Let's make the budget process work

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Last week's entry reported on the budget bill that was signed into law by the president at around 9:00 a.m. on Friday, February 9. Although a government shutdown had technically begun after midnight on February 8, it didn't last long enough to have significant effects.

The Bipartisan Budget Act (BPBA) was surely imperfect, as Sens. Mitch McConnell and Chuck Schumer noted in their respective statements about the deal that had been negotiated, and neither side got everything they wanted. But we would go further, arguing that the BPBA authorized an across-the-board spending blowout and enacted a slew of special interest provisions that should have been considered separately instead of being included in a "must pass" bill with a very tight deadline.

Having a joint select committee review the government's budget process may sound like a nice idea, but we're skeptical that any constructive changes will result. More shutdown drama, mediocre results,

Developments last week (sections I-IV below) didn't improve the fiscal outlook; if anything, the situation now seems bleaker than before. Ever hopeful, however, this entry will offer our suggestions (section V) for the budget process review that is planned.

I. President's budget proposal for FY 2019 - Stacks of "An American Budget" (BP-19) were delivered to Congress on February 12; this tome duly reflected the fiscal effects of the big tax cut bill that will take effect for calendar year 2018. BP-19 and related documents, 2/12/18 (download PDF).

(Disregard the record revenues and budget surplus last month - the estimated tax payments in January were based on 2017 tax rates. US runs January budget surplus of $49 billion, Robert Schroeder, marketwatch.com,

Notwithstanding references to "tough choices" and "fiscal responsibility" in the BP-19 text, the deficit/debt results projected are substantially higher than those shown last May in "A New Foundation for American Greatness" (BP-18). Pluses and minuses: assessing the president's budget proposal,

Screen Shot 2018-02-18 at 4.42.19 PM

Discouraging as the BP-19 data seem, moreover, they only partially reflect the impact of the non-defense discretionary (NDD) spending increases authorized by the BPBA. Addendum (a memo from Budget Director Mick Mulvaney to congressional leaders), 2/12/18 (download PDF).

In this addendum, the Administration proposes $540 billion in NDD spending, $75 billion above the current FY 2019 Budget, $10 billion above the pre-BBA NDD spending cap of approximately $530 billion set in the 2019 Sequestration Preview Report, and $57 billion below the new cap. We believe that this level responsibly accounts for the cap deal while taking into account the current fiscal situation. Spending at the levels included in the cap deal would add an additional $680 billion to the Nation's deficit over ten years above the FY 2019 Budget.

Several observers have suggested that BP-19 will be ignored by Congress, i.e., its submission represented a waste of time and effort. For example:

•A president's budget proposal is merely aspirational; Congress rarely votes on it. And the BPBA set the discretionary spending levels for FY 2018 & 2019, settling everything except how the appropriations committees would divide the loot. Trump budget to be released today - expect Congress to ignore it, Chad Pergram, foxnews.com,

•BP-19 doesn't have the force of law, it's simply a request, which is "certain to be ignored by Congress." Having failed to project a balanced budget within the 10-year projection period, the administration is left with no bright line arguments for spending discipline. White House rolls out Trump's fiscal year 2019 budget, Joseph Lawler, Washington Examiner,

•"Last week's bipartisan agreement to ramp up public borrowing this year and next rendered the projections out of date before they were even published -- notwithstanding a hastily drafted 'addendum' that says it all fits together." Trump's budget misses the mark, bloomberg.com,

On a positive note (continuing a practice begun last year), a supplementary volume provides a systematic description of recommended spending cuts. Both "discretionary" programs (budgeted on a year-by-year basis) and "mandatory" programs (funding automatically provided for applicants or purposes meeting the statutory criteria) are covered, and the potential savings are substantial. Major Savings and Reforms,
2/12/18 (download PDF).

II. Infrastructure - The president had previously talked in terms of a catch-up infrastructure program of some $1.5 trillion over the next 10 years, albeit signaling that federal funds wouldn't cover the entire tab. Assessing the SOTU address, 2/5/18.

I am calling on Congress to produce a bill that generates at least $1.5 trillion dollars for the new infrastructure investment we need. Every federal dollar should be leveraged by partnering with state and local governments and, where appropriate, tapping into private sector investment -- to permanently fix the infrastructure deficit. Any bill must also streamline the permitting and approval process -- getting it down to no more than two years, and perhaps even one. Together, we can reclaim our building heritage.

The aggregate amount cited in BP-19 (p. 2) was only "$1 trillion," however, and a mere $200 billion in additional federal funding over 10 years was proposed (p. 17-19). Ho, hum! Evidently the main selling point would be to encourage more state and private investment by streamlining the approval process for projects.

Given the multiplicity of regulatory approvals at the federal, state and local levels, it can take a decade or more to obtain approval for major projects. Accordingly, this proposal to cut the delay to 1-2 years has real appeal. Environmentalists reportedly disagree, however, fearing that their influence would be reduced. Should the new Luddites stall crucial infrastructure investment? Luke Popovich, Washington Examiner,

. . . staunch environmentalists put a primacy solely on the value of the natural environment they fear would be lost in the process of construction. The works that are being contemplated - new rail lines, new sewage treatment plants, expanded harbors - obviously offer value to most taxpayers, but (as they see it) not to them. They prefer the status quo, including an archaic, cumbersome mine permitting process that limits access to domestic minerals and metals, and thus encourages sourcing from countries that do not employ comparable environmental and reclamation standards.

An increase (say 25¢ per gallon) in federal taxes on motor fuel is under consideration, which could cover the additional federal funding for infrastructure that has been proposed and help to stabilize the rapidly dwindling highway trust fund for existing programs. Analyst: Trump's gas levy to take back 60% of tax cut for individuals, newsmax.com,

SAFE usually opposes tax increases, but in this case we're torn. Huge projected deficits - gas tax is basically a user charge for roads and bridges - all drivers would pay, not just the affluent. In any case, we declined to join in a coalition letter that categorically opposed any increase in the federal gas tax. Americans for Prosperity, et. al,
2/12/18 ("full coalition letter" PDF).

III. Immigration - The budget deal was made possible when Democrats agreed that a legislative replacement for the cancelled Deferred Action on Childhood Arrivals (DACA) program) could be deferred until the spending level impasse was resolved. Senate Majority Leader Mitch McConnell then delivered on his promise of an open session re DACA, which took place last week.

These proceedings established (as expected) that no proposed DACA fix commands 60 votes in the Senate. Four different bills were voted down, including legislation based on the points outlined in the president's SOTU address. Senate fails to pass immigration proposals, ends week in stalemate, Leigh Ann Caldwell, nbcnews.com,

Congress is in recess this week (aside from pro forma sessions) so no further action can be taken before late February at the earliest. Meanwhile, the deadline for action by Congress (six months after the president's termination of the administrative version of the DACA program, or March 5th) is fast approaching. So how will this effort end?

One possibility is inaction or a short-term extension, which could keep the DACA issue alive for the mid-term elections in November. Or one side or the other could blink and offer enough concessions to "buy" a deal.

The DACA issue is logically separate from the budget issues that are in play - aside from the $25 billion or so that the president is seeking for a "wall" and other border security measures - but the outcome of this bitter controversy could spill over into other areas.

In general, it strikes us that the president's proposal on the DACA issue was reasonable. Some conservatives disagree with providing a path to citizenship for the 1.8 million or so illegal immigrants in this category, however, as for example Sen. Ted Cruz (R-TX). Consider also this comment by SAFE member Jose Alvarez.

Those who receive amnesty, but who entered illegally, should not have the right to vote. Born here, could. Cannot reward breaking law with the right to vote.

On the other hand, it's been suggested that the president's plan would overreach by effectively reducing the quotas for legal immigration. President Miller's [White House adviser Stephen Miller] immigration veto, Wall Street Journal,

The Cotton-Perdue bill to cut legal immigration in half that the president endorsed last year at Mr. Miller's urging went nowhere in the Senate, even among Republicans. By demanding too much, Mr. Trump will get an embarrassing political defeat.

So how should matters be resolved? Without claiming to know what the best policy answers are, here are our procedural suggestions.

•The Senate should turn to other matters when it returns to DC, while the House completes its own deliberations on the DACA issue. Institutionally speaking, there is no reason for the Senate to achieve precedence on every important legislative issue that comes up by using its filibuster rule as leverage, and having tried and failed to arrive at a supermajority consensus it should give someone else a chance.

•If the House can't agree on a DACA bill, let the issue carry over to the mid-term elections. But if a House bill is passed, it should then be taken up by the Senate - which could either pass the House bill or adopt amendments and set the stage for a conference committee.

•If the current minority party attempted to block consideration of the House bill, Senate Republicans should "go nuclear" and abolish the filibuster rule.

IV. Appropriations - Work is going on behind the scenes to finalize the real budget for FY 2018, namely the omnibus appropriation bill that is due to be approved by March 23 (nearly halfway through the fiscal year). Some issues will need to be ironed out in finalizing this bill, no doubt, but further delays seem unlikely in this budget cycle.

The real question is whether Congress will pass the FY 2019 appropriation bills on time. Overall spending levels for FY 2019 have already been established by the BPBA, so why shouldn't the October 1 deadline be met? Given the congressional propensity for procrastination, however, we wouldn't "bet the ranch" on it.

V. Budget process review - Last week's entry noted our low expectations for the Joint Select Committee on Budget Process and Appropriations Process Reform (BP Committee) that is to be created. Among other things, we recall "seeing this movie" in 2011, when a joint select committee, co-chaired by Rep. Jeb Hensarling (R-TX) and Sen. Patty Murray (D-WA), deadlocked over whether the deficit reduction goal should be met by cutting spending or by raising taxes. More shutdown drama, mediocre results, 2/12/18.

The joint select committee approach was reportedly suggested by House Speaker Paul Ryan, who pronounces himself frustrated by the erratic and contentious functioning of the current budget system. Can the "Supercommittee II" fix Congress' dysfunction? Susan Ferrechio, Washington Examiner,

"I think this budget process is broken," [Ryan] said. "Here we are with another CR, CR, CR, and an omnibus. That's why something we put in here that I feel very passionate about is having a budget process reform dialogue."

All right, there is going to be a BP Committee, so here are our suggestions to make the most of it.

#HISTORICAL PERSPECTIVE - When a problem is under review, there is a tendency to focus primarily on recent developments. In the case of the congressional budget procedures, current problems may be traceable to changes made in the 1970s.

The Congressional Budget and Impoundment Control Act of 1974 fixed the problem that had prompted its creation, sharply curtailing the power of presidents (Nixon at the time) to impound (not spend) funds that Congress had appropriated for disfavored programs. The CBA also created a Congressional Budget Office (CBO) to counterbalance the president's budget staff, promulgated a host of new congressional procedures, and has arguably produced poorer results than the less formal, president-led system that was previously in effect. So . . . this is Nixon's fault, Kevin Kosar, politico.com,

Congress has run deficits 36 of the 40 years since adopting [the CBA]. The national debt is $18 trillion, and it has tripled as a percentage of GDP since 1974. *** Congress virtually never passes the 12 appropriations bills by the CBA's deadline, and often passes none at all. Instead, chamber leaders rush through omnibus spending bills and continuing resolutions whose contents are unknown to most legislators.

One point on which we would differ, however, is the suggested utility of the discretionary spending budget caps (sequester) that were enacted in 2011 and took effect after the joint select committee on deficit reduction failed to come up with a better solution. A bone of contention in every subsequent year, these caps were abolished for FY 2018 & 2019 by the BPBA.

Conclusion: Congress should have the power of the purse, no doubt about that, but an organization of 535 individual legislators is not well suited to run the budget system. Putting Congress in charge of this system was a mistake, and consideration should be given to shifting at least some of the power back to the executive branch.

#OBJECTIVE - The hallmark of an effective budget system, we would argue, is consistently producing a balanced budget. That is, revenues minus outlays should equal zero (or perhaps a bit more to permit the gradual repayment of outstanding debt). SAFE letter to all members of Congress,

Some may advocate reducing the deficit to a "sustainable" 3% of Gross Domestic Product, but a balanced budget policy would offer three advantages: (1) Reserve government borrowing capacity for true emergencies, e.g., a major war. (2) Control borrowing costs, which over time threaten to crowd out desired programs. Net interest expense, is currently running over $200 billion per year; it is projected to more than triple over the next 10 years. (3) Minimize the temptation for government leaders to make spending commitments now that will not be affordable later.

Here's some supporting discussion: A status report on the fiscal problem,
5/6/13; SAFE's latest letter to Congress, 6/3/13.

As revenue estimates are inherently uncertain, SAFE member Dick Timberlake suggests that the budget red line should be actual revenues of the preceding budget year. Perhaps this is "a bridge too far," but the idea deserves to be considered in the budget system review that is planned. All in favor of responsible budgeting, say aye,

#BIAS FOR ACTION - Given the anticipated return to trillion-dollar annual deficits, to say nothing of tens of trillions in unfunded liabilities for Social Security and other "entitlement" programs, it should be evident that major changes to these programs will be required to avert a fiscal meltdown.

Accordingly, some observers have suggested that there's no need to get worked up about cuts in funding for traditional (discretionary) government spending programs - which account for a declining share of the overall budget. Don't worry about the national debt, William Middendorf & Dan Negrea, Washington Times,

[Mandatory spending] was 26 percent of the federal budget in 1965 but will grow to 64 percent in 2020. [After subtracting net interest,] discretionary spending which was 68 percent in 1962 will be squeezed to just 24 percent of the federal budget by 2020. *** Entitlement reform cannot be addressed in 2018, an election year. After that, Washington will have a choice: Reform entitlements ahead of a financial crisis or in the middle of one.

Such a "don't panic" mindset can morph into perpetual excuses for inaction. If only to show leadership and get the deficit reduction effort underway, as happened in the second term of the Clinton administration, discretionary spending should also be scrutinized and eliminated or reduced where possible.

What would be a good time to get started? As the saying goes, "there's no time like the present." Thus, the congressional budget committees should get cracking on the spending reductions recommended in the MSR volume of the president's budget proposal - if they aren't doing so already. Even if only half of the recommendations were accepted, the resulting savings would be considerable.

It would also be nice to see a greater sense of urgency about eliminating special tax preferences, which reduce tax revenues without promoting sound economic growth. As a case in point, dozens of special tax preferences were saved or resurrected by the BPBA. Then the House Ways and Means Committee chairman scrambled to distance himself from this inexplicable decision. Kevin Brady: Temporary tax breaks make "zero sense" post-tax reform, Joseph Lawler, Washington Examiner,

The Ways and Means Committee will hold a hearing, Brady said at Thursday's TCPI Annual Tax Policy and Practice Symposium, at which advocates of individual breaks will have to justify the provision's existence and explain what they would give up, in terms of tax benefits, to have them made permanent. Ones that pass such a "thoughtful review process," Brady said, will be slated to become permanent. The ones that don't should be eliminated, he said.

#ACCOUNTABILITY - Does chronic malfunctioning of the congressional budget system demonstrate that the system is broken? Missed deadlines - serial continuing resolutions - attempts to achieve unrelated objectives (e.g., terms for a DACA fix) - abuse of the Senate filibuster rule. Or could the real problem be that the members of Congress won't observe the spirit (and at times letter) of their own rules?

If the latter is true, theoretical improvements in the budget procedures can't be expected to yield significantly better results. And at some point, growing dissatisfaction with Congress may fuel demands for constitutional changes. Witness this comment of SAFE member Neil Brechtel, to the effect that congressional term limits must be established.

I feel the need to repeat my conviction that NOTHING substantial will happen to cure our country's problem until the country embraces TERM LIMITS. All the swamp inhabitants are not Democrats. The weak point in our Constitution has allowed the swamp to be inhabited by a self-serving group of professional politicians who will never put the people they are supposed to serve first. Not all, perhaps. but definitely the majority.

Enough said?


#What's the antidote for "budget-deficit disorder" (BDD) in this country? Years ago, my father cured me of incipient attention-deficit disorder. There were two elements involved: hard work and eating what he put on my plate--whether I liked it or not!

As for the Federal Gov't and our debt, elected officials are not going to change until some financial disaster occurs. I think all that we can do is keep beating the drum so that the disaster, when it occurs, will be recognized for what it is and addressed sooner rather than later. - SAFE member (DE)

#Is it not obvious that the Dems cannot introduce any legislation for now and the best they can get is something added on to a spending bill? - SAFE director

Comment: Sure. What's up for grabs is whether the majority party (currently the GOP) can accomplish anything, or whether endless gridlock is inevitable.

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