R.I.P. Budget Hawks



Mark Harkins | November 20, 2017

November 16, 2017, will be a day long remembered in the annals of Congressional history. Not because of the Franken picture or the fact that Sen. Menendez’s trial ended in a hung jury or even that Roy Moore had another revival press conference. No, this day will be remembered as the day the budget hawks died. And when annual budget deficits are $1.5 trillion and the nation’s debt hits $30 trillion with no sign of abatement, scholars will look back on this day as the beginning of the fiscal death spiral.

Why the doom and gloom? Three reasons. First, the House passed a ten-year, $1.5 trillion tax simplification bill that is not paid for – and in fact, changes will need to be made to even keep it at that astronomical level. Second, less than 5 minutes later, the Senate, by voice vote, authorized $700 billion for defense-related programs. And third, it was reported by CQ (paywall) that “[C]ongressional leaders and the White House” were working toward a deal to eliminate the sequester for two years, adding as much as $182 billion to the debt.

The deficit for the just-finished 2017 fiscal year was $666 billion, the sixth highest in our nation’s history. The top five were consecutive starting with fiscal year 2009 and ending with 2013 and were all attributable to the Great Recession and programs enacted to grow the economy out of that problem.  In addition, the Affordable Care Act (ACA) added to the annual deficits.  But the ACA legislation had other elements that either brought in additional revenue or cut other programs; as enacted, it was expected to lower, not raise, the deficit. The streak of historic red ink was stopped in part by the Budget Control Act (BCA) and the $90 billion a year for 10 years that it required in cuts from the annual discretionary appropriations.

All of that is on a path to being reversed. The Senate’s action on the House-passed National Defense Authorization Act (NDAA) is the first blow to the deficit. As reported, the NDAA would blow through the $549 billion BCA cap with a base budget of $626 billion.  As if that weren’t enough on the credit card, the bill, as with the past 10 NDAAs, adds Overseas Contingency Operations (OCO) funding, this time at $68 billion.  This is funding that skirts the caps but still must be paid for and therefore adds to the annual deficit and the overall debt.

The good news is it’s unlikely all of these programs will be fully funded, as the budget relief being discussed would only raise the cap to $603 billion — $23 billion below the authorization for the base defense budget. But appropriators can be sneaky and there really isn’t anything stopping them from putting that $23 billion into the OCO bucket which adds it back to the debt.  Since FY17 had $77 billion in OCO spending it could be argued that only $68 billion will be added to the deficit by this bill, but that still is a 10% increase to the FY17 deficit!

Step two to this fiscal disaster involves non-defense spending. Republicans need 60 votes in the Senate to enact any appropriations legislation. The Democrats’ price for additional defense spending is a loosening of the caps for non-defense programs like parks, medical research, housing vouchers, agriculture programs, homeland security… you get the picture; it’s a lot of stuff.  That increase, at a minimum, looks to be $37 billion. This number is not pulled from thin air: it is the amount the BCA required be sequestered in fiscal year 2018.  While not as big as the defense number, this would still add 5.5% to the deficit.

Now for the big hit: the tax bill. Republicans succeeded in getting the “Tax Cuts and Jobs Act” through the House with 227 Republicans voting in favor, comfortably above the 218 needed for passage.  Regardless of the merits of the legislation, the budgetary effects are clear and devastating.  The Joint Committee on Taxation, Congress’s scorekeeper when it comes to tax legislation, predicts that the net revenue effects of ALL provisions in the bill will be a decrease of $114 billion in fiscal year 2018. (It is worth noting that that number jumps to $219 billion in year two). This would increase the deficit by another 17%. And unlike the ACA, this bill is not projected to be paid for.

If you cut through the numbers, the bottom line is this: Congress is on course to take the sixth-highest deficit in our nation’s history and increase it by nearly one-third in one year! Granted, it may not be as bad as it seems.  As a percentage of our Gross Domestic Product (GDP) the increase would put 2018 as about the 17th worst in the last 85 years in terms of deficit to size of the annual economy. However, half the years that are higher are either WWII era or the Great Recession (2009-2012).

The biggest concern is that Congress is about to balloon the deficit and the debt at a time of relative economic calm. What happens when the economy inevitably takes a turn for the worse? Even a small downturn would have huge effects because of the hole we are already digging. And I haven’t even included the nearly $100 billion additional disaster assistance going to Texas, Florida, Puerto Rico and the Virgin Islands (another 15% increase to the deficit).  All of that may come due in 2018 as well. Those disasters alone could drive the fiscal year 2018 deficit (as a percentage of GDP) to record-breaking non-WWII levels.

Where have the budget hawks gone? Where are the members of Congress who rail against raising the debt limit? These changes will require raising that limit fast and far. If there has ever been a time to consider fiscal discipline, this would seem to be it, with a growing, stable economy, and limited costly entanglements overseas.  Yet here we are, spending and giving back, as if holiday presents have no price.


Mark Harkins is a Senior Fellow at the Government Affairs Institute

All Posts | @mbh1165

 


Categories: 115th Congress, Budget and Appropriations, Federal Budget and Appropriations, Revise & Extend, Updates