Headlines and Fine Print in the President’s Budget

David Super

      This morning, President Biden released his budget proposals for Fiscal Year 2023, which will begin October 1.  Tradition and the Congressional Budget Act require this proposal, yet the enormous delays in resolving the current year’s budget make it an awkward effort.  One major component of the fiscal year 2022 budget, funding for agencies and programs subject to annual appropriations, was only resolved a few weeks ago by the bipartisan omnibus appropriations act.  Another component, proposed changes to revenue and entitlement programs, remains subject to negotiations. 

     These delays severely limited what the President could achieve in this proposal.  In fact, he did about as much as he could under the circumstances.  Unfortunately, many observers’ quick takes on the budget are badly confused.  This post is an effort to correct those misunderstandings and to identify the major moves the President made. 

     At the outset, it is important to understand what the President’s budget is and is not.  His proposal, like the concurrent budget resolutions that Congress passes some years, has no force of law.  Agencies’ ability to spend does not change in the slightest based on proposals in the President’s budget, and only the most naïve administrator would go very far in planning based on numbers in the President’s budget.  It is, instead, an opening bid from one of the three entities whose approval is required to enact legislation that actually changes revenues and spending.  (A congressional budget resolution, if passed, can be seen as the opening bid of the other two entities, although it also has real procedural significance that the President’s budget proposal lacks.)   

     It also is important to understand that our budget process operates on two largely separate tracks.  The Pentagon, foreign aid, and the greatest number of domestic programs receive most or all their funding through annual appropriations bills; this is termed “discretionary spending” because Congress and the President face no legal obligation to spend anything in these areas.  The non-discretionary, or “mandatory”, side of the budget consists of revenues and entitlement programs operating under statutes that provide on-going authority for spending that is not wholly dependent on annual appropriations acts.  These domestic programs, although relatively few, are most of the largest ones (e.g., Social Security, Medicare, and Medicaid) and therefore spend the greatest amount of money.  Appropriations levels for discretionary programs are set by the appropriations committees, typically in a bipartisan manner because bills require votes from the minority party to clear the Senate.  Changes in revenues and entitlement programs are increasingly limited to budget reconciliation bills that require only a bare majority to pass the Senate. 

     For discretionary programs, the President’s budget brings together in one place the expertise of the responsible agencies (filtered, of course, by the Office of Management and Budget to reflect the President’s priorities).  If a spike in dairy prices is going to affect the cost of domestic food assistance programs for the coming year, the President’s budget will include an estimate of what is needed.  The appropriators may accept the President’s proposal or may raise or lower it based on different policy priorities or disagreement with the Administration’s estimates. 

     To make significant changes in revenues or mandatory programs, Congress usually must pass a budget resolution that includes “reconciliation instructions” for specific committees other than appropriations to report proposed changes in revenue laws and entitlement programs’ statutes.  (Outside of reconciliation, Republicans’ fierce aversion to any tax increases, and to mandatory spending increases not offset with mandatory spending cuts, generally prevent the Senate from clearing any major legislation on the mandatory side of the budget with Democratic support; Democrats’ antipathy for deficit-increasing corporate and upper-income tax cuts have usually prevented Republicans from getting sixty votes in the Senate for their initiatives.  The coronavirus pandemic created a fleeting exception to this impasse in March 2020.)  The President may encourage Congress to initiate the reconciliation process, but it does not depend on the contents of the President’s budget.  Newt Gingrich, for example, repeatedly moved reconciliation legislation without encouragement from President Clinton. 

     President Biden’s new budget proposal includes numerous proposals for improving discretionary programs.  Much of this reflects the business left unfinished in the recent omnibus appropriations bill:  making up for over a decade of decay under the severe caps on discretionary appropriations springing from the 2011 budget agreement.  Other initiatives address a range of unmet needs, such as expanding the Low-Income Home Energy Assistance Program (LIHEAP) to help low-income families with water bills and increasing aid to students in higher education and to K-12 schools in low-income areas.

     Knowing what to say about revenues and entitlement programs was more challenging given the unsettled state of negotiations over the reconciliation bill that last year’s budget resolution authorized.  If the President vociferously re-proposed everything in last year’s budget proposal, he could look like he has failed to heed Senator Manchin’s insistence that something much smaller is needed.  If, on the other hand, the President conformed his proposal to what Senator Manchin says he wants, that would become the ceiling on what the President could get in negotiations, which would be terrible strategy.  If the President tried to concoct a new starting position for negotiation through his budget proposal, he would face the ire of those whose favorite initiatives he omitted while not adding to his negotiating leverage. 

     The President’s solution to this dilemma was to fall back on a favorite device of congressional budgeteers:  a “reserve fund”.  A “reserve fund” is a placeholder commonly included in budget resolutions to remove procedural hurdles for possible legislation that has not yet been fully designed.  Contrary to its name, a “reserve fund” does not actually contain any funds.  The budget committees might, for example, create a reserve fund for increases in Medicare provider reimbursements to be paid for with savings from within Medicare.  If the relevant authorizing committees can design such legislation with sufficient political support, the approval of the reserve fund will eliminate potential points of order that might otherwise prevent deviations from the budget resolution. 

     President Biden’s reserve fund for enactment of an economic package does not serve any similar procedural purposes, but it allows him to signal his continued support for an economic package without pinning himself down on the details prior to the completion of negotiations.  The President’s budget notes that he hopes and expects an economic package to be enacted but does not lock him into any particular dollar level.  His budget lists out, in highly abbreviated form, all major elements of last year’s package but does not attempt to parse which ones have more or less chance of moving forward.  The list therefore includes some proposals, such as family medical leave, that clearly will not advance, along with others with considerably better chances.  Listing family medical leave may not serve any particular purpose, but once the President began opining which proposals are and are not viable, errors and forgone opportunities would have been likely. 

     Some advocacy groups have misread the inclusion of some proposals that were rejected last year as meaning that the President plans a new battle on their behalf.  That is not the case:  if those proposals could not move in last year’s much better environment, they certainly will not move now.  Should the Democrats retain Congress in November’s midterm elections, these proposals could be part of a new initiative a year from now, especially if the Democrats gain at least one seat in the Senate. 

     Other advocacy groups have made the opposite error:  assuming that omission of detailed arguments for particular elements of last year’s package means that the Administration is losing interest in them.  The White House has signaled clearly that this “reserve fund” is a do-no-harm move designed to keep all options open without further inflaming already delicate negotiations about salvaging some of the economic package.  Thus, for example, a broad reference to covering the uninsured stands in for several specific proposals that were in last year’s legislation.

     In addition to setting aside the revenues in last Fall’s House-passed reconciliation bill to pay for the economic package, the President’s budget also proposes other tax increases on upper-income individuals and corporations to fund deficit reduction.  Although deficit reduction does not typically excite progressives nearly as much as program expansions, it has become a political inevitability.  Since 1981 (and, indeed, well before), conservatives have made deficit reduction an excuse for slashing or eliminating programs that serve low-income people.  Enacting significant deficit reduction that increases progressivity therefore can be seen as an investment in preventing future harmful programmatic cuts. 

     To demonstrate his seriousness about deficit reduction, the President did not include any of last Fall’s House-passed revenue increases in his separate proposal for deficit reduction.  Nonetheless, any of the revenue measures that Democratic negotiators accept will almost certainly be inserted into the economic package that passes on the reconciliation legislation that previously carried Build Back Better. 

     Presidents’ budget proposals cannot, by themselves, transform the country.  They can, however, bring attention to important needs and opportunities.  And they should certainly avoid gratuitous concessions that undermine the President’s agenda.  By those measures, President Biden’s fiscal year 2023 budget proposal is an unqualified success.

     @DavidASuper1