In the Nation's Interest

Automatic

The cliché line is that the first automobile race occurred immediately after the construction of the second automobile.  But perhaps the very first formal automobile race was run from Paris to Rouen in 1894.  Preliminary written entries were required of the hopeful participants.  Back in those days, the design of the newfangled automobile was far from settled; it was not surprising, therefore, that one piece of information required on the entry form was the means of propulsion.  There were internal combustion engines, such as vehicles use today; but there were also steam- and electric-powered entries.  Perhaps the most innovative vehicle, however, had its propulsion source listed as “automatic.”

Sadly, that vehicle did not appear for the start of the race.  Just think of all of the consumption of scarce resources and all of the environmental emissions that we would have been spared ever since if it had.

This lost opportunity often comes to mind upon the release of a new budget proposal.  One such example is the new House budget resolution for the coming fiscal year (2015).  There is some dispute in Washington over whether that budget resolution is even needed.  The House and the Senate agreed at the turn of the year to annual appropriations ceilings for 2015.  The Congress therefore has all of the authority that it needs to proceed immediately to passing the necessary legislation keep the government running.  However, the House Budget Committee and its Chairman, Rep. Paul Ryan (R-WI), wanted to aim higher; and any serious attack on the budget problem would certainly require more-comprehensive “reconciliation” instructions to provide protection from a filibuster in the Senate.  So although the Senate may demur on producing a full budget resolution this year, there is at least a theoretical argument for the House position.

An associated question, however, is the likelihood that any serious run at the budget problem will be taken.  A second is whether this budget resolution increases that likelihood.  Most Washington-watchers’ answers to both questions would be no.

The House Resolution is extraordinarily ambitious.  A chart by our friends at the Committee for a Responsible Federal Budget gives some sense of just how ambitious, by comparing the debt burden (as a percentage of GDP) that is claimed to result from the Resolution with the results from other current budget proposals, including the President’s budget, and the Congressional Budget Office (CBO) baseline (which is a reasonable conception of what would happen if the budget were clicked on autopilot for the next ten years).  In contrast to the baseline and to several other paths, the debt burden under the House Resolution turns sharply down from this year’s estimate of almost 74 percent to only about 57 percent ten years hence – lower than the presented alternatives other than the House Republican Study Committee, which is estimated at 49 percent.  Beyond the debt measure, it is worth noting that the Resolution claims to achieve actual balance by the end of its ten-year horizon, in fiscal year 2024.

The Resolution’s promised outcome might appear extremely attractive.  But Washington watchers still say that nothing will happen.  Why not?  Why not snap up a proposal for such a sharp reduction in our debt burden?  Let’s look at just one major component of the Budget Resolution.

At the turn of the year, as referenced a moment ago, bipartisan House and Senate negotiators struck a bargain on the annual appropriations (or “discretionary” spending) numbers for the next two years.  Their deal left in place the appropriations “sequester” ceilings for fiscal years 2016 through 2021, which resulted from the budget and debt-limit negotiations and legislation of 2010 and 2011, including the failure of the “supercommittee” to achieve an overall budget solution.  The sequester levels provide separate constraints on defense and nondefense appropriations.

Although this bipartisan deal was signed, sealed, and delivered in law, the House Resolution chooses not to comply with it.  Instead, it increases defense spending, and then decreases nondefense spending by even more, leaving net deficit reduction over and above that already achieved by the bipartisan agreement.  By raising defense spending, it gratifies the national security “hawks,” while it cuts down on the “size of government” in the nondefense arena.

The following chart gives some perspective on the extent of this transfer of funding, by showing the path of nondefense appropriations in the Resolution, along with a few historical years extending through the sequester and the CBO “baseline.”

This chart is denominated in nominal dollars, not adjusted for inflation, so that it can rely solely on the numbers in the Resolution itself.  The historical numbers demonstrate that nondefense discretionary spending increased significantly as a response to the financial crisis (in the “stimulus” bill); but the spending in that bill was explicitly temporary, and the sequester already has more than removed it from the budget.  However, the Resolution goes much further, bringing discretionary spending back down virtually to its level of 2008, before the financial crisis, with no adjustment for subsequent inflation.  The Resolution then holds nondefense spending at virtually that same level in nominal dollars for half a dozen more years.  By 2024, nondefense appropriated spending in the Resolution is more than $150 billion, or more than one-fifth, below the level that would result from the implementation of the sequester with increases only for inflation after it expires at the end of 2021.

There can be a principled debate over the merits of the approach in the Resolution.  If you don’t like government “bureaucrats,” this is the segment of the budget that funds them.  (Although the actual benefits under federal assistance programs are funded in the “entitlement” or “mandatory” category, the cost of program administration is generally in this “discretionary” category.)  So this is where the “overhead” or “administration” part of “big government” is located.  Experts on management of organizations will argue that there is inefficiency or “fat” in every large entity, government prominently included, and that there must be room to achieve substantial savings in the bureaucracy.

Others would argue, on the other hand, that the discretionary part of the government is where we build the future – infrastructure construction and repair, such as highways, mass transit, and air traffic control; basic research; the administration of justice; the national parks; and so on – as opposed to the entitlement programs, largely for the elderly, where (as proper as it may be) we are funding the past.  The same group may point out, along with the seasoned Washington watchers, that these proposed cuts simply will not happen.  Among their observations might be that this same House of Representatives could not pass its required appropriations bills under much less strenuous caps just one year ago, which is what led to the turn-of-the-year bipartisan deal in the first place.

Another piece of evidence is historical.  Turn the clock back to a previous revolution in government, in 1995.  Control of the Congress changed hands, and another Budget Resolution that promised a massive turnaround in government was enacted.  Part of that Resolution was a promise to cut the size of government by reducing discretionary spending, particularly nondefense appropriations.  The history of that period is shown in the following chart (which, because the resolution did not show nondefense spending separately over all of the years it covered, presents total discretionary outlays).

Like the current House Budget Resolution, the fiscal year 1996 Resolution (enacted in 1995, just after the 1994 election) promised to cut spending for the administration of government and hold it down for the duration of its budget horizon, ending with a balanced budget in 2002.  As the chart makes clear, the resolve of the Congress to hold down such spending endured for precisely one year.  By fiscal 1997, spending began to grow rapidly, even exponentially – faster than it had in the years preceding the Resolution.  As you may know, the budget achieved balance in fiscal 1998, for the first time in 29 years – but clearly not because of the restraint in discretionary spending that had been promised in the Budget Resolution passed in 1995, because that restraint never materialized.

Comparing the two charts above, there is reason to be modestly optimistic with respect to fiscal discipline.  There already has been more-enduring restraint on appropriated spending now than there was in the middle 1990s.  But that good news is also bad news from another perspective:  We probably are getting closer to the point where spending restraint has reached its limits, where the fat has been cut away and what remains is muscle and bone.  At that point, savings will be harder to extract, and pressure will come even from ostensible enemies of “big government” to build the highway or repair the bridge in their towns.  The failure of the House to pass its appropriations bills for the current fiscal year (before the bipartisan deal that lifted part of the sequester) is evidence that the point where the feasible cuts have been made is not far off.

So some will conclude that the claimed budget savings in the House Resolution are a little bit like that claimed “automatic” propulsion in the automobile that failed to show up for that 1894 race.  They might conclude that the Resolution could have claimed to balance the budget in nine years instead of ten by cutting proposed future year appropriations even more, with results that would be only equally unreal.  Cutting future year appropriations is the easiest way to show budget savings; no one can prove you wrong, because the actual appropriations bills will not even be considered until those future years arrive.  The savings claimed in the new House Resolution might prove to be real; today, no one can prove otherwise.  But then again, they might prove to be just automatic.

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