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The big new budget deal, explained

"House Conservatives Frustrated by Ryan’s Secret Budget Talks With Democrats," read the headline on the Daily Signal, the Heritage Foundation's conservative news site.

"My biggest frustration is that [the negotiating process] is too opaque," Rep. Bill Flores, a Texas Republican, said. "We don’t have any transparency into anything that’s happening."

The unveiling of the deal didn't quiet those criticisms. The agreement was announced on Tuesday night, amidst the Republican debate, and the actual text was posted in the wee hours of Wednesday morning. This is not how you introduce legislation when you want it to lead the headlines.

But it didn't matter. The package passed overwhelmingly in both the House (316-113) and the Senate (66-35).

This deal is the first major legislation of Paul Ryan's speakership, and it's huge: it prevents a government shutdown, replaces much of the sequester, passes $700 billion of (unpaid-for) tax cuts, pauses or delays major provisions of Obamacare, and offers real insight into what both parties care about right now — and what they don't care about. And one lesson of the deal — which may be a surprise to those who remember Ryan's rise as the GOP's chief deficit hawk — is that neither party really cares about deficits right now.

The package is also an interesting first move from Ryan. In process and in substance, this kind of backroom deal that offers real concessions to Democrats and blows up the deficit wasn't the change insurgent Republicans were looking for when they ousted John Boehner. But Ryan argues that this deal is really cleaning up the mess of the Boehner era, and creating the conditions necessary for a more conservative approach to House governance.

"Congress can now move into 2016 with a fresh start and a plan to return to regular order in order to better protect taxpayer dollars," he said in a statement.

What does the deal do?

A lot!

There are three major categories of policy in this deal.

1) Spending for 2016. This deal sets discretionary spending levels for the 2016 fiscal year — if this portion, or something like it, doesn't pass, the government will shut down.

A secondary objective for both parties here is agreeing on specific spending cuts that can replace the across-the-board "sequester" cuts that have been indiscriminately hacking away at the federal government for the past few years. This deal replaces much of (though not all!) of the 2016 sequester cuts.

2) Tax cuts. The package has a ton of tax cuts — about $700 billion worth — and basically none of them are paid for. The Committee for a Responsible Federal Budget has a very helpful table breaking down the individual cuts and their cost:

Committee for a Responsible Federal Budget

If you look closely, there are two big categories of tax cut here.

The bulk of the tax cuts are ones that currently exist but were set to expire — even though no one really thought Congress would let them expire. This includes a raft of business cuts like the R&D credit, but it also includes anti-poverty cuts of tremendous importance to Democrats, like the expanded child tax credit and earned income tax credit.

These cuts tend to get extended on a year-by-year basis — that's why budget wonks call them "tax extenders" — but here, they're either being extended for a number of years or being made permanent.

Making those expanded anti-poverty tax cuts permanent is, in particular, a big deal. "These improvements lift about 16 million people, including about 8 million children, out of poverty or closer to the poverty line each year," writes Bob Greenstein, president of the left-leaning Center on Budget and Policy Priorities. "With these improvements, the EITC and CTC keep more children out of poverty than any other federal program, which would no longer be true if the improvements expired."

The other category of tax cuts takes the form of delays to some of Obamacare's tax increases. The Affordable Care Act currently includes a tax on insurance companies and a tax on medical device manufacturers. Both of those are being "paused" for a year. The Affordable Care Act's "Cadillac tax" on expensive insurance plans was scheduled to begin in 2018 but under the deal is being delayed for two years.

The actual budgetary cost of these pauses and delays is pretty minor — $32 billion or so — but the fear is these pauses and delays will become permanent. If that happens, the Committee for a Responsible Federal Budget notes, the real cost will be $257 billion over 10 years.

3) Policy riders. A big part of what makes spending deals so controversial in Washington is the effort to use the appropriations process to accomplish controversial policy goals. These non-spending add-ons to spending bills are called "policy riders," and examples include defunding Planned Parenthood, setting up a more stringent process for screening Syrian refugees, or telling the IRS it can't tighten its regulations against 501(c)(4)s that raise anonymous donations. (You can see a conservative wish list of policy riders here.)

In this case, the overwhelming majority of policy riders were stripped out of the final deal — including the super-controversial Planned Parenthood and refugee riders. The most significant rider left is about protecting anonymous political spending, because apparently that's something both parties can agree on.

The big lesson: No one cares about debt, not even Paul Ryan

House Leader Paul Ryan Addresses The Press After Weekly Party Conference
Got 99 problems, but deficits ain't one. Hit me!
Photo by Chip Somodevilla/Getty Images

Here's what this deal tells us about both parties' priorities in 2015:

No one cares about the deficit — or, at the very least, everyone cares about other priorities more than they care about the deficit.

The basic deal here is that Republicans get corporate tax cuts, Democrats get anti-poverty tax cuts, and both sides (more on that in a moment) get some Obamacare tax cuts. What all sides give up is the deficit.

This deal adds $700 billion onto the national tab, and maybe much more than that if the Obamacare taxes end up delayed far into the future, which is definitely what Republicans (and some Democrats) are hoping for.

The deal's advocates argue that this isn't really a deficit increase so much as it's more honest accounting, because Congress extends most of this stuff every year anyway. But that's just another way of saying Congress's concern over the deficit is mostly bullshit.

If you're really concerned about the deficit, you pay for this stuff — the fact that you billed it to the credit card last year and the year before that doesn't make it somehow costless to do so into the future.

What you can say about this agreement is that Congress is being more honest about the fact that it doesn't care about the deficit — at least when it comes to tax cuts and Obamacare — than it has been in recent years. But there's nothing here that's even tries to offset the cost of this package.

"The failure to pay for this legislation is completely at odds with rhetoric about fiscal responsibility and balanced budgets," fumes Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

It's particularly interesting to see this deal emerge as the first major act of the Paul Ryan speakership. Ryan made his name as the leader of the GOP's deficit panic from 2010 to 2012, and now he's begun his speakership by adding $700 billion to the deficit.

In part, this reflects a reality that's very different from 2010: The deficit has fallen sharply in recent years and is now down below 3 percent of GDP. So you can argue that it makes sense that Congress cares less about the deficit than it did in years past.

But that argument gets responsible fiscal policymaking exactly wrong. A strengthening economy is exactly when you don't want to be charging everything to the national credit card; you want to save that fiscal firepower so you have the room to maneuver the next time there's a recession and the economy needs some stimulus.

Which is all to say that these policies may be worth putting on the deficit — I'm definitely a big fan of the anti-poverty tax cuts — but this deal, as a whole, basically betrays everything the two parties have been saying about fiscal policy for the last seven years.

The weird lesson: The politics of Obamacare are changing

What this deal does to Obamacare is interesting. In lifting the medical device tax, the insurer tax, and the Cadillac tax, it eases the biggest pain points of four major Obamacare constituencies — medical device manufacturers, insurers, employers, and unions.

I think this is bad policy, but it is, for Obamacare, good politics — Obamacare just became a better deal for four of the most powerful interest groups in the country.

The question, then, is why did Republicans cut this deal?

There are a few possible answers. One is that they think this will weaken Obamacare by making it less fiscally responsible — but since none of these taxes are being outright repealed, nothing here seriously changes CBO's long-term estimates of Obamacare's effect on the deficit. Similarly, none of these taxes directly fund Obamacare — the program is funded out of general revenues — so it doesn't threaten the law's fiscal footing.

Another possibility is that the politics of tax cuts are trumping the politics of Obamacare. Republicans may care more about cutting taxes than maximizing political pressure on Obamacare.

A third option is Republicans realize Obamacare is here to stay and are moving, without really admitting it, into amelioration. An interesting wrinkle of this bill is that it delays and reforms the Cadillac tax — in this case by making the payments tax-deductible. That is to say, the deal seems to envision that the Cadillac tax will one day go into effect, and as such, it's worth improving it.

A fourth option is there's simply disagreement about the best path to repealing Obamacare. Republicans might see this deal as proving that portions of Obamacare can be repealed, and that this means the whole law can be dismantled and changed. I think that's an odd read of this deal — this just proves that unpopular parts of Obamacare can be repealed if both sides agree to it — but maybe I'll be proven wrong.

Is this the beginning of Paul Ryan's speakership or the end of John Boehner's?

Obama, House And Senate Leaders Hold Ceremony To Commemorate The 150th Anniversary Of Ratification Of Constitution To Abolish Slavery Photo by Mark Wilson/Getty Images

Conservatives aren't particularly pleased with this secretly negotiated, budget-busting compromise with congressional Democrats. This is not the change they voted for. And the backlash is beginning.

"While the bill fails to achieve significant conservative policy victories ... it appears to deliver substantial liberal priorities," writes Heritage Action, which advised Republicans to vote against the deal.

Ryan's camp argues that this deal isn't really Ryan's fault. He just became speaker, and a lot of what's being dealt with in this deal predates his tenure. Sure, he negotiated this deal, and as chair of the Ways and Means Committee, he was heavily involved in the tax negotiations even before he became speaker, but his supporters argue that this deal should be seen as the end of the Boehner era rather than the beginning of the Ryan era. In the Ryan era, the process behind these deals will be more transparent, and the policy in them will be more conservative.

On some level, this is absurd. This is Ryan's deal. These are his compromises. This was his process. Alternative decisions could have been made.

But it also might be smart. One read of this package is that Ryan is taking advantage of his honeymoon period (and the end of the blame-Boehner window) to get a lot of annoying problems — like the constantly expiring tax credits — dealt with in a way that conservatives wouldn't accept from him next year. But with these issues put to bed, it'll be easier for Ryan to run a smoother process, and try to play more offense, in the future.

To Democrats, meanwhile, the deal is reason for optimism: It's evidence that Ryan is someone they can work with — a dealmaker, like Boehner, but perhaps one who can actually sell those deals to his conference.

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