Congress has adjourned for Christmas having passed a final budget for the 2016 Fiscal Year extending through next September. It puts into place for this year the two year spending agreement reached between Congress and the President in October. However Congress started out the year by passing a ten year budget plan resolution leading to a balanced budget by 2025. The budget just passed leads instead to a deficit of $1.1 trillion in 2025. Here are the details as described by the nonpartisan Committee for a Responsible Federal Budget:
Revenue: decreased under new budget by a $650 billion (over ten years) by making various temporary tax deductions permanent.
Discretionary Spending: increased by $50 billion for the current budget year (by breaking the sequester cap).
Medicare: instead of saving $430 billion over ten years, Medicare spending is increased by $95 billion over ten years.
2025 Deficit: instead of shrinking to zero in ten years, it is now projected to be more than $1 trillion in 2025.
2025 Debt: currently the (public, on which we pay interest) debt is 74% of GDP. The ten year balanced budget plan would reduce the debt to 56% of GDP. Instead, the debt is now on track to reach 80% of GDP by 2025.
Granted the Republican Congress hopes to develop a tax reform plan in 2016 which would lower tax rates for everyone, paid for by closing many of the loopholes and deductions just approved last week. One very good way to do this has recently been proposed by the Tax Foundation. The TF plan would boost economic growth and thereby increase tax revenue substantially over ten years.
The problem is that real tax reform is unlikely to happen without a Republican president in office. If a Democratic president is elected in 2016, then the dire predictions made by the CRFB (above) are likely to remain valid for the foreseeable future. Our fiscal and economic future remains quite precarious at the present time!
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:
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!