Thursday, August 08, 2019

What Congress’s Budget Deal Does

David Super

     Media accounts of the budget agreement President Trump signed August 2 have been all over the map.  It therefore seems useful to describe what it does and does not do. 

     First, it suspends the statutory debt ceiling until July 31, 2021.  The alternative would have been for the Treasury to have been unable to pay all the federal government’s bills as soon as early September.  This is widely regarded as likely to frighten financial markets and undermine confidence in the stability of the U.S. government.  Prior projections had suggested that the Treasury could execute bookkeeping pyrotechnics to live within the current debt limit well into the fall, but the 2017 tax legislation reduced corporate tax receipts more sharply than had been anticipated. 

     This adjustment of the debt limit, like the last several, treats the debt limit as a date rather than an amount.  Any debt incurred through July 31, 2021, effectively does not count against the debt limit.  After that date, the Treasury cannot incur additional debt without further legislation.  It then may return to financial pyrotechnics and continue to pay the federal government’s bills for a few more months. 

     Second, the budget deal sets new ceilings for discretionary appropriations for federal fiscal years 2020 and 2021.  Without this legislation, Congress would be obliged to adhere to the draconian levels set in the Budget Control Act of 2011.  Few serious Members of Congress from either party believe those levels are realistic (although, predictably, Republicans find the defense cap intolerable while Democrats worried about the non-defense discretionary appropriations limits).  Failure to adhere to these ceilings would have resulted in across-the-board cuts similar to those implemented in 2013. 

     Contrary to some media accounts, the new appropriations ceilings are not generous.  Instead, they only suffice to prevent large additional degradation of government functions.  Claims that they provide large amounts of new funding rely on comparisons with the unrealistic Budget Control Act levels that would have required deep programmatic cuts.  The new ceilings are roughly comparable with those in federal fiscal year 2019, the current year.  (They do allow for additional funding to prepare for next year’s decennial census without having to cut other programs to pay for it.) 

     After adjustment for inflation, these levels are still considerably below those from Fiscal Year 2010, the last year before congressional Republicans succeeded in getting President Obama to accept austerity to address deficits driven by the Great Recession.  The shortfall is even greater if one also adjusts for the roughly one percent annual increases in population.  The same inflation-adjusted appropriation cannot serve additional children and pregnant women needing WIC food assistance, additional visitors to our national parks, additional children needing child care, and so forth.  Similarly, the budget deal will keep discretionary spending near historic lows as a fraction of total economic output. 

     Third, although the budget deal does not directly resolve any spending disputes except the overall levels of defense and non-defense discretionary appropriations, it significantly reduces the likelihood of a government shutdown this fall.  Ceilings close to the inflation-adjusted current levels will force fewer difficult choices that could divide Republicans from Democrats than would the Budget Control Act levels.  Congress and the President still have a long way to go, however, to set spending for specific programs in fiscal year 2020, which begins October 1. 

     As previously noted, although the House has passed ten of the twelve annual appropriations bills required to fund the federal government, the Senate has not even begun to move any of these bills.  Senate staff are working over the current recess to try to craft appropriations bills.  These may see action in subcommittees, or possibly the full Senate Appropriations Committee, but few if any likely will reach the Senate floor.  (Sen. McConnell still has many judges to confirm.)  As soon as the Senate appropriators write their bills, informal negotiations will begin with the House. 

     Few if any appropriations bills likely will yield bicameral agreements by September 30 so Congress likely will have to pass a continuing resolution to fund the government until late Fall.  Whether Congress and the President will be able to agree to a full set of appropriations bills, or if not which ones will be left behind and subject to government shutdowns, is difficult to predict at this point.  Presumably each party will insist on passing some of its favorite appropriations bills on which agreement has been reached as a price for passing settled bills that the other party prioritizes.  The parties appear to have agreed not to include any riders (substantive limitations on how appropriated funds may be spent) to which either party strongly objects.  Still, the sheer number of controversies in these bills, and the President’s increasing disinclination to defer to his staff or allow them to speak for him, may make negotiating final funding levels challenging. 

     Finally, this budget deal represents the final demise of the Budget Control Act.  The Act’s caps only ran through 2021 and so now have been wholly superseded.  In a sign that the Act has long-since lost all credibility as budget policy, Democrats were able to force Republicans to drop demands to extend those caps or to make cuts in entitlement programs to pay for the increases in the caps this year.  (Previous biennial bipartisan cap-raising deals had included such offsets.)  Given the damage the 2017 tax act did to the country’s fiscal position, Republicans apparently did not want a serious debate about culpability for large deficits.  Whether the political system will permanently accept the obvious lesson – that neither party feels deeper cuts in discretionary spending will be acceptable to their constituents – remains to be seen. 


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