August 1, 2014

Budget Process Remains Stuck on Short-Term Focus

All dressed up and nowhere to go.

That’s the sad situation with the federal budget process.

We now have 10-year budget proposals from President Obama and the House of Representatives. They are quite different and would be very difficult to bring together in the best of circumstances. That doesn’t really matter, however, because there is nothing in the process to force a negotiation.

The President’s budget is merely advisory, although it has value in providing the administration’s vision of fiscal policy over the next 10 years.

The House budget is only one essential element in producing a concurrent congressional budget resolution. The other essential element is a budget from the Senate. And that is where the process ends this year because the Senate has decided not to write its own budget.

Some may consider this a politically smart move on the part of Senate Democrats because it allows them to take shots at the House Republicans’ budget, distance themselves from unpopular aspects of the President’s budget and avoid taking a stand on anything that might prove inconvenient in this fall’s elections.

Others may say that having a budget resolution doesn’t matter because the House and Senate both plan to abide by the trillion-dollar cap on appropriations (i.e., “discretionary spending”) that was part of the  budget deal that House and Senate budget chairs Paul Ryan (R-Wisc.) and Patty Murray (D-Wash.) negotiated in December.

All that may be true but it begs the question: Why have a budget process at all, or for that matter a budget committee?

There is more to the budget than appropriations. In fact, appropriations are a minor factor in the long-term fiscal problems.

The real fiscal challenge is the growing cost of health care and retirement programs, which are deemed “mandatory” spending because they run on autopilot and are not controlled by the annual appropriations process. For these programs, the key factors are population aging, which adds to the number of beneficiaries, and the rate at which health care spending per beneficiary is projected to grow.

It is instructive in that regard to compare the composition of federal spending in 2013 with 2024 under projections released earlier this month by the Congressional Budget office (CBO).

Over those years, the CBO projects, total spending will rise from 20.8 percent of the economy (GDP) to 22.1 percent. However, the growth will be far from uniform across all government programs.

Appropriations are projected to shrink from 7.2 percent of the economy (GDP) in 2013 to 5.1 percent by 2024 if the spending caps enacted in the Budget Control Act of 2011 remain in place. This would be the lowest level of such spending relative to the economy in the post-WWII years. And even this may be an overestimate because it assumes that overseas military spending, primarily in Afghanistan, will stay the same, adjusted for inflation.

Mandatory spending other than Social Security and the major health care programs is also projected to shrink, from 2.7 percent of GDP to 2.2 percent. Between these declining categories, the total drop in spending totals a very substantial 2.6 percent of GDP.

The reason that total federal spending goes up in the coming decade, however, is that Social Security, health care programs and interest on the debt all grow faster than the economy, by a cumulative 3.9 percent of GDP. That cancels out the savings in other areas.

Revenues are expected to grow over this time as well but not by enough to keep the deficit from beginning to rise again in 2016. 

A budget deal that merely agrees on 2015 appropriations leaves no plan for dealing with the structural forces driving up future deficits and debt. It leaves no sustainable vision for the future of mandatory spending and revenues. And that, it appears, is where things will stand at least through the 2014 elections.

Let’s hope that one result of the elections will be a mandate to set aside partisan gridlock and get about the vital task of negotiating a fiscal sustainability plan.