A Pathway to Solvency
This week the House and Senate Budget Committees released their proposed budgets for fiscal year 2016. The chambers will go to conference on the budgets after the Easter recess, and a unified budget should pass Congress by the summer.
This sounds normal. What is extraordinary is that it has failed to occur for so long. Congress has not passed a full budget on-time since 1997. Although the U.S. economy is doing better than most of its competitors, our government is reckless. It spends with abandon. It is addicted to debt. Government spending patterns have an effect on final demand, and investors need to know the government’s budget to make rational decisions.
Both the Senate and House budget resolutions balance the budget by 2025 and achieve a small surplus without tax increases. Debt held by the public would decline from 74 percent of GDP in 2016 to 55 percent of GDP in 2025.
In contrast, President Obama’s fiscal 2016 budget, released in February, showed an $800 billion deficit in 2025, according to the Congressional Budget Office.
If the budget were passed, outlays would decline from 20.3 percent of GDP in 2016 to 18.3 percent in 2025. It is important to note that these are net cuts from projected spending. Under current policy, spending is projected to rise by 5 percent annually over the next decade. Under the proposed budget, it would rise by 3 percent. The budget would continue to grow, but at a lower rate. Only in the weird world of Washington budgeting would a steady increase in government outlays of 3 percent per year be described as a cut.
The largest decline in spending would come from a reduction of $2 trillion over ten years in spending for the Affordable Care Act, which Republicans propose to eliminate. Republicans suggest devolving Medicaid to the states through State Flexibility Funds, ending the perverse incentive for states to continually demand more money from Washington, and saving $900 billion in Medicaid and other health care spending over ten years. The budget would save $1 trillion though cuts to other entitlements (excluding Social Security, Medicare, and Medicaid) over the same period. Republicans plan to reduce discretionary spending (excluding the global war on terror) by $500 billion over ten years.
Is the slowdown in spending realistic? What the budget resolution does is lay down a pathway to policies that would have to be passed in separate bills by Congress and signed by the president into law. It is vital that the American people know that there is a pathway to fiscal solvency, if Congress and the president choose to take it.
Wasteful and duplicative government programs cost taxpayers billions annually, according to the Government Accountability Office. America has 92 anti-poverty programs; 17 food aid programs; and 22 housing assistance programs. The Office of Personnel Management reports that in 2011, the latest year available, the federal government paid $156 million for “official time” for federal civil-service employees in practically all its agencies, up from $139 million in 2010. OPM defines official time as “paid time off from assigned government duties to represent a union or its bargaining-unit employees.” The amount of $139 million will make a negligible dent in the budget, but it is symbolic of a wasteful government expenditure.
Budget resolutions create a parliamentary point of order. Spending bills that are not consistent with the budget resolution would be subject to a point of order. But this budget resolution, if adopted, would make it harder pass a continuing resolution at the end of the year, because the continuing resolution would be counter to the budget resolution.
In the absence of a congressional budget, the federal debt has tripled from less than $6 trillion in 1997 to $18 trillion today. Interest on the debt totaled more than $430 billion in FY2014, higher than the combined budget surpluses achieved in the late nineties. As House Budget Committee Chairman Tom Price said on Tuesday, every dollar used on interest on the debt is money that people cannot use on more worthwhile activities.
Americans deserve representatives who develop responsible budgets for the federal government, carefully consider legislation that affects millions of Americans, and work to reform policies that needlessly inhibit economic prosperity.
The 1997 budget, the last full budget that was passed on time, was achieved through cooperation between a Republican-controlled Congress and a Democratic President. A divided government passed a balanced budget that generated surpluses for several years. There is no reason why history should not repeat itself.
Diana Furchtgott-Roth is the director of the Economics21 program at the Manhattan Institute for Policy Research. You can follow her on Twitter here.
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