's also one of those things where we're. I mean, one of the problems with economic policy in general is that, that, and we saw this with the Fed, is that we're always responding to the last crisis. And, and so during the pandemic, you know, everybody was worried that states and local governments would run out of money, and then they didn't.

[A]

Right.

[B]

In part because people started to work from home, people started relocating, they moved from cities to the suburbs, property values went up, property taxes went up, and all of a sudden states and local governments were flush with cash at the same time that the federal government was dumping in hundreds of billions of dollars to states and local governments to do God knows what.

[A]

Yeah.

[B]

And that's where we got inflation. That's why inflation peaked and spiked in, in 2021 and 2022.

[A]

Yeah, yeah, that is true. Was there anything else you want to say about Medicaid or just that make that basic point that it's just a.

[B]

It's like I said, I mean, it's this breakdown in fiscal federalism which, which really is being driven by Medicaid aid because, because Medicaid is, is such a big part of how the federal government sends money to states.

Is, Is just something that I think as a country we, we have to just have. Have a conversation about. You know, we need to be pushing more and more of this decision making back to the states and local governments.

[A]

Right, right. And. And limiting that. That fire hose of money. That's right. That just, it perhaps causes bad decisions and more importantly, just. Just creates an impossible fiscal future.

[B]

That's right.

[A]

We'll leave it there. That's over an hour, so. Yeah.

[B]

Hey, sure.

[A]

Thanks so much. That was great. Hopefully informative for anybody who wants to know everything they possibly can about the reconciliation process and maybe what to expect. So thank you.