In a wonders-never-cease development, the U.S. Senate, just before 5 a.m. Saturday, adopted a federal budget -- its first in four years. It would raise taxes by $975 billion over 10 years, add $100 billion to the public-works purse, make minor and mostly unspecified changes to entitlement programs and withdraw $1 trillion in across-the-board spending cuts. It would leave the U.S. with a $566 billion deficit -- 2.2 percent of gross domestic product -- in 2023.
The contrasts with the House-passed blueprint are sharp. Representative Paul Ryan, the Wisconsin Republican most responsible for the House plan, would balance the budget in 10 years without raising taxes, retain the $1 trillion in domestic spending cuts from sequestration, cut most domestic programs still more, convert Medicare to a voucher-like program and overhaul the tax code.
Don't look for the chambers' respective leaders to convene a conference committee to make the budgets mesh -- they are hopelessly incompatible -- like in the good old days (pre-2008). In other words, none of the policies embedded in these budgets is binding.
Still, the Senate lays down some worthy legislative goals among the dozens of amendments it adopted, out of about 500 offered on the floor. I cherry-picked four worth mentioning (and one worth a Bronx cheer):
- Start with energy policy. An amendment to require President Barack Obama to approve the Keystone XL pipeline, opposed by environmentalists because it would transport tar-sands oil from Canada to the Gulf of Mexico, passed overwhelmingly (62 to 37). With 17 Democrats voting yes, Obama now has little choice but to OK the project, as Bloomberg View has urged.
- On the financial front, the Senate adopted two measures that would complement the reforms in the 2010 Dodd-Frank law. The first would limit Congress's ability to use fees collected by the housing-finance companies, Fannie Mae and Freddie Mac, to offset the cost of spending increases or tax cuts.
In 2011, Fannie and Freddie were tapped to offset the cost of the temporary payroll tax cut. Now that that has ended, lawmakers want to use the fees for other, unrelated purposes, such as covering the cost of increasing the number of green cards for foreign graduates with advanced degrees. Fees collected by Fannie and Freddie should be used to cover the cost of guaranteeing mortgages, not as Congress's piggy bank.
- The senators also made crystal clear that there's no love lost between them and the nation's big banks, five years after the bank bailout. They voted by an overwhelming 99-0 to end subsidies to the largest banks (those with more than $500 billion in assets).
Yet ending big-bank subsidies, which come in the form of a significant funding advantage when they borrow, is easier said than done. Removing the subsidy could require having much higher capital requirements, reinstating the Glass-Steagall law that barred investment and commercial banking under one roof, or breaking up the big banks. Getting any of that through the Senate, let alone the House, would be difficult.
- The Senate budget's tax-reform section calls for nearly $1 trillion in tax increases, mostly by closing loopholes, but it is vague on specifics. Still, it prescribes a special fast-track process to overhaul the tax code -- and the legislation couldn't be filibustered. The Senate should pursue this route and begin moving on tax reform now. It could offer a way out of a debt-limit stalemate in August.
Now for the fiasco. The Senate voted 79-20 to repeal a 2.3 percent sales tax on medical devices, caving in to a sophisticated industry lobbying campaign that relies on falsehoods and exaggerations. The tax, in effect as of Jan. 1, is meant to raise about $30 billion in 10 years to help pay for Obama's health reforms.
The rationale for the tax is that health reform will result in millions of previously uninsured people buying medical devices, getting tests and using hospital equipment, which means fatter profits for the industry. The device industry argues that the tax will push jobs overseas as manufacturers try to get around the levy. The tax, however, covers all devices sold in the U.S., no matter where they are made. Devices sold outside the U.S. aren't taxed. The tax, then, creates exactly zero incentive to move jobs offshore.
The medical-device industry also claims that the tax raises prices and thus crimps sales by as much as $6.7 billion. But as any health-care economist will tell you, the medical market doesn’t behave like most other markets. When prices go up, demand falls by only a fraction.
The extent of opposition to the tax implies that it may actually be repealed later, but luckily that won't happen unless lawmakers can find $30 billion in offsetting tax increases or spending cuts.
(Paula Dwyer is a member of the Bloomberg View editorial board. Follow her on Twitter.)