In many respects, BPBA-2019 resembles a budget bill that was introduced in February 2018 and rammed through Congress at warp speed. The Bipartisan Budget Act of 2018 was sold, it will be remembered, as a way to avert resumption of a long-running government shutdown that had been triggered by a dispute over border barrier construction. More shutdown drama, mediocre results, 2/12/18.
Negotiated behind closed doors by a small number of insiders – sprung on members of Congress at the last minute – generous spending increases for almost every area of government activity except border security – no significant mandatory spending or revenue offsets (in addition, the 2018 bill stealthily reinstated scores of special interest tax breaks) - set fiscal limits for two fiscal years (FY 2018/19 last time; FY 2020/21 this time) – suspended the debt limit until after the next election.
Although the end results of these bills are similar, in both cases increasing spending and budget deficits, there are two notable differences.
•The president strongly supported BPBA-2019, whereas he slammed congressional leaders for the handling of BPBA-2018 and publicly vowed that he would never sign such a bill again.
•Instead of being offered at the proverbial “last minute” (the norm for congressional activity), BPBA-2019 is being offered well in advance. FY 2020 doesn’t begin until October 1, and it would have been easy to secure additional time by enacting a continuing resolution.
So what’s going on? Apparently, the necessity of raising the debt limit provided a rationale for hasty approval of an excessively generous budget deal, albeit this time with more White House involvement in the process (House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin have been identified as the principal negotiators). The bipartisan spending party, Wall Street Journal, 7/23/19.
Mrs. Pelosi somehow bamboozled Treasury Secretary Steve Mnuchin over the debt ceiling, which the government is set to exceed [when Treasury’s latitude to stay within the limit by the use of “extraordinary measures” is exhausted]. The agreement raises the debt ceiling through the 2020 election into mid-2021.But Mrs. Pelosi was never going to default on the national debt. The White House should have called her bluff and demanded that she raise the debt ceiling for nothing. A debt “ceiling” that was supposed to enforce spending restraint has now become leverage to extort even more spending.
We view this plot twist as supporting SAFE’s position that it’s time to abolish the debt limit. Fixing the fiscal problem: work on what matters, 6/26/17.
If one is serious about stemming the seemingly endless growth of government debt, the obvious course is to tighten up the procedures used to establish and enforce budgets for the government’s revenues and outlays. Setting and monitoring a debt limit is at best a reminder of past errors, equivalent to “locking the barn after the horse has been stolen.”
But it’s too late for action on the debt limit at this juncture, so let’s focus on other reasons that the budget process misfired again and assess the damage.
I. Fiscal year 2020 budget – The president’s budget proposal for FY 2020 (BP-2020) wasn’t entirely to our liking, but we perceive some positive elements. Notably, the president and his budget staff deserve credit for recognizing that the spending “baseline” is too high and proposing specific changes versus sticking to banal generalities about making “tough choices,” etc. President’ budget proposal lands with a thud, 3/18/19.
To begin on a positive note, BP-2020 prioritizes discretionary government programs rather than assuming they should all grow (or be cut) at about the same rate. As a result, defense spending would be kept over the recently increased funding level in nominal dollars (but decline on an inflation-adjusted basis at the assumed rate of 2.3% per year), whereas nondefense spending would be cut 27% in nominal dollars (over 40% on an inflation-adjusted basis).
As for how BP-2020 would fare on Capitol Hill, there were indications – quickly supported by congressional reactions – that it wouldn’t be an easy sell. Both House and Senate budget committees heard testimony from Russell Vought, acting director of the Office of Management and Budget, at sessions scheduled before all the budget documents had been submitted let alone reviewed– and the tone of the questioning was generally negative (Democrats) or neutral (Republicans). Whither BP-2020, 3/25/19.
In the course of two days of questioning, Acting Director Russell Vought had taken a pretty good pounding. And now, having heard what at best were considered “suggestions,” the members of Congress were going to work on their own budget resolution, which – if it was ultimately passed – probably wouldn’t look much like BP-2020.
No congressional budget resolutions for FY 2020 were passed by the House or Senate (the Senate Budget Committee produced a resolution, but it wasn’t voted on by the full Senate), nor was BP-2020 approved. And although some of the congressional appropriation committees began their work, Senate Majority Leader Mitch McConnell served notice that he wouldn’t allow any appropriation bills to be voted on by the full Senate until an understanding was reached about the spending caps currently on the books. Lawmakers concede they might have to pass a dreaded “CR,” Niv Elis, thehill.com, 7/12/19.
Senate Majority Leader Mitch McConnell (R-Ky.) has ruled out beginning the process of marking up and passing appropriations bills in the absence of a deal on spending caps. He says doing so would undermine President Trump’s position in the budget talks.
Hmm, sounds reasonable, although other observers have faulted Sen. McConnell for carving to Democratic spending demands in the interests of averting any risk of a government shutdown for which Republicans could be blamed. What Led to This Nasty, Ugly Spending Bill? David Ditch, dailysignal.com, 7/23/19.
Senate Majority Leader Mitch McConnell, R-Ky., was reported as saying that “nobody has lost an election by spending too much money” in regard to acting chief of staff Mick Mulvaney’s effort to pay for the spending deal.
The president has also been criticized for giving in too readily. Trump makes Republicans big spenders again, Washington Examiner, 7/25/19.
While the political reality of a Democratic-controlled House of Representatives surely limits Trump’s bargaining power, it's baffling that the Art of the Deal author negotiated away all his leverage by stating his real bottom line at the start. He sent Treasury Secretary Steven Mnuchin to House Speaker Nancy Pelosi with a singular demand: a deal that avoids a debt-limit fight or a potential government shutdown before the 2020 election.
II. The budget deal – The legislative language is hard to follow, but here’s a summary of BPBA-19 based on various sources.
FIRST, the spending caps on discretionary spending for FY 2020 and 2021 – imposed by the Budget Control Act of 2011 after a joint select committee was unable to agree on a spending cut plan – will be eliminated in conjunction with establishment of overall defense/non-defense spending limits. As a result, overall discretionary spending for FY 2020-21 will increase by about $320 billion.
Furthermore, the spending baseline for future years will rise, portending some $1.7 trillion in added deficits over 10 years.
SECOND, the debt limit will be suspended again – a technique that spares the members of Congress from affirmatively voting for higher debt. It will be reinstated on 8/1/21 at the level of debt then outstanding, at which point the Treasury Department will resume the use of “extraordinary measures” to comply with the new limit as debt continues to increase.
Parenthetically, the current debt limit number must be posted on the internet somewhere, but your faithful scribe wasn’t able to locate it on the Treasury Department website, Treasury letters to Congress, etc. Just one more indication that compliance with the debt limit has become a pointless formality and everyone knows it.
THIRD, some $77 billion in offsets to the added spending are provided, about half of what the administration reportedly asked for. These offsets are so far out in time, moreover, as to have essentially zero credibility. GOP repeals the entire legacy of the Tea Party in one fell swoop, Daniel Horowitz, Conservative Review, 7/23/19.
The majority of this [amount] is from Changes In Mandatory Programs (CHIMPS), which means that they just write a line in the bill saying, “In 10 years from now we will spend less on entitlement programs, and that will free up immediate increases for spending on discretionary programs.”
FOURTH, the overall spending limits established by the BPBA will then be worked into the annual appropriation bills that represent the end point of the budgeting process. To ensure that this action goes smoothly, an understanding has been reached that no “poison pills” will be permitted in the appropriation bills.
It would be interesting to see “poison pill” defined in legislative language, but apparently this part of the deal is being covered by a “statement of principles” subscribed to by the top four congressional leaders. House approves Trump's spending hikes, debt holiday, Stephen Dinan, Washington Times, 7/25/19.
A key part of the deal was a statement of principles from the top Democrat and Republican in each chamber. [Reps. Nancy Pelosi & Kevin McCarthy; Sens. Mitch McConnell & Chuck Schumer] agreed to forgo “poison pill” add-ons or other policy amendments without the approval of all four leaders as lawmakers write those 12 spending bills. That marks a surrender for Democrats, who cannot attempt to use the process to expand taxpayer funding for abortions, or to limit the president’s executive actions on immigration, the environment or other regulatory matters.
III. Assessment - Thoughtful observers on both the left and the right seem to agree that our national leaders should be working to address the government’s fiscal woes instead of making them worse. Here is a sampling of opinions to this effect.
• Neither party cares about our national debt, News Journal (USA Today editorial), 7/27/19.
Remember how Republicans “excoriated President Barack Obama in 2009 for his $787 billion stimulus in 2009” and how “they took the Treasury to the brink of default in 2011 to force spending cuts”? Well now that they are back in power, “as [is said' in Brooklyn, fuggetaboutit.” *** And “many Democrats have apparently thrown in the fiscal responsibility towel as well,” with their tone being set by progressive presidential candidates like Sens. Bernie Sanders and Elizabeth Warren.
• Trump And Pelosi Team Up For Bigger Government, Deeper Debt, Terry Jeffrey, townhall.com, 7/24/19.
The Trump-Pelosi debt-and-spending deal is a short-term political win for the Washington establishment of both parties and a long-term loss for the American people. Rather than serve a great national interest, it attacks a great national interest: the solvency and future prosperity of this nation. It will not help Make America Great Again. It will make America bankrupt sooner.
•The Founders and National Debt, Cal Thomas, townhall.com, 7/25/19.
The Founders of the United States of America [Jefferson, Hamilton, Washington, Madison, Adams & Franklin are quoted] warned against massive federal debt, but, to our detriment, their political descendants are not paying attention.
•Once Again, Uncle Sam Shirks Fiscal Responsibility in Budget Deal, Veronique de Rugy, townhall.com, 7/25/19.
This year, the deficit will end up being the fourth highest in U.S. history. It's gigantic, and it will hit a little over $1 trillion by the end of the fiscal year. It's also larger than previously projected. And it's growing fast, at a time when the United States is not in a recession -- unlike the economies that delivered the three previous highest deficits. These are all facts that should help members of Congress and the administration recognize that it's probably time to reduce spending. But they fail to make that realization.
Timely and assured funding for the defense establishment is a big plus, as the president and others have rightly pointed out. Budget deal achieves Pentagon’s No.1 goal: Budget predictability with $738 billion top line, Jamie McIntyre, Washington Examiner, 7/23/19.
The two year-deal effectively ends the specter of sequestration mandated by the Budget Control Act of 2011, which expires in 2021. “Anybody who served in business will tell you that steady, predictable funding is the key to success,” Defense Secretary-nominee Mark Esper testified at his Senate confirmation hearing last week. “Because you can manage your workforce, you can organize how you work in ways that are far more efficient than looking at inconsistent and unpredictable funding coming your way.” Asked on a scale of 1 to 10 how important a deal would be, Esper said "11.”
That doesn’t justify across-the-board spending increases, however, as congressional Democrats demanded – without evidence that all of the added spending will be put to good use, serious efforts have been made to eliminate wasteful government spending & special interest tax breaks, and action will be taken to restructure Social Security, healthcare, etc. programs before they bankrupt the government longer term.
Nor should it be assumed that the US will grow its way out of the fiscal problem as a result of the GOP tax cuts and regulatory easing. The economic growth rate has yet to improve as predicted, and deficits and debt are soaring. Trump can’t be both the president of growth and the president of debt, Daniel Horowitz, conservativereview.com, 7/26/19.
Earlier today, the Bureau of Economic Analysis announced that the economy had grown just 2.1 percent during the second quarter of this year (ending June 30). It also revised Q4 of 2018 down to just 1.1 percent, which now means that growth during the 12 months ending Q4 of 2018 was only 2.5 percent, not 3 percent as previously thought. This means that the U.S. economy has now gone 14 years without a year-over-year growth of 3 percent. It’s been 19 years since we’ve hit 4 percent, which was during 1997-2000.
Another factor (not mentioned by Mr. Horowitz) may be having a more immediate impact on business confidence, namely the administration’s trade policies, but in any case the economic outlook remains uncertain. The Trade-War Growth Slowdown, Wall Street Journal, 7/26/19.
If Mr. Trump wants to get back to the 3% growth he promised, he needs to drop his tariff threat against European cars, stop threatening to pull out of Nafta, and ideally cut a trade deal with China. He’s [also] wrong if he thinks the Federal Reserve cutting interest rates by 25 or even 50 basis points will be the magic growth elixir.
#We can no longer proceed using frugal or prudent spending and debt control. Those days are gone. Money is power and elected officials spend the tax money to buy influence and favors. No way to fix sans a revolution. – SAFE director