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Budget, Spending, Fiscal Crisis

- April 2011

Budget and spending:

As a budget process primer: The President submits a budget proposal to Congress in February each year setting the Administration’s tax and spending priorities. Congress is not required to act on the President’s budget and rarely does so. Once the President’s Budget is submitted, House and Senate Budget Committees each begin consideration of their own budgets. Under statute, Congress is required to pass a Budget Conference report in the spring (it is not sent to the President for his signature). Once Congress has passed its Budget, the appropriations committees of the House and Senate are given their spending targets for the year and can begin consideration of the 13 separate spending bills that fund Federal departments and agencies.

One of the most dramatic “accomplishments” of the 111th Congress was their abject failure to meet any of their budget obligations. Neither house of Congress passed a Budget Resolution, and not a single one of the 13 appropriations bills was sent to the President for his signature.

Having failed to pass a budget or any spending bills, the last Congress had to enact stop-gap measures, or Continuing Resolutions (CRs), to keep the government funded when Fiscal Year 2011 began last October 1st. In the December lame duck session, a CR was enacted that funded the government only through March 4th of this year.

As a result, the just-sworn-in House GOP Majority was faced in their first few weeks in office with the immediate task of attempting to enact a final CR to fund the government through the September 30th end of FY 2011, a CR which had to include the spending cuts the GOP had promised in its 2010 “Pledge” to voters. It is worth noting that these were to be real spending cuts – actual reductions in Federal spending; not the usual Congressional device of assuming automatic increases in all spending accounts (called a “baseline”), and calling it a spending cut when they merely reduced the rate of growth in a program. For the first time in decades, the new GOP majority was proposing real reductions in spending.

Confrontation ensued almost immediately as the Tea Party House Freshmen, led by a few outspoken conservative veteran members, demanded more spending cuts than the GOP Leadership proposed. In the weeks that followed, short-term CRs were enacted that cut about $2 billion a week in discretionary spending, but despite those virtually unprecedented real cuts, dissent among the Tea Party/conservative members intensified and the number of House and Senate members defecting from their Leadership on key votes grew. In the vote on the 2nd short-term CR, 54 House Republicans voted “no” effectively forcing Speaker John Boehner to rely on Democrat votes to pass the CR. (Defections among Senate Republican also grew, but with Democrats still in the majority there those defections did not affect the outcome of the vote.)

Heading into the end of March, with government funded only through April 8th, the intensity of the debate escalated. Speaker Boehner began serious negotiations with Senate Majority Leader Harry Reid and the White House to see if a compromise could be reached on long-term CR with meaningful spending cuts. Tea Party conservatives in the House and Senate, supported by some conservative radio talk show hosts and bloggers, insisted on more cuts, criticizing their Leadership for demanding too little, and called for a government shut-down rather than a compromise to fund the government. Other conservatives in the House and Senate, supported by commentators and GOP activists, argued that the Republicans should stop the internal bickering and take credit for the very real spending reductions that they were enacting. They argued that the GOP Majority should complete last year’s spending bills and turn their attention to the Fiscal Year 2012 Budget and the urgent need for fundamental reform to address the country’s fiscal crisis.

As the April 8th expiration of the last CR – and a government shutdown – approached, negotiations among the Speaker, the Senate Majority Leader, and a finally-engaged President intensified. In a classis example of 11th hour brinksmanship, a deal was finally reached among the negotiators – literally an hour before the government would have begun the process of closing down. And just after midnight yet another short-term CR was passed giving the Congress the several days it would take to write the provisions of the agreement into legislative language

As of this writing, the details of the compromise are just being digested. The spending reductions agreed to are significantly higher than those the Democrats originally said they would support, and only slightly smaller than those proposed by the Speaker ($38.5 billion vs the Speaker’s original $40 level). But the cuts are not as deep as the more conservative members of the House and their radio talk show allies demanded. So while the Speaker is widely credited by partisans on all sides with having negotiated effectively and successfully for his House Majority position, there are nonetheless critics on his right who continue to argue that a government shutdown would have been preferable to the Speaker’s compromise. (Majority Leader Reid’s and the President’s critics on the left of course argue that they agreed to much deeper cuts than they should have.)

The extent of the unity – or dissent – within the two Party caucuses remains to be seen; only when the votes on the long-term CR are cast in the House and Senate in mid-April will we know just how effectively each Leader has been at herding his cats.

Deficits, debt and the looming fiscal crisis: is real reform in the forecast?

With all the public attention – pro and con – focused on the battle in Congress over last year’s spending levels, a new battle has been shaping up behind the scenes – a far more important battle over how to respond to the long-term fiscal crisis. The massive expansion of government spending, deficits and debt, particularly since the financial market meltdown in 2008, has brought fiscal policy to the forefront of public concern and attention.

The President has, at least rhetorically, acknowledged the need to control spending and reduce Federal deficits and debt. To that end, he appointed a commission to study the problem and report back with recommendations for fiscal reform. The Debt Reduction Commission studied the issues for months and issued a report to the President last December. While they unfortunately and unwisely recommended a tax increase of more than a trillion dollars and a permanent increase in taxes as a percentage of GDP, they also urged reform of the out-of-control spending on the entitlement programs – Social Security, Medicare and Medicaid.

Despite the recommendations of his Commission and his rhetorical acknowledgement of the fiscal crisis, the President submitted a Fiscal Year 2012 Budget to Congress that was complete “business as usual.” He again proposed significant tax increases (covered in a separate staff report), spending increases, annual deficits of hundreds of billions – in some years more than a trillion – dollars, and a public debt that would grow to more than 87% of gross domestic product by 2021. Moreover, he completely punted on the out-of-control entitlements, proposing no reforms for Social Security, Medicare or Medicaid.

But there are some courageous voices in Congress now calling for structural reform of our government programs to address those issues. The new Chairman of the House Budget Committee, Congressman Paul Ryan (R-WI), is one of those voices. As a minority member of the Budget Committee last year, he proposed a program to address the institutional fiscal crisis facing the country (as well as promising to return our annual discretionary spending to 2008 levels). Now Chairman of the Committee, he has offered a Fiscal Year 2012 Budget that tackles the huge fiscal crisis more boldly than any previous Congressional Budget. It is highly unlikely that the Chairman’s Budget will be enacted as proposed – and it will certainly be opposed by most Democrats and the Senate Majority Leader – but he is forcing the long-overdue public dialogue on these critical issues that is essential if Congress is ever to find the courage to enact needed reforms.