House Budget Committee Issues Report on Concurrent Resolution on Budget–FY 2018 (Part 1 of 8)
INTRODUCTION
Anyone paying attention these days, anyone willing to face reality, knows the Federal Government's fiscal health is reaching critical condition. Spending is rising at plainly unsustainable rates. Deficits are about to begin swelling again, exceeding
The term "unsustainable" is used so often to describe the government's fiscal path that it has almost lost its impact. What it means is this: The increases in spending, deficits, and debt cannot continue--and will not. Perhaps major programs will collapse under their own weight. Perhaps investors in
Some will doggedly oppose reform, branding it "mindless austerity." The government's deficit troubles can be fixed, they will say, simply by raising taxes on the wealthy or controlling health care costs with more government-imposed regulation and price-fixing. They will claim to be protecting government programs intended to serve the elderly or vulnerable. Instead, they will only ensure the demise of those very programs as they become unaffordable not only for the government, but for the economy itself.
All that said, it is neither naive nor fanciful to see in these challenges a once-in-a-generation opportunity--an opportunity not only to correct the disastrous course of fiscal policy, but to transform government itself. Anti-poverty programs can cease trapping beneficiaries in dependency and instead boost them toward self-sufficiency. Health care can be freed from
Meeting the government's fiscal challenges will be a daunting task, requiring conviction and resolve. Governing is hard. Then again, Members of
Balancing the Budget. The resolution draws a path toward a balanced budget within 10 years, without raising taxes, and places the government on a fiscal course sustainable for the long term. The national debt is already an impediment to greater prosperity and a threat to the security of future generations. This committee's budget significantly reduces spending and reforms programs to put the government on a sustainable spending path.
Promoting Economic Growth. For the past eight years, government has been a hindrance to economic growth. This budget urges reversing this trend with a combination of pro- growth policies, including deficit reduction, spending restraint, comprehensive tax reform, welfare reform, Obamacare repeal-and-replace legislation, and regulatory reform. All can promote more robust growth over the longer term.
Ensuring a Strong National Defense. Defending America's security is the highest priority of the Federal Government. To that end, this budget supports robust funding of troop training, equipment, compensation, and improved readiness.
Improving the Sustainability of Medicare. Notwithstanding Medicare's popularity, there are far better ways to achieve the program's worthy goals. Retirees should be able to choose the coverage plan best suited to their particular needs, rather than accept a set of benefits dictated by
Restoring the Proper Role of State and Local Governments. The resolution encourages the innovation and creativity outside
Reforming Government Programs While Improving Accountability. Every tax dollar collected by the Federal Government was generated by private-sector economic activity. Responsible stewardship of taxpayer dollars is a fundamental component of the budget resolution. At every opportunity possible, the budget reforms government programs and improves accountability to while generating better outcomes for Americans.
This resolution is more, however, than a symbolic, philosophical statement. It is an instrument for governing. The majorities in
The policy changes to meet the budget's parameters will be determined by the respective committees of jurisdiction. They retain maximum flexibility in determining those specific policies. The discussions in this report, while developed in consultation with the authorizing and appropriations committees, reflect purely illustrative options committees may want to consider. Nothing in the report, or in the budget resolution's reconciliation instructions, predetermines, promotes, or assumes any specific policy change to be made. Nevertheless, they may wish to consider these discussions I constructing their proposals
The guiding principles of the resolution follow in this introduction.
Balancing the Budget
Since
A Lackluster Economic Outlook. An expanding economy, which boosts Federal revenue without tax increases, is essential for deficit reduction. Just five years ago, the
Larger Projected Deficits. As recently as
1In CBO's updated budget outlook, published in June, the deficit figure had worsened further, to
Relentless Mandatory Spending Pressure. In addition to the sluggish economy, the principal drivers of these growing deficits are the government's health, retirement, and income security programs. By 2029, these programs, plus net interest, are expected to consume all Federal tax revenue, meaning the rest of the government's activities--defense, infrastructure, research, and myriad others--will have to be financed on
borrowed money.
Greater Savings Needed. The fiscal year 2016 budget resolution conference report (
In short, balancing the budget will require improved economic growth, bold program reforms, and a sustained commitment to fiscal discipline. That is a major task facing the 115th
This formula proved effective in the 1990s. Over the course of that decade,
2See the Conference Report on the "Taxpayer Relief Act of 1997" (H.R. 2014), p. 807.
Balancing the budget is not, however, merely a matter of making numbers add up. It is an ethical commitment. As Nobel Laureate
Politicians prior to World War II would have considered it to be immoral (to be a sin) to spend more than they were willing to generate in tax revenues, except during periods of extreme and temporary emergency. To spend borrowed sums on ordinary items for public consumption was, quite simply, beyond the pale of acceptable political behavior. There were basic moral constraints in place; there was no need for an explicit fiscal rule in the written constitution.3
3James
When the typical family borrows, for a home or a new car or college, they themselves assume the responsibility for their own debt. When the government borrows chronically--as it has been doing--it imposes the costs on future generations who have no say in the matter and will receive no benefits from it. In fact, they will be worse off due to the higher taxes and weaker economic growth that result. What does that say about the character of a government that encourages and perpetuates such a practice?
While some "experts" dismiss the balanced budget standard as a kind of quaint anachronism, nothing has come to replace it as a consensus norm for budgeting. As a result, fiscal policy has been adrift, and increasingly unsustainable. Some have tried to substitute intellectually sophisticated concepts, such trying limiting deficits or debt as a share of the economy--yet there is no agreement on what the acceptable maximum levels might be. Others have suggested allowing "counter-cyclical" policies in the near term while striving for "long-term fiscal sustainability"--with no sound definition of what the latter means. This formula, of course, merely rationalizes spending now while putting off restraint until later--so the restraint never happens.
Today, in the absence of the balanced budget principle, the only fiscal guideline is the modern, relativistic pay-as-you-go concept, which merely ratifies existing deficits as the measure of budgetary rectitude--no matter how large those deficits might be. Thus, proponents of the Affordable Care Act could boast the health care program was fiscally "responsible" because it did not increase deficits--which in 2010, the year of its enactment, already exceeded a trillion dollars a year-- while it recklessly added trillions more to government spending.
The durability of the balanced budget principle is demonstrated even by the non-partisan
4For example, the first three sentences of the summary in the recent The Budget and Economic Outlook: 2017 to 2027 (p. 1) read as follows: "In fiscal year 2016, for the first time since 2009, the federal budget deficit increased in relation to the nation's economic output. The
If current policies remain unchanged, deficits are about to begin surging, nearly tripling over the next decade. CBO's January estimates project deficits swelling from
5Congressional Budget Office, The Budget and Economic Outlook: 2017 to 2027,
6Ibid., Table 1-4. p. 29.
Make no mistake; this pattern is due to excessive spending, not insufficient tax revenue. CBO's January figures show revenue rising to 18.1 percent of GDP in 2018--well above the 17.4-percent average of the past 50 years. Revenue will remain at that level through 2023, and then rise, reaching 18.4 percent of GDP in 2027. Nevertheless, spending will consistently outpace these healthy tax collections. Even excluding interest payments, programmatic government spending will hit 19.1 percent of GDP in 2018, then rise throughout the decade, to 20.8 percent of GDP in 2027. Because of the chronic borrowing to finance government operations, debt service will add to the problem: With interest payments included, spending rises from 20.5 percent of GDP in 2018 to 23.4 percent in 2027.7
7Congressional Budget Office, The Budget and Economic Outlook: 2017 to 2027, Table 1-1, p. 10.
The trend persists for the longer term. While CBO projects tax revenue rising to historically high levels--averaging 19.3 percent of GDP in the decade of 2038 through 2047--programmatic spending will still outgrow revenue. Adding debt service drives total spending to 28 percent of GDP, generating relentlessly deepening deficits and growing debt.8
8Congressional Budget Office, The 2017 Long-Term Budget Outlook,
Only by controlling spending can
In the face of this fiscal onslaught, doing nothing invites financial disaster. A rising debt level is unsustainable because its growth eventually begins to exceed that of the overall economy. As a result, debt service costs absorb an increasing share of national income and the government must borrow an increasing amount each year--likely in the face of rising interest rates--to both fund its ongoing services and make good on its previous debt commitments. Ultimately, this dynamic leads to a decline in national saving and a "crowding out" of private investment, sapping economic output and diminishing the country's standard of living. In a worst-case scenario, this dynamic could also lead to a full-blown debt crisis, devastating at the macroeconomic level and acutely painful for families and businesses.
Investors and businesses look forward in making their decisions. They recognize today's large debt levels are simply tomorrow's tax hikes, interest rate increases, or inflation-- and they act accordingly. This debt overhang, and the uncertainty it generates, weighs on growth, investment, and job creation.
Interest payments on the debt (the "legacy cost" of deficit spending) will total a staggering
9Ibid., Table 1-1, p. 10.
[A] great variety of meaningful investments will almost certainly be left undone simply because interest payments will push them out of the budget. This is the silent cost of prior debts that, unless explicitly recognized, crucially leads policymakers to underestimate the effect that prior deficits have already had on this decades planned expenditures.10
10Deloitte LLP, The Untold Story of America's Debt,
Debt service is already projected to dominate the budget. Within a decade, the Federal Government will reach a point at which it spends more on interest payments than it does on national defense, Medicaid, education, or infrastructure, among others. Interest on the debt will become the government's third largest program, following only
All these factors point to the need for returning to the balanced budget standard. It is the only clear fiscal guideline that commands a consensus of public understanding and support. All other formulations are merely ways of rationalizing continued deficit spending. A balanced budget is also the sturdiest means of limiting government. A balanced budget commitment establishes real-time restraint on the expansion of the public sector: The size and scope of government, as measured by its spending, may not exceed the amount taxpayers endorse and the economy sustains. This empowers the people, on an ongoing basis, to hold their government in check.
The pursuit of balance has distinct economic and fiscal benefits as well. Nearly all economists, including those at the CBO, explain that reducing budget deficits (bending the curve on debt levels) increases the pool of national savings and boosts investment, thereby raising economic growth and job creation. The greater economic output that stems from a large deficit reduction package would have a sizeable impact on the Federal budget. For instance, higher output would lead to greater revenues through the increase in taxable incomes. Lower interest rates, and a reduction in the stock of debt, would lead to lower government spending on net interest expenses. (See the section in this report titled "Macroeconomic Feedback Effects of Pro-Growth Policies.")
For all these reasons, this budget resolution reasserts the balanced budget standard, and then maintains it--putting the government on a path to paying off the debt.
Mandatory Spending Programs
Just as important as pursuing balance is the way in which lawmakers achieve it. Some experts and policymakers advocate a mix of spending restraint and tax increases--the so-called "balanced" approach--as if the two were merely opposite sides of the same coin. That sterile, policy-neutral concept, however, masks the fundamental cause and effect of government budgeting: Spending comes first. Spending--one of the best measures of the size and scope of government--is how government does what it does. Government's programs and activities exist only if government spends money to implement them. "In a fundamental sense," writes longtime budget expert
11Allen Schick, The Federal Budget: Politics, Policy, Process (
Today, gaining control of spending unquestionably requires controlling mandatory, or direct, spending. Unlike the government's "discretionary" accounts, for which
The list of these programs is long and broad. It includes the social insurance programs,
In 1965, as
Clearly this problem with direct spending has been building for decades, yet lawmakers have found it difficult to build an enduring consensus for addressing it. With each year that passes, spending control becomes more difficult, because the necessary changes in programs become larger and more wrenching. At some point the programs will simply collapse under their own weight. Those who claim to "protect" them by resisting reform only ensure their demise.
Controlling mandatory spending need not be seen, however, as some daunting exercise in "mindless austerity," as former
Consider a few examples.
This resolution assumes enactment of the American Health Care Act [
12The Speaker's
In a similar way, the budget envisions a new Medicare option that would transform this retirees' health coverage program from a government-run, price-controlled bureaucracy to a personalized system in which seniors have the option of choosing the health coverage best suited to their needs from a range of commercial plans. Traditional fee-for-service Medicare would always be an option available to current seniors, those near retirement, and future generations of beneficiaries. Fee- for-service Medicare, along with private plans providing the same level of health coverage, would compete for seniors' business, just as
In short, this Medicare reform would give retired Americans, not the government, the ultimate leverage over what kind of coverage they will have--and the government would provide them financial assistance in making the choices.
Another area of automatic spending, assistance for low- income Americans, should be revised to encourage self- sufficiency, not to trap people in dependency. Clearly, persons with chronic disadvantages need and deserve a sturdy safety net. Others require assistance at particular times of economic downturns or personal misfortune. Still, the most compassionate way to provide government assistance is to help free individuals from the need for it. Welfare programs should encourage recipients toward supporting themselves to the greatest degree possible. As was proved with the successful welfare reform of the 1990s, when struggling people are challenged to work and earn on their own way, they rise to the occasion--and they are better off for it.
It should be noted, too, that government is not the sole source of the many domestic benefits Americans receive; it is not even the primary one. Every benefit the government ostensibly "provides" actually draws from the abundant resources of the Nation's economy. The government could not maintain Medicare, or
Finally, policymakers must embrace the recognition that government can never substitute for nature's safety net: the family. For generation upon generation, the family has been the main source of comfort, security, and economic stability for the individual. It is where moral values and a sense of responsibility grow. The family reinforces the individual's place in the larger community. As government seeks to support those who lose any connection to a family, it should take care not to contribute to the dissolution of families. Government programs should aim to strengthen the family, the most important and enduring institution in society.
Restoring the Role of State and Local Governments
The republic of
13Amity Shlaes, The Forgotten Man: A New History of the Great Depression (
As the 20th century unfolded, the national government's dominance--both fiscally and as the central governing authority--expanded. This was understandable during times of war, especially World War II, when the entire Nation was under threat. The notion continued to expand, however, into an ever- growing range of domestic policies.
Over time, States in some respects have been reduced to carrying out the wishes of
The powers delegated by the proposed
14Federalist No. 45.
As succinctly put in the Tenth Amendment: "The powers not delegated to
Indeed, Madison argued the Federal Government would depend on the States--not the other way around: "The State governments may be regarded as constituent and essential parts of the Federal Government; whilst the latter is nowise essential to the operation or organization of the former."15 This point is proved in reality by the countless activities, essential to the lives of individuals and communities, that predated the national government and would continue without it. Even if the 50 States stood as separate entities, they would still operate schools and hospitals; they would find ways to build roads and bridges; scientific research would continue; energy and communications companies would emerge.
15Ibid.
This is not to say Americans would be better off without the Federal Government. Their security and prosperity are vastly enhanced by the voluntary unity reflected in the bonds of the national
The reversal of this concept that developed over the past 100 years or so also has fiscal consequences. Federal Government resources cannot maintain the overreach of its governing ambitions. That is the message of
This will remain a necessity even if
The budget resolution supports these aims. It promotes State flexibility in areas such as Medicaid and the
Restoring Congressional Budgeting
The congressional budget process, enacted in 1974, has rarely worked as designed. Deadlines in the Congressional Budget Act are missed far more often than made, rules are often skirted, loopholes in spending disciplines exploited. Since 1998, the
Congressional budgeting by the early 1970s was already complicated, and the 1974 Act added new procedures onto existing spending and tax practices. Since then,
The obvious first answer is fiscal control. That, however, is part of a more fundamental act: the act of governing. Because budgeting truly is governing, the budget process should be seen as a principal means of exercising constitutional government. The
The budget also is
16Federalist, No. 58.
The process also must reinforce the balance of powers, one of the most critical protections of liberty. For nearly a half century after enactment of the 1921 Budget and Accounting Act-- which attempted to straddle the separation of powers by establishing an executive-centered budget process modeled after
17Arthur
Budgeting also should be an instrument for enhancing congressional oversight. There is no better way to get the attention of executive agencies than by controlling their funding. The budget process should encourage appropriations subcommittees and authorizing committees to use the tool of the budget aggressively, and to control the ever-expanding administrative state.
Finally, just as the restoration of sound budgeting for how the Federal Government spends is critical to the promotion of economic growth, debt-reduction, federalism, and ordered liberty, so too is the introduction of budgeting for how the Federal Government directs others to spend: regulatory budgeting.
When regulation is needed, it can be done in more cost- effective ways. Before it is imposed,
Conclusion
As described at the outset, this budget resolution expresses a vision; its contours are detailed throughout the text of this report. It is also an instrument for realizing that vision. Its allocations of spending authority implement the budget's priorities; its fiscal path--achieving balance within 10 years--restores the sound fiscal norm that long kept spending, and the size of government itself, in check. It is an instrument for true fiscal sustainability, and for maintaining America's unique and exceptional brand of constitutional government.
(TABLE OMITTED)
THE LONG-TERM BUDGET OUTLOOK
The growing probability of a sovereign debt crisis is an urgent challenge facing
18Congressional Budget Office, The Budget and Economic Outlook: 2017 to 2027 January, 2017, pp 3-4.
19Ibid.
This is more than a financial problem. As noted previously, the government's mounting debt reflects a moral failing. In the past, policymakers would have considered it nothing less than "a sin" to routinely spend borrowed money on ordinary present-day uses--forcing future generations to finance today's consumption. A government that promotes such practices through its profligacy corrodes the Nation's underlying values--an even more pervasive threat to America's future.20
20James
In its latest long-term analysis, CBO projects Federal debt held by the public--which stands at roughly 77.5 percent of gross domestic product [GDP] today--will surge to 113 percent of GDP in the next 20 years, and 150 percent by 2047.21 Even today's debt levels are well beyond the debt target of no more than 60-percent of GDP adopted in the
21Congressional Budget Office, The 2017 Long-Term Budget Outlook,
The projected increase in debt is driven by spending growing well above historic levels of revenues. Revenues today stand at 17.8 percent of GDP--greater than the 50-year historical annual average of 17.4 percent. Revenues are projected to average 18.2 percent of GDP over the next 10 years, then reach 19.0 percent in 2037 and 19.6 percent in 2047. Spending, however, will persistently outpace revenue growth, averaging 22.1 percent of GDP over the next 10 years, then surging to 26.3 percent in 2037 and 29.4 percent in 2047.22
22Ibid..
The automatic spending for Federal entitlement programs, plus interest payments, will continue to dominate the budget. By 2029, entitlement spending plus net interest is expected to consume all Federal revenue, meaning all other government activities--such as national defense, education, infrastructure, research, and myriad others--will have to be financed on borrowed money. By 2039, the situation will worsen, as a mere handful of programs--
CBO notes it is impossible to predict how long the Nation could sustain such growth in Federal debt, but at some point investors would be begin to doubt the government's willingness or ability to pay its obligations. This would require the government to pay much higher interest costs to borrow money, resulting in significant negative consequences for the economy and the Federal budget. This large and growing amount of debt would restrict policymakers' ability to use tax and spending policies for responding to unexpected challenges, such as recessions, financial crises, or national security emergencies, and would pose substantial risks to the Nation.23
23Ibid., pp. 3-7.
This budget would turn the tide. If the policies incorporated in the budget were enacted, they would yield
The reductions from projected spending are hardly draconian. Over the years,
This budget does not make sudden "cuts." Instead, it holds spending growth to a manageable rate. Under the CBO current law baseline, the Federal Government will spend
24Congressional Budget Office, The Budget and Economic Outlook: 2017 to 2027,
Nor is this an "austerity" plan. When policymakers restrain the growth of government, they allow more room for private enterprise of all kinds. With its measured spending restraints, this budget ensures the American economy will outgrow the government. Thus, the budget achieves balance in 2027 by gradually reducing the size of government relative to the economy from 20.7 percent this year25 to 17.8 percent in 2027. To achieve this outcome, the budget encourages a range of fundamental program reforms, described elsewhere in this report, that will improve and strengthen Federal programs and put the government on a sound financial footing.
25Ibid.
The spending path assumed in this budget will result in a balanced budget within 10 years and a growing surplus that will lead to a sharp reduction in the national debt. The Budget Committee estimates a small budget surplus in 2027 will steadily grow larger in years beyond the window. At the same time, debt held by the public will decline from 77 percent of GDP today26 to 61 percent of GDP in 2027, and will fall steadily as a percent of GDP in the subsequent 20 years--a glide path to fully paying off the national debt.
26Ibid.
Over the long term, the budget assumes revenue generally follows CBO's extended baseline adjusted for tax relief provided by the American Health Care Act. The Budget Committee estimates revenues under this budget will rise in nominal terms over the next 10 years, but will hold steady as a share of the economy, at about 17.8 percent of GDP. The Committee further assumes revenues will gradually rise over the subsequent 20 years until eventually reaching and stabilizing at 19.0 percent of GDP, including the macroeconomic effects of the budget's pro-growth policies and the
Continues with Part 2 of 8
Sen Carper Issues Statement on Health Care Vote
House Budget Committee Issues Report on Concurrent Resolution on Budget–FY 2018 (Part 3 of 8)
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