March Madness: The Federal Budget
Welcome to March madness. Not the NCAA basketball championship games but the annual Washington budget battles.
By G. William Hoagland, Senior Vice President
President Trump recently unveiled a portion of his proposed fiscal blueprint for the remainder of the government’s current year and the new budget year that begins October 1. Currently the government is only funded through April 28 when another showdown over funding for the remaining five months of this fiscal year will become front and center.
So what does the president’s preliminary budget propose? He is seeking to reduce federal spending on non-defense discretionary programs by $54 billion — or about 10 percent of the $519 billion total in that category that is subject to spending caps — and use the savings to increase the defense discretionary budget by a comparable amount.
The president also wants to increase spending on infrastructure, build a wall on the southern border, expand crime fighting, and improve inner cities. Simple math would suggest that to do all that he proposes would mean the elimination of either existing programs or entire agencies or reductions to the existing federal discretionary programs that are much greater than the advertised 10 percent.
As an example, to achieve such savings, the Environmental Protection Agency’s funding would be reduced by 20 percent, the State Department’s budget would be reduced nearly 40 percent. Candidates for complete elimination would likely include: Legal Services Corporation, Export-Import Bank, Land and Water Conservation Fund, Head Start, Job Corps, National Endowment for the Arts, AMTRAK, U.S. Trade and Development Agency, Trade Adjustment Assistance, Essential Air Services, Corporation for Public Broadcasting, and many others.
To avert the 10 percent reduction, the area that should be considered for more spending controls is entitlement programs, but the president has taken the major ones off the table. So it seems that this budget will be dead on arrival even with a Republican Congress. It should be noted that other presidents have also had their initial budget proposals find a similar graveyard in Congress.
It seems that this budget will be dead on arrival even with a Republican Congress.
Here are some basic budget facts. The federal government spends about $4 trillion annually, representing a fifth (20.7 percent) of our total national economy. Left on automatic pilot and changing no current laws, it is estimated that by the end of President Trump’s first term, federal spending will increase nearly $1 trillion.
Currently, revenues to support this level of spending fall short by over $500 billion. Added to previous deficits accumulated since the beginning of the Republic, the total cumulative debt level now is nearly $20 trillion. That’s the other issue that the president and Congress will need to address when the Ides of March roll around in a few weeks and the suspended debt limit expires. Certain “extraordinary measures” could stretch the government’s ability to pay its bills; however, the Bipartisan Policy Center projects these could run out as early as October at which point the nation would default on its obligations.
Revenues to support the current levels of spending fall short by over $500 billion. Added to previous deficits accumulated since the beginning of the Republic, the total cumulative debt level now is nearly $20 trillion.
But back to the current budget. Within the $4 trillion spent annually, roughly one-quarter or slightly over $1 trillion is spent on those functions of the federal budget that are annually appropriated, and because they are funded based on the discretion of the lawmakers are referred to as “discretionary” spending.
The remainder, or nearly three-quarters of all federal spending, is for all practical purposes on automatic pilot and has the unfortunate label of “entitlement” spending. These are the biggies — Social Security, Medicare, Medicaid, federal disability payments, pensions for military personnel and retired federal workers, school lunch and food stamps, unemployment insurance, farm support programs, and the list goes on. But these programs were not ones that the president’s initial “skinny” budget addressed.
The president’s focus was on less than 15 percent of the overall budget — the “non-defense” discretionary programs. Funding for these programs represent in many ways what most Americans think of when they think of the federal government. It includes the alphabet soup of government agencies: SBA, NOAA, IRS, EPA, FBI, FEMA, FDA, NIH, NASA, TSA, and AMTRAK. But it also includes funding for veterans’ health programs, highways, airports, housing assistance, EX-IM bank, Pell Grants, elementary and secondary education programs, nutrition programs for women, infants and children (WIC), the park service, and the national labs. Falling into this broad category of federal spending is funding for embassies, consulates, and humanitarian aid to foreign governments, and also the White House and Congress.
There is no question that efficiencies in government spending can be achieved through consolidating or eliminating domestic spending programs that have failed to prove their effectiveness or meet their stated public goals. But in the aggregate, spending for domestic discretionary programs, many of which are the seed corn of the future, has been reduced over the last decade.
Further statutory caps placed on both defense and nondefense spending by the Budget Control Act of 2011 has restrained growth in these programs. If the caps are adhered to, spending for nondefense programs, as a share of the economy, will decline to the lowest level since 1962.
The president proposes and the Congress disposes. While there would appear to be bipartisan support to increase spending for national security and defense programs, it is not certain that even a Republican-controlled Congress will be willing to fund defense programs at the expense of further reductions in nondefense programs to the degree the president has proposed. In the past, adjustments to the caps have occurred with an agreement to increase both defense and nondefense by an equal dollar amount.
It is not certain that even a Republican-controlled Congress will be willing to fund defense programs at the expense of further reductions in nondefense programs to the degree the president has proposed.
Complicating the proposal is the simple fact that following the rule book, to increase either the defense cap or the nondefense cap as the president has proposed will require a change in the law that set the caps. In the Senate such a change in law would require 60 votes. With only 52 Republican senators it is highly unlikely that an increase in the defense caps can occur without also an increase in the nondefense caps.
The result of this challenge might very well be that the new domestic initiatives for spending that the president proposes will be achieved, but the savings he proposes will not. That would mean overall the federal deficit will increase.
Welcome to March Madness!
G. William Hoagland is a BPC senior vice president.
Follow the latest work from BPC’s economic policy program.
