Not to worry about the budget deal

Not to worry about the budget deal
© Stefani Reynolds

Belated spoiler alert in the story of fiscal policy. The budget deal struck by the White House and Congress this month covers only part of the budget. It could never come close to solving our serious problem, and therein lies the tale. You will hear some Washington watchers or some budget experts on cable news audibly hyperventilating over the new budget legislation. They view it as a golden opportunity lost or a disaster in its own right.

But let us look more closely. The budget deal does two things. First, it suspends the statutory debt limit of the federal government. The Treasury is up against the legal limit on its ability to borrow and is juggling its cash. If the Treasury ran short, the United States would default. Some lament that Congress did not hold the White House to ransom by asking to fix the budget or else the national debt gets it. The problem is that would kill the economy. It would be the debt explosion that we feared in the first place. But there is no way under these circumstances that such blackmail could ever succeed. That takes us to the next thing that the budget deal did.

Second, the budget deal increases the limits on the annual appropriations for all federal agencies. The amount of actual increased spending is real money in terms of size at more than $97 billion in fiscal 2020 and more than $130 billion in fiscal 2021. But it is not real money in that there was never any hope that those dollars would not be spent. The spending caps that the new budget deal increases were set back in 2011. They were set unthinkably low to punish Congress and the “supercommittee” if they had failed to work out a deficit reduction plan. With no big surprise, Congress failed to deliver a proposal. With no surprise at all, the budget caps were unthinkable as unintended. Congress has been increasing them yearly, as it saw zero hope of passing appropriations bills at those very low levels.


To some, raising appropriations caps by a dime is an abomination. But by any realistic standard, the annual appropriations are not high and cannot solve the budget problem. In fiscal 2018, annual appropriations spending in constant 2012 dollars was about what it was in fiscal 2005. It is more than 17 percent less than it was in fiscal 2010, which admittedly included temporary spending to fight the economic recession. Since 1993, the annual appropriations spending increased by only 29 percent.

Now think about what those appropriations cover. National security in an era of terrorism. Medical care for veterans. Law enforcement and schools. Highways and air transportation. Science and research. The list goes on and the needs will continue to grow. Annual appropriations are not all that large. In 1962, appropriations spending was equal to 12.3 percent of gross domestic product. In 2018, it was 6.2 percent of gross domestic product.

If you connect the dots and extend a straight line, it becomes clear that restraining appropriations cannot possibly solve our budget problem. The Congressional Budget Office has projected the 2029 budget deficit to be 4.2 percent of gross domestic product and discretionary spending to be only 4.9 percent of gross domestic product. How much do you think you can possibly cut appropriations? No national defense? No highways? No problem! But seriously folks. The real budget problem here is not annual appropriations, which in the next decade are projected to shrink by about 1.3 percent of gross domestic product. The real problem is health care, which is expected to increase by 1.7 percent of gross domestic product.

Even if you care deeply about this fiscal problem, do not waste any time weeping over the new budget deal. It could not possibly have solved the real problem of health care or even have addressed health care. Neither party has the answer to that one yet. Holding appropriations or the debt limit hostage now would not have forced a solution, only a severe market and economic meltdown. There is no need to weep over this deal. Instead, tell your lawmakers to get to work on the next deal and the real problem.

Joseph J. Minarik (@JoeMinarik) is senior vice president at the Committee for Economic Development. He served as chief economist at the Office of Management and Budget under President Clinton and is the coauthor of “Sustaining Capitalism: Bipartisan Solutions to Restore Trust & Prosperity.”