July 23, 2014

Washington Budget Report: December 24, 2013

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Thanks to all our readers for your interest in America's fiscal challenges and your support this year for The Concord Coalition. Happy Holidays!

A Holiday Rush on Overdue Federal Budget

Hoping to meet a Jan. 15 deadline for congressional action, lawmakers responsible for appropriations and their staffs are rushing to put together detailed spending plans for the 3-month-old fiscal year.

Agreement on a compromise budget plan, which President Obama signed Thursday, enabled the appropriations process to finally move forward after months of partisan gridlock and a costly government shutdown.

Unfortunately, the budget plan does little to meet the fundamental long-term fiscal challenges facing the country. Once again, that work – which should include serious reforms in the tax code and big federal entitlement programs -- has been left for another day.

Meanwhile, uncertainty continues over the federal debt limit, which Congress must raise soon. The limit is suspended through Feb. 7, and Treasury Secretary Jack Lew recently warned lawmakers that “extraordinary measures” to avoid a default could only last through late February or early March.

Republicans want political concessions in return for supporting a debt limit increase. But President Obama reiterated at a Friday press conference that he would not negotiate with lawmakers over raising the limit, saying “It’s part of doing their job.”

The Concord Coalition urges elected officials to approve a reasonable increase and then pursue reforms to make the debt limit a more effective check on fiscal recklessness.

CBO Report Shows Need for Social Security Reform

Opponents of Social Security reform argue that Social Security has nothing to do with the federal deficit, and that any problems the system may have are decades away.

Since 2010, however, Social Security has actually been running cash deficits. A new Congressional Budget Office (CBO) report notes:

“In 2012, outlays exceeded noninterest income by about 7 percent, and CBO projects that the gap will average about 12 percent of tax revenues over the next decade.”

The government must find the money somewhere to cover these growing shortfalls, and other parts of the budget are already being squeezed. The Social Security trust funds are of no real help on this; they are simply an internal bookkeeping mechanism for the government.

Even if the trust funds represented extra ready cash, the Social Security trustees have warned that the Disability Insurance trust fund could be exhausted in 2016.

Lawmakers may be tempted to deal with this problem by shifting money over from the rest of Social Security. But that wouldn’t really solve the Disability Insurance problem, and would make things worse for the retirement and survivor benefit portions of Social Security.

Elected officials should reach for more comprehensive reforms that would make the entire Social Security program more sustainable.

 

A Declining Path for Federal Investment

Federal investment totaled $531 billion in 2012, amounting to 15 percent of all federal spending and 3 percent of the gross domestic product, according to a new report by the Congressional Budget Office (CBO).

While such spending has kept up with inflation, it is projected under current law to decline sharply as a share of the economy over the next decade. Given historical levels, the projected declines are likely to prove unrealistic.

Roughly half of federal investments last year went to physical capital such as highways or ships. About $139 billion was spent on research and development, while $128 billion went to education and training.

Federal investment last year fell back to historical norms after 2011 and 2010, when efforts to boost the economy pushed investment spending to 4 percent of GDP.

By 2023 defense investment is projected to be less than half of its average share of GDP from 1962 to 2012. Non-defense investment will be less than two-thirds of its average for that period.

Most investments in 2012 for non-defense, which totaled $318 billion, and defense, which totaled $213 billion, came through discretionary spending that Congress approves on an annual basis. Lawmakers have generally focused deficit-reduction efforts on discretionary spending while ignoring the rest of the budget picture.