This week on Facing the Future, we got a Congressional update from David Lerman, editor of CQ Budget Tracker. Congress is officially out of town on its August recess, at a time when the risk of a partial federal government shutdown grows by the day because Congressional leaders and President Biden are nowhere near agreement on spending levels for the next fiscal year. The current fiscal year ends on September 30th, and if no agreement is reached by then, we would go into a partial shutdown. These shutdowns are costly – not only for the millions of federal workers who will be furloughed without paychecks – but also for the economy just as policy makers have been making great efforts to avoid an economic recession. Concord Coalition policy director Tori Gorman and chief economist Steve Robinson joined me for the conversation.
The overall discretionary spending levels for the next fiscal year that begins on October 1st were supposed to have been largely set by the bipartisan agreement to suspend the debt limit until January of 2025. President Biden and House Speaker Kevin McCarthy agreed to cut overall discretionary budget authority by $110 billion in Fiscal year 2024 and by $136 billion in 2025 relative to CBO’s baseline. However, as David Lerman reports, Republicans in the House have backed away from what Democrats thought was an agreement to spend up to those limits raising the risk of a government shutdown because a top line number on overall spending levels is still elusive.
“It’s not that you’re required by law to spend every penny up to that cap, but it certainly wasn’t the understanding that Democrats had going into the debt limit deal,” said Lerman. “Typically, when they set those caps, it’s generally understood that those are going to be the overall limits that they’re going to use. Because otherwise, I don’t think they would have gotten the deal. So that’s why after the Freedom Caucus had that blowback, House Democrats said they felt hoodwinked. They said ‘look you guys agreed to this.’ They expected to meet these spending levels, and that’s how we could get moving. ‘And now you’re going back on your word, and saying you’re going to spend a lot less?’ That didn’t fly with them at all and they were angry. It really upset the apple cart. That’s why these bills will have zero support from House Democrats, which is why McCarthy needs every last Republican vote he can get in order to push them through the House floor, and he doesn’t have the votes.”
Lerman says while there are officially two parties in Congress, in this particularly contentious time there are bitter ideological feuds over discretionary spending levels between three main factions in Congress: Democrats, Republican ‘Appropriators and the Republican Freedom Caucus. But in the big picture, differences in discretionary spending levels are actually small potatoes compared to what is really driving spikes in federal spending levels.
“If you’ve talked to the Congressional Budget Office [CBO], discretionary spending just isn’t the reason that we’re facing these huge deficits in the future; it’s basically flat or rising with inflation and almost beside the point,” said Lerman. “I mean, it’s entitlement spending that’s the reason for these huge deficits. The CBO was projecting nearly $20 trillion in deficits for the next decade. Why? We’ve got an aging society and rising healthcare costs. And those demographics mean that you have soaring costs in Social Security, Medicare, and Medicaid. That’s where all the big money is. I think the reason you see the House conservatives laser focused on these discretionary spending battles is just because that’s the easier battle to wage, because it’s the money they directly control through annual appropriations. So if they want to make a mark as a fiscal conservative, they want everyone to see them clamp down on discretionary spending so it looks like they’re going to reign in overall spending and be tough, but it’s only about a third of the federal budget anyway. Unless you tackle the big entitlement programs, you’re really not making much of a dent in these structural deficits that we’re facing in the next few decades.”
So with that as the backdrop, the clock is ticking towards midnight on September 30th, when the current fiscal year ends. Lerman predicts some rough waters for appropriations once members of Congress come back from their August recess.
“The focus is going to pivot to passing some kind of stopgap measure that just extends current funding levels for probably a few months it’s what they normally do, if they can pass that, but even that in this environment is a pretty heavy lift,” said Lerman. “You may see an effort to pass a stopgap with a 1% across the board cut, but then Democrats are going to object to that, so you could see this getting pretty hairy. Plus, once you put a stopgap funding measure on the floor, all kinds of things can get attached to it because it’s a must-pass vehicle. There is a push building to do a supplemental emergency spending bill. The disaster relief fund is actually running out of cash this month. You’ve got hurricanes, you’ve got the Florida lawmakers already worried about hurricane relief and that there’s not going to be enough money in this fund to provide that federal aid. And who knows when the White House is going to prepare a new request for Ukraine aid, or border security? There will be pent up demand at least in the Senate for emergency spending, and then do they attach that to the stopgap funding measure, and then the House objects to that? I mean, this could be chaos. Which is why a lot of people are fearing the government just shuts down for a little bit.”
We at the Concord Coalition certainly hope cooler heads prevail and that lawmakers find a way to fund the federal government, avoid a shutdown, and have the courage to do what a few members are suggesting: take a hard look at the demographic changes and healthcare costs that are driving Social Security and Medicare spending dramatically higher, pushing our national debt to record levels.
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.