No Champagne, Please -- the Fiscal New Year's Sobering Outlook

Blog Post
Monday, October 01, 2018

Today, Oct. 1, marks the beginning of the federal government’s 2019 fiscal year. Fortunately, there will be no government shutdown because Congress has passed and the president has signed five of the 12 annual appropriation bills for Fiscal 2019, along with a continuing resolution that will keep funding going for the rest of the government until Dec. 7. 

That’s a big improvement over recent years when the one fiscal year ended without any funding being approved for the following year. It does not, however, signal that policymakers are beginning to get a grip on federal budget deficits and the rising debt.

At this time of year a great deal of attention is paid to the 12 annual appropriation bills that must pass before the end of the fiscal year on Sept. 30. This focus is understandable because if funding is not approved on time the government will shut down until the bills are passed. That’s an attention-getter, but as a matter of fiscal planning the attention is misplaced. 

What’s more important is the spending growth that never faces the scrutiny and controls of the  appropriation process. These are the “mandatory spending” programs and it is their growth, not the annual appropriation bills, that has the most impact on the federal budget, particularly over the long term.

Mandatory spending includes some the government’s largest programs such as Social Security, Medicare and Medicaid. It accounts for 61 percent of the budget. Interest payments on the debt account for 8 percent. The remaining 31 percent, which is called “discretionary spending,” comes from the annual appropriation bills.

The projected path of these categories reveals even more about the folly of fighting tooth-and-nail over appropriation bills while ignoring the growth of mandatory spending and interest on the rising debt. According to the Congressional Budget Office (CBO), within 10 years mandatory spending will grow to 64 percent of the budget and interest costs will grow to 13 percent while discretionary spending shrinks to 23 percent. 

Take this year as an example. With the upward adjustment in the budget caps for discretionary spending that Congress used to grease the skids for on-time passage of several appropriation bills, CBO projects that discretionary outlays will grow by $82 billion. Some think that’s too much. Others say it’s not enough. Lost in the debate, however, is that without a word being spoken or a vote being taken mandatory spending will increase by $173 billion and interest costs by $74 billion.

In other words, 75 percent of the total projected spending increase in the new fiscal year will take place on autopilot. It is a stealth spending spree and the longer it goes on without the attention of the president and Congress, the worse it will become.

Compounding the problem, of course, is the insistence of some that tax cuts play no role in the deepening fiscal hole. Following on last year’s tax cut that CBO estimates will increase deficits by about $1.9 trillion over the coming 10 years, House Republican leaders are pushing additional 10-year tax cuts of $631 billion.

Cutting taxes and ignoring the stealth spending spree make no fiscal sense. This would grow the debt more than it would grow the economy, and send the bill to future generations.

The new fiscal year in Washington begins without the threat of an immediate shutdown but with a projected deficit of $981 billion and a total debt of more than $21 trillion.   The question lawmakers should be debating is not whether funding can be passed to keep the government open at the end of each fiscal year, but how the budget can be placed on a sustainable track for the future. It’s the difference between chronic crisis management and strategic thinking.