Boys State Tackles the Federal Deficit, and Is a Government Shutdown Looming?

Special Guests: Tori Gorman, Steve Robinson. Kyle Duffy, Phil Smith

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This week on Facing the Future, we hear from a group  of high school boys at New Hampshire Boys State who grapple with what fiscal decisions they would make to tackle the federal deficit over the next decade.  NH Boys State is a gathering at Saint Anselm College which gives select high schoolers a real world look at the  various roles of state government. The boys took part in The Concord Coalition’s Principles and Priorities federal budget exercise, led by national field director Phil Smith.  

Before we get there, however, we had a lively discussion of another looming federal fiscal crisis at the end of the fiscal year on September 30th. Congress and President Biden are nowhere near close to agreeing on federal spending numbers for FY 2024, and if there is no agreement in place in the next 9 weeks, it would trigger another partial government shutdown. This is an outcome that Congressional appropriators on both sides of the aisle dread, but may indeed be where we’re headed with a presidential election around the corner and House Republicans wanting to flex their political muscles. Concord policy director Tori Gorman provided some analysis of efforts in Congress to address federal spending for the next year, and chief economist Steve Robinson helped us interpret some of the latest economic numbers. 

When President Biden and House Speaker Kevin McCarthy enacted their agreement to suspend the federal debt limit until 2025, that deal included spending caps on appropriations for the next two years. This was supposed to make it easier to pass appropriation bills on time but as Tori Gorman explains, that hasn’t happened.   

“The problem is that in the House, conservative Republicans in the House Freedom Caucus threw a tantrum over those levels,” said Gorman. “They wanted to cut spending back to fiscal year 2022 levels. And then on the Senate side, the Senate wasn’t even involved in the debt limit negotiations. When they saw the spending levels coming out, they thought ‘oh there’s a lot more that we want to spend’ – especially on defense and a couple of other areas. So they started plotting to use the emergency designation to spend more than what the agreement allowed for. So now, you’ve got both chambers that are marking up two completely different levels of appropriations for FY 2024. Just on the top line, regular base appropriations, the House and Senate are about $119 billion apart from each other. That’s about an 8% gap. That’s big.”

Odds are certainly not great for a Congressional resolution of these competing spending proposals for the next fiscal year by September 30th, especially given the amount of recess time built into the Congressional calendar this time of year. Still, some sort of a deal may yet be possible, which could take the form of another temporary continuing resolution to give appropriators on both sides time to hammer out a longer term deal. 

Meanwhile, economic data seem to be sending conflicting signals about where we are headed. The latest Consumer Price Index figures saw year-to-year inflation decline to 3% while the job market remains very strong, with the latest unemployment rate at 3.6%. Concord’s chief economist Steve Robinson says fears of a recession are not as strong now as they were, but conditions are still uneven.

“Inflation is now at 3%, but the Fed’s target is 2%,” said Robinson. “Most economists assume that the Fed will raise interest rates one more time this year, then they will begin cutting the federal funds rate next year. But that produces what’s called an inverted yield curve, meaning the short term interest rates are actually higher than the long term rates like the 10 year Treasury bond rate. Normally, with an inverted yield curve, like we’ve had since October of 2022, you end up with a recession. It can often take a year or so before that manifests. But these same economists are predicting that we’re going to have an inverted yield curve for three years, but none of them are predicting a recession. They are predicting inflation will continue to come down at the same time the Federal Reserve is lowering the interest rate. Now, I guess all of that could happen, but it would certainly be unprecedented. Normally, to push an inverted yield curve away, unemployment goes up and you have a recession, and that brings down inflation.  Economists are optimistically predicting that we will avoid this historical occurrence of events. That there will be falling inflation, no rising unemployment, and no recession. That perhaps this time really is different.”

We will certainly be watching to see if we preserve the economic recovery and job growth since the pandemic and escape the post COVID high inflationary period without slipping into a recession. These possibilities served as the backdrop for the Principles and Priorities federal budget exercise recently taken on by a group of high school boys attending NH Boys State at Saint Anselm. The exercise was run by Concord’s national field director Phil Smith. The boys acted as members of Congress who were divided into seven groups, each getting a book of options that could either reduce or increase the federal budget deficit over the next decade. Options ranged from raising new taxes and fees, to expanding access to childcare, to cutting defense spending and programs such as Social Security and Medicare, and many other choices.

“We decided to reduce the Department of Defense’s budget by 5% relative to 2024 levels,” said one participant. “We believe that defense is critical, but there is a lot of wasteful spending within defense. So a 5% reduction would force the Defense Department to decide what was truly important for defense, increase efficiency in spending, and decide what are actual priorities for national security as opposed to frivolous spending.”

That option was predicted to save taxpayers more than $300 billion over the next decade. Concord Coalition digital media intern Kyle Duffy, who served as a staff member for Boys State, also served as a check on the groups, challenging them to support their decisions by  representing constituents who might be upset with their members of Congress over some of their budgetary choices.

“There are so many tough decisions to make, and we are making sure they know that these are tough decisions that impact the lives of their constituents, and not just numbers on paper,” said Duffy. “They put up a lot of good debate as we challenge their assumptions, in a way that makes them feel like they need to question their beliefs a little bit. That’s the point of the exercise, to make them consider how many different stakeholders are impacted by these decisions. Every time we make them question their beliefs, I think we make progress on helping them understand why these issues are so complex. It may seem easy, but it really isn’t. We appreciate them taking it so seriously. I think it does give us some hope for the future that politicians may eventually take some of these things seriously and take a hard look at these programs, while also taking a hard look at the effect on people’s lives.” 

Hear more on Facing the Future. I host the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.

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