Issues in Brief

Another Federal Budget Dead on Arrival

President and Chief Executive Officer
March 12, 2014

Need to Know . . .

  • Official budget proposals are no longer about creating a working framework for a fiscal budget
  • The White House’s projections of increased revenues and falling deficits are based on very rosy economic projections for the next decade
  • Meaningful changes to the budget process would likely require legislation

A Post-Mortem of the Budget Process
In early March, President Obama sent his official FY15 budget to Capitol Hill. Judging by the reception, not just from House Republicans but from a jaded White House press corps, the proposal is clearly DOA. It’s not the first proposed budget to get such a congressional snub. But considering the White House’s cavalier approach to this budget, and Congress’s inability to agree to a formal spending plan over the past decade, the budget process created almost a century ago is in desperate need of reform.

First, though, a look at the proposed FY15 budget.

The proposals would increase federal spending by 6.8% next year to $3.901 trillion, and federal receipts by 11% to $3.337 trillion (Figure 1). Outlays would thus grow to 21.4% of GDP from 21.1% this year, and receipts would grow to 18.3% of GDP compared with 17.3% this year (Figure 2). The budget deficit would shrink to 3.1% from 3.7% of GDP.

The president’s budget calls for $1 trillion in new tax receipts over the next decade. The primary means by which he would raise revenue is through limiting the value of itemized deductions and exclusions for individuals in the 28% tax bracket, as well as requiring very high-income earners to pay at minimum a 30% tax rate (the so-called “Buffett Rule”). The budget would reduce the corporate tax rate to 28% while broadening the base through elimination of unnamed tax expenditures.

The White House’s projections of increased revenues and falling deficits are all based on very rosy economic projections for the next decade by the Office of Management and Budget—which, of course, reports to the White House. The Congressional Budget Office takes a much dimmer view of economic prospects for the same period.

What’s Missing
Unfortunately, what this budget doesn’t do is address some of the most critical issues of the coming years, including the pending financial collapse of Medicare and Social Security.

Not that any of this matters. Congressional leaders view this executive branch budget as irrelevant, considering the recently negotiated congressional budget agreement that sets spending levels through the end of FY15. Even more so, since the president’s budget proposal exceeds the caps on agency budgets to which congressional leaders agreed.

But President Obama doesn’t care. Official budget proposals are no longer about creating an actual working framework for a fiscal budget. The president’s comment that “the budget is not just about numbers, it’s about our values” shows that the proposal reflects a vision rather than a blueprint for running the government. House Budget Chairman Paul Ryan (R-WI) had a more forthright assessment: “it’s a campaign brochure.”

Rep. Ryan may be correct, but this isn’t the first White House to treat the process as a campaign tool. Presidents over the past two decades understood that if Congress would be ignoring their budgets, they might as well use them to boost the party’s election prospects.

Legislating a Change in the Process
The budgeting process is obviously in need of repair. The Bureau of the Budget was created in 1921, giving the White House increased authority and Congress increased accountability. But since the 1970s, as power in Congress has become more dissipated it is harder to know whom to hold accountable. Legislators no longer feel compelled to meet the executive branch’s budget framework and the executive branch in turn no longer feels compelled to create realistic budgets.

As a consequence, the budget process has become a farce. According to political commentator David Frum, it’s a failure of our political institutions—one that will require an overhaul of the rules of budgeting. Among Frum’s recommendations: restoring budget primacy to the White House, restricting the number of legislators with the ability to amend the budget, and increasing the accountability of congressional leaders in enacting a budget. Given the way policymakers ignore custom these days, such changes would have to occur through legislation.

Until the politicians in Washington gain the courage and wisdom to undertake such changes, we can continue to expect future budget proposals to arrive in Congress DOA.

Figure 1 – Actual and Projected Federal Receipts and Outlays, FY13-24

Source(s): Fiscal Year 2015 Budget of the U.S. Government, OMB

Figure 2 – Actual and Projected Federal Receipts and Outlays, FY13-24 (Percent of GDP)

Source(s): Fiscal Year 2015 Budget of the U.S. Government, OMB

 

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