When Sen. Judd Gregg (R-N.H.) predicted in 2003 that the Medicare prescription drug benefit would become the "largest intergenerational tax increase in the history of this country" and that it would "cause our children’s children to have a lower quality of life than we have had," he wasn’t just delivering another soon-to-be-forgotten Senate floor speech. He was laying the groundwork for a powerful new tool that allows Senate budget hawks to beat back legislative schemes that promise to pile long-term debt on future generations.
Now chairman of the Senate Budget Committee, Gregg quietly inserted section 407 into last year’s budget resolution. This obscure provision requires the Congressional Budget Office to estimate the long-term costs of legislation before the Senate, breaking it into four 10-year periods beginning in 2015 and extending through 2055. Whenever the number crunchers at CBO conclude that a bill "would cause a net increase in direct spending in excess of $5 billion" in any one of these periods, a senator is entitled to invoke a "point of order" against the measure, preventing it from being considered. The point of order can be waived, but only if at least 60 senators vote to do so.
How significant is section 407?
Had it been in effect in 2003, CBO’s estimate of the long-term costs of the Medicare drug entitlement would have been published on the eve of the Senate floor debate. The multi-trillion-dollar price tag probably would have been enough to torpedo the entire troubled bill. Indeed, 44 senators voted against the new entitlement on final passage, more than the 40 votes needed to sink it under Section 407.
The first senator to use this tool was Nevada Republican and veterinarian John Ensign, who invoked it to fix another troubled bill, the Fairness in Asbestos Injury Resolution ("FAIR") Act. FAIR would remove asbestos claims from our dysfunctional tort system and compensate asbestos claimants through a trust fund administered by the federal government.
Conservatives have long sought a reasonable way out of the asbestos litigation nightmare. As my colleague James Gattuso notes, although asbestos liti¬gation has cost some $70 billion and erased 60,000 jobs since the 1960s, little has gone to the truly injured. Trial lawyer fees account for almost 60 percent of resources expended, and much of the rest has gone to claimants without real impairments.
Unfortunately, Ensign and others concluded, FAIR presented its own set of problems. For one thing, it would generate so many claims (permitting, critics contend, some individuals whose illnesses aren’t even connected to asbestos exposure to qualify for payments) the fund would go bankrupt within three years. A report from the General Accountability Office examining four similar victim compensation funds reinforced their fears. Over time, the report found, all four trust funds added new categories of eligible "victims," covered more medical conditions, and offered more benefits. The estimated total cost of the black lung trust fund, for example, skyrocketed from $3 billion in the 1960s to $41 billion today.
One respected economic consulting firm calculated that, upon the fund’s exhaustion, future taxpayers would have to shoulder between $300 billion and $695 billion in excess. Finally, CBO confirmed that "there is a significant likelihood that the fund’s revenues would fall short of the amount needed to pay valid claims, debt service, and administrative costs."
Ensign decided to invoke section 407. Thanks to a bizarre coalition of liberal Democrats looking to protect the status quo for the trial bar and a few mostly Republican fiscal hawks (North Dakota’s Kent Conrad stands out as a Democrat motivated by sincere fiscal concerns), he prevailed with no votes to spare.
Ensign’s victory establishes two important precedents.
First, in requiring the CBO to publish the long-term costs of proposed government expansions before the vote, Senators can’t later say they were shocked (shocked!) by the true cost of their legislative tomfoolery.
Second, in backing Ensign, the Senate also rejected the insidious argument of the bill’s lead sponsor, Judiciary Committee Chairman Arlen Specter (R-Penn.), that FAIR should be exempt from budget rules because no federal money was involved. "The federal government," he asserted, "only acts as a conduit for the private funding of an asbestos trust fund" and therefore neither creates a federal program nor a new federal entity. Had the Senate accepted Specter’s logic, taxpayers could be held responsible for trillions in liability not only from FAIR, but from other proposals that surreptitiously seek to evade fiscal accountability.
Kudos to Sens. Gregg and Ensign for a good day’s work.