The Budget Deal: A Win for the Big Spenders


A tentative budget deal has just been reached by Congress and the President to 1) suspend the debt limit until March 2017, and 2) loosen the budget sequester caps by $112 billion over the next two years.  $80 billion of the increased spending will be balanced by spending cuts elsewhere in the budget with details to be worked out later by various appropriations committees.  Specifically:

  • The current debt ceiling of $18.1 trillion will be lifted until March 2017, after a new president takes office. This will allow an expected increase in the debt of about $900 billion to take place over the next 1½ years.
  • Both military and discretionary non-military spending will increase by $40 billion each over the next 2 years with the military receiving an additional $32 billion for Overseas Contingency Operations.

The problem is that such a deal essentially just maintains the budget status-quo. It does nothing to begin shrinking annual deficits in order to put our accumulated national debt on a downward path as a percentage of GDP.  Our current debt of 74% of GDP is very high by historical standards and simply must be brought down significantly in the near term.
Capture1As I explained in my last post, Congressional Republicans, with majorities in both the House and the Senate, should be able to apply much more leverage than was used in the deal just reached, as follows:

  • Yes, extend the debt ceiling for two years. We need to pay our debts. But insist on spending discipline from now on.
  • Allow only brief temporary budget extensions at current levels until a plan is adopted to put deficits and debt on a downward path. The Republican ten year plan for a balanced budget would be a good place to start.

It’s time for fiscal conservatives to stand up and be counted!

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Resolving the Current Budget Impasse in Congress


Congress is facing two critical fiscal deadlines in the very near future. Our current debt ceiling of $18.1 trillion will be exceeded by November 4.  A temporary 2016 budget was passed that will fund the federal government at its current level through December 11.  There is much pressure on Congress to lift the sequester limits for discretionary spending which have been in effect since early in 2013.  The Republican majorities in Congress should use their leverage to promote fiscal responsibility in the following way:

  • Extend the debt ceiling by $1 trillion or enough to last about two years at our current rate of deficit spending. Control over the debt ceiling gives Congress an important tool with which to remind the voters of the urgency of shrinking the national debt. Make it clear that in return for supporting payment of existing obligations, Republicans will insist on far more spending restraint in the future.
  • For example, Congress should agree to only additional short term extensions of this year’s budget at current spending levels, including sequester limits, until a long-term budget plan is locked into place along the lines of:Capture
  • The ten year budget plan adopted by Congress last Spring produces a balanced budget by 2025. Perhaps surprising to many people, it still allows spending to increase by 3.3% annually which is approximately double the current rate of inflation.

Such a plan of indefinite short term budget extensions at current levels will get the focused attention of all big spenders including conservatives who want more military spending as well as the President and his Democratic allies in Congress.  Everything should be on the table: entitlement reform, tax reform, immigration reform, etc.  There need be no deadline for agreement; the current budget could simply be renewed at short term intervals until a mutually acceptable plan was achieved.  No plan, then no budget increases.  Take your pick.
Conclusion: a national debt of 74% of GDP is in fact a fiscal crisis and the Republicans have enough leverage to force a showdown in a sensible way.  They should use it!

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The Republican Budgets Focus on Entitlement Savings


Last week, both the House and the Senate passed ten year budget plans which would bring the federal budget into balance by 2025.  I have devoted several recent blog posts to discussing these budget proposals and how they address our very serious debt and deficit problems.
CaptureThere are several important points to make:

  • Under both of these Republican plans, overall spending will continue to increase by an average of 3.3% per year, from $3.8 trillion in 2016 to just over $5 trillion in 2015. The President’s budget would increase spending to $6.17 trillion by 2025 and would achieve no balance between spending and revenue.
  • Most of the savings in the Republican budgets, as indicated in the above chart, come from the mandatory (entitlement) programs of Social Security, Medicare and Medicaid. Medicare would be transformed into a subsidy program along the lines of the exchanges set up under the Affordable Care Act. Medicaid would be turned into a block grant program administered by the states. Social Security would be studied by a bipartisan commission to recommend operating efficiencies.
  • Other social welfare programs would be affected to a much smaller extent. For example, the Supplemental Nutrition Assistance Program (SNAP), or Food Stamps, has seen a growth of recipients of 69% between 2008 and 2013 while the poverty rate increased by just 16.5% during the same period. The Republican budgets would block grant Food Stamps to the states in order to achieve operating efficiencies.
  • It is true that both the House and Senate budgets would increase military spending by about 10%. But so would the President’s budget and we live in a very dangerous world. Military defense is one of the most very basic functions of our federal government.

Our country is in dire fiscal condition with large annual deficits projected indefinitely into the future, contributing to an exploding national debt.  It is heartening that our political system is responding to this threat to our future security and prosperity.  Let’s hope that House and Senate majorities continue to keep a sharp focus on the urgent task of fiscal restraint.

Status Quo on the Budget Is Not Good Enough!


As I like to remind readers, I am a non-ideological fiscal conservative.  I am not hard core anything.  I just want to find practical, workable solutions for difficult and complicated problems.  There is basically only one exception to my generally moderate outlook.  I detest huge amounts of deficit spending except for unusual circumstances.  Most of the time we should be willing to either raise taxes and/or cut spending to do what needs to be done and to live within our means.
This is why the current efforts by the Budget Committees of both the House and the Senate to devise a plan to balance the budget, i.e. eliminate deficit spending, over a ten year period is so exciting to me.
An analysis in today’s New York Times suggests that Congress should be content to just extend the so-called Ryan-Murray Budget from 2014-2015.  “Ryan-Murray didn’t decisively move the needle one way or the other, which is why it was able to attract bipartisan support.  Rather it preserved the status quo.  In a world of divided government and polarized politics, keeping the government running without a lot of brinkmanship and high drama may be the best we can hope for.”
CaptureAs I pointed out in my last post, current policy will raise government spending by 5.1% annually over the next ten years.  The President wants to increase spending by an additional $1 trillion over this time period.  The Republican budgets, which lead to balance in ten years, still allow spending to increase by 3.3% annually.  The difference between the two plans is illustrated in the above chart from last Sunday’s Omaha World Herald.
Congress is finally in a position this year to start digging us out of the deep fiscal hole we have fallen into.  Let’s hope that too much “bipartisan” status quo thinking doesn’t get in the way of progress!

How the Obama and Republican Budgets Compare


The Budget Committees for both the House of Representatives and the Senate have now passed plans to achieve balanced budgets within a ten year period.  My last two posts have discussed the compelling need to get deficit spending under control and an overall rationale for how to approach this difficult task. Today I will take a look at the major differences between the Obama budget and the House and Senate budgets.  The two congressional budgets are quite similar and will surely be reconciled into a single budget.
CaptureHere are the major differences:

  • Revenue. The President wants to raise taxes by $3 trillion over 10 years to pay for more spending while the Republicans wants revenue-neutral tax reform in order to increase economic growth.
  • Spending. Under current policy the government will spend $48.6 trillion over the next ten years which represents a 5.1% annual rate of spending increase over the present. The President wants to spend an additional $1 trillion over this time period on new initiatives. The Republicans propose spending about $5.4 trillion less, or $43.2 trillion, which still works out to a 3.3% annual rate of increase over the present.
  • Deficits. Under current policy the deficit would start to increase, as a percentage of GDP, in 2018. The President proposes to stabilize the deficit at 2.5% of GDP. The Republicans would balance the budget within ten years by shrinking the deficit down to zero.
  • Public Debt. Under current policy the public debt (on which interest is paid) will increase to 79% of GDP by 2025. The President’s budget would stabilize the debt at the current level of 73% of GDP. The Republican’s balanced budget would shrink the debt to 57% of GDP by 2025.


There are stark differences between the President’s proposed budget and the Republican alternative.  Which is the better route to progress and prosperity?  Is it to raise taxes, increase government spending and only stabilize the debt or is it to streamline taxes, slow down the growth of spending and shrink the debt?  This is a fundamental question of government policy which will not be quickly resolved.  But at least the question is being raised in a dramatic way!

It’s Time to Bite the Bullet and Set up a Balanced Budget Plan

As a result of the 2014 elections, both the U.S. House of Representatives and the Senate are controlled by Republicans.  The House Budget Committee and the Senate Budget Committee are now gearing up to produce plans to balance our federal budget over the next ten years.  Accomplishing this goal will be a formidable challenge.
CaptureMaya MacGuineas, President of the Committee for a Responsible Federal Budget, has recently testified before Congress as to how hard it will be to get this job done.  The gist of her testimony:

  • Even though the deficit has dropped by two-thirds since the 2009 peak, our deficit and debt problems are far from solved, as indicated in the above chart.
  • CBO estimates that under current law the deficit will rise from $485 billion in 2014 (2.7% of GDP) to more than $1 trillion (3.8% of GDP) by 2025.
  • If nothing is done to slow down these runaway deficits, annual interest payments on the debt will rise from $230 billion this year to $810 billion in 2025. Even with a balanced budget by 2025, interest payments will take up $630 billion in that year.


  • As the chart above shows, it will require a ten year savings of $5.5 trillion to bring the budget into balance by 2025. Even to reduce the debt to 60% of GDP by 2025 (compared to 74% today), will take a ten year savings of $4.7 trillion.
  • As if this isn’t hard enough by itself, there will be additional “speed bumps” along the way, whose additional one-year costs alone are $210 billion. See chart below.

Capture2Clearly it will require much pain and shared sacrifice to find trillions of dollars in budget savings over a ten year period as well as avoiding additional costly speed bumps.  But the longer we wait to get started the harder it’s going to be to get the job done.  We need to stop delaying and get started on a budget recovery program this year!

Status Quo on the Budget Is Not Good Enough


I have now been writing this blog for just over two years.  I usually write three posts per week and this one is #280.  My top sources for background information are the New York Times and the Wall Street Journal.  My own local newspaper, the Omaha World Herald, carries the Washington Post economics journalist, Robert Samuelson, whom I greatly respect.
A column of his discusses a recent report from the Senate Budget Committee prepared by its outgoing chair, Patty Murray (D-WA), entitled “The updated fiscal outlook and its implications for the budget debate next year.”  To me this report clearly shows why there has been so little progress made in straightening out the budget over the past few years.
CaptureCapture1Here are some highlights of the report:

  • “Both our current fiscal situation and the outlook going forward have significantly improved, meaning we need a budget approach more focused on jobs and growth, not just on cuts.”
  • “Deficits have fallen dramatically over the last five years, and projected debt and deficits have also declined.”
  • “Revenue losses due to the recession and slow recovery were significant enough to counteract nearly half of the improvement in projected deficits, which highlights the need for new revenue from the wealthiest Americans and biggest corporations as part of any future deficit reduction effort.”
  • “It is clear that we need a federal budget approach more focused on jobs and growth, not on cuts for the sake of cutting. That leaves Republican leaders with a critical choice.”

In my opinion there are two basic problems with Senator Murray’s analysis:

  • Deficits have indeed fallen dramatically from their very high level in 2009, but not far enough! Deficits are projected to rise back to 3.9% in just ten years, as shown in the first chart. This means that debt will keep growing indefinitely, as shown in the second chart. This is unacceptable!
  • We do badly need to focus on jobs and growth but more deficit spending is not the way to do it. Although immigration reform and expanded trade would help, fundamental tax reform, individual and corporate, is what is really needed to grow the economy.

Hopefully a new Congress will be able to move in this direction next year!