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Overview Fiscal Policy & Politics

Legislative Issue Update - July 2010

The Obama Administration and Congress opened their doors for business in January this year in a very different place than a year before; facing in 2010 a focused, alarmed and increasingly anti-Washington public concerned about the still struggling economy, continued high unemployment, and federal spending, deficits and debt spiraling out of control. Despite the public focus on the economy and jobs, Congress remained engaged in the health care debate seemingly oblivious to public reaction. Polls showed that approval of both Congress and their health care legislation were falling fast. [See separate staff report on health care reform.]

Despite the plummeting public support for the health care bill – symbolized by the special election in January of a Republican to the Massachusetts Senate seat held for half a century by a Kennedy – Congress pushed ahead and, on a straight party-line vote, enacted the most massive health care legislation since Medicare. The country watched a hideous process – thousands of pages of complicated law written in a totally partisan manner behind closed doors with private deals and public vote-buying; voted on with no one really knowing what was in it and enacted without any hint of bipartisanship support. They actually managed to make household words out of arcane Congressional processes like conference committees and reconciliation. Passage of the bill was a huge achievement against heavy odds, but outside the D.C. Capital beltway, the jury remains out on the new law.

Now Congressional Democrats are headed into competitive November elections hoping that their signature accomplishment is a political winner for them: that the American people will learn to love the new health care law once they learn what is in it. Republicans are betting that public minds are already made up against the new law and that their approach of “repeal and replace” will resonate with voters.

Whatever the long-term consequences of the health care debate, anti-Washington sentiment has only accelerated since January, manifesting itself in primary challenges not only to incumbents running for re-election but to anyone deemed to be the “establishment” candidate for office. Congressional approval ratings have reached record lows – below 20 percent in most recent polls with 70 percent or more disapproving. And in late June three major polls (Gallup, NBC News/WallStreet Journal and Rasmussen) showed that not only was the President’s approval rating below 50 percent, but now more respondents disapprove than approve his job performance.

But Congress and the White House seem tone-deaf to that disapproval, particularly to the rising alarm about federal spending, deficits and debt and the ever-louder demand that they do something about it.

The fiscal challenges facing Congress and the Administration are daunting, as a review of some relevant numbers makes starkly clear:

  • The government set new records in 2009 for Federal spending, deficits and debt, and those figures only grow bigger this year and in the years ahead;
  • Federal spending is projected to increase from $3.5 trillion in Fiscal Year (FY) 2009 to $3.7 trillion in FY 2010, and to $5.7 trillion by 2020;
  • Federal spending rose under President George W. Bush from $21,000 per household to $25,000 per household.  Under President Obama, it has gone from $25,000 to $37,000;
  • The deficit last year topped $1.4 trillion, the largest in U.S. history and an increase of 774 percent in just two years;
  • We’ve run deficits for 19 consecutive months, the longest run of deficit spending on record;
  • According to the Department of the Treasury, national debt on June 1st topped 13 trillion dollars – $13,050,826,460,886.97 to be precise;
  • ABC News’ Jonathan Carl, reporting on the June 1st Federal debt number, analyzed that it took the Federal government 206 years to hit the first $12 trillion in debt, and to go from $12 to $13 trillion, just six months;
  • At $13 trillion, that figure has risen by $2.4 trillion in about 500 days since President Obama took office, or an average of $4.9 billion a day; and
  • The coming tsunami of Social Security, Medicare, and Medicaid costs are projected to push the federal public debt to 320 percent of Gross Domestic Product by 2050 and over 750 percent by 2083.

RealClearMarkets took a look at the long term fiscal picture in terms of those entitlement programs, with alarming results:

  • According to the most recent Social Security and Medicare trustees report, the unfunded liabilities of these programs exceed $100 trillion dollars;
  • The GDP for 2009 based on the fourth quarter estimate from the Bureau of Economic Analysis is $14.4 trillion dollars; and
  • Using those numbers, if you confiscated the entire U.S. GDP for about 7 years, you still couldn’t cover those unfunded liabilities.

Given that bleak fiscal picture, you would expect Congress to begin tackling the problem head-on, but they are not doing so. In fact, one of the things you will NOT see Congress do is adopt a Congressional Budget Resolution, which they are required by statute to pass each year setting spending and tax priorities and policies. The Majority leadership in both houses of Congress have acknowledged that they will not even attempt pass a Budget Resolution, in large measure because members facing an angry electorate do not want to have to vote for the increasing spending, deficits and debt that any Congressional Budget would contain – especially in a volatile election year.

Congress is also required to annually enact 13 separate spending bills to fund the government agencies and departments, yet it is probable that not a single one of those appropriations bills will be sent to the President. Instead, Congress will end up having to pass a “continuing resolution” to simply keep spending at last year’s levels, or an “omnibus appropriations” bill wrapping all the spending into a single bill late in the fall.

Unfortunately, they can – and will – continue to spend money without a Budget resolution. If fact, they can actually spend more easily without even the toothless restraint on the appropriators that a budget resolution imposes.

But there is a bit of good news there, too. Without a Budget Resolution, the Senate cannot consider any legislation under the reconciliation rules that they used earlier this year to pass health care with only 51 votes – and without the option of a reconciliation bill, they will have to find 60 votes to pass any tax increases outside of the ones that will occur automatically – and that may be very good news for companies struggling through the tough economic times and worried about the threat of tax hikes this year.