September 19, 2014

Washington Budget Report: April 22, 2014

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Budget Process: All Dressed Up, Nowhere to Go

The differences between the 10-year budget plans by President Obama and the House of Representatives would be difficult to resolve under the best of circumstances.

Without a Senate plan, however, there is no prospect of a concurrent congressional budget resolution -- and thus little chance that Washington will focus on anything beyond next year, Concord Coalition Executive Director Robert L. Bixby says in a new blog post.

Some lawmakers say a December agreement on a cap on appropriations (“discretionary” spending) eliminates the need for a budget resolution this year. But in that case, why have a budget process at all – or even a budget committee?

There is more to the budget than annual appropriations, which Bixby notes are just a minor factor in our long-term fiscal problems.

Appropriations are already projected to shrink from 7.2 percent of GDP in 2013 to 5.1 percent by 2024 -- the lowest level since the early post-WWII years. Mandatory spending other than Social Security and the major health care programs is also projected to drop.

But Social Security, health care programs and interest on the debt are projected to grow by a cumulative 3.9 percent of GDP, cancelling out the other savings. The key factors: population aging and growth in per capita health care costs.

“A budget deal that merely agrees on 2015 appropriations leaves no plan for dealing with the structural forces driving up future deficits and debt,” Bixby says. “It leaves no sustainable vision for the future of mandatory spending and revenues.”

CBO Sees $6.6 Trillion in Deficits Under Obama Plan

The Congressional Budget Office (CBO) recently projected that federal deficits under President Obama’s budget plan would total $6.6 trillion in the coming decade, a trillion dollars less than under current law.

Under the President’s policies, CBO said, deficits this year and next would be about $500 billion and then generally increase to as high as $800 billion by 2024.

These deficits would represent about 3 percent of GDP throughout the decade. Nor would there be much change in the debt relative to GDP; in other words, for another decade not much would be done to put the debt on a downward path.

In addition, interest costs would continue to rise steeply, reaching $838 billion by 2024 -- not much below CBO’s current-law projection of $876 billion.

Projected deficits under Obama’s plan would exceed those under current law through 2016. For the rest of the 10-year period, they would be smaller than under current law.

CBO said Obama’s proposed policy changes would increase revenues by about 3 percent over the coming decade relative to current law. They would boost spending by about 1 percent.

CBO said its estimates of budget deficits under the President’s plan were lower than the administration’s own estimates for this year and next, but higher between 2016 and 2024.

Many Reasons for Concern Over Rising Debt

Although the federal deficit has dropped significantly since the four-year string of trillion-dollar-plus shortfalls that began in 2009, under current law the deficits will start rising again soon.

Sara Imhof, Midwest field director for The Concord Coalition, and Loren Adler, research director for Fix the Debt, recently outlined some of the reasons why Americans should be concerned about that. A high and rising debt can increase the risk of another financial crisis, raise interest costs for taxpayers, push up investment costs for businesses, and reduce productivity and wages.

“High federal debt could also restrict the nation’s flexibility to respond to unforeseen crises in the future,” Imhof and Adler wrote in a guest column Monday in the Loveland Reporter-Herald (Colorado). “Finally, there is a simple moral issue: We should not burden our children and grandchildren with debts for government services and benefits that we refuse to pay for ourselves.”

On Wednesday Concord, Fix the Debt and U.S. Rep. Jared Polis will present “Principles and Priorities,” a federal budget exercise, in Loveland. Participants will work together to develop plans to significantly reduce projected federal deficits over the next decade.