GOP has begun to reckon with budgetary reality

The current continuing resolution (CR) that is keeping the government open runs through Thursday and will need to be extended this week.

Further, the Congressional Budget Office (CBO) projects that the Treasury Department will run out of maneuvering room under the current debt limit sometime in the first half of March. There is no getting around the fact that the debt limit has to be raised soon too.

{mosads}Congress’ ultimate decisions on the amounts on full-year appropriations for 2018, whenever they occur, won’t have much of an effect on the need to raise the debt limit in March, or even on the amounts by which the debt limit must go up in the near term.

The government is set to run a massive deficit this year of about $700 billion, regardless of the amount of the government’s discretionary spending, and so the debt limit — now fixed at $20.5 trillion — will need to go up to accommodate this additional federal borrowing.

Still, it is possible to see these coming weeks, and the decisions that will have to be made during them, as a reckoning for the GOP. Republicans in Congress and the Trump administration are on track to approve appropriations bills that will dramatically increase federal spending this year, and by extension, over the coming decade, by raising the expected baseline for these programs.

Consequently, the coming deal on appropriations spending will add trillions to the federal deficit over the coming decade and also to the amounts the government will need to borrow to cover these obligations.

Once this spending is approved and is assumed into budget projections, Republicans will be even less credible than they already are when they propose plans that reach balance mainly through large, unspecified cuts in discretionary spending. 

While a full-year agreement on appropriations is not yet settled, it is pretty clear at this point that when a deal does finally emerge, it will include substantial increases in spending for defense and nondefense appropriations, totaling approximately $150 billion annually above the current caps on discretionary accounts over the next two years.

Congressional negotiators are settling on added funds for defense of approximately $80 billion in 2018 above the current limitation, and another $60 billion or more for domestic programs. The caps would also go up in 2019 by slightly higher amounts, for a yearly average increase over the next two years of $150 billion in new spending. 

Once these appropriations are approved, there will be no going back to the lower baseline assumed in current budget projections. This is the first full-year appropriations cycle with Republicans controlling both the House and Senate and with President Trump in the White House.

If Republicans don’t cut discretionary spending this year, they never will. In fact, the emerging deal on appropriations signals that discretionary spending will exceed what is projected in the current CBO forecast by approximately $1.5 to $2.0 trillion over the coming decade, depending on assumptions of expected inflation increases for appropriated accounts in future years.

This added spending comes on the heels of the tax legislation, which reduced projected federal revenue by $1.5 trillion over a decade assuming no additional growth and by $1 trillion assuming slightly stronger growth occurs due to the tax cuts.

At a minimum, then, Congress is on track to add $2.5 to $3.0 trillion to projected federal deficits and debt over the coming decade from its tax and spending decisions. That additional borrowing would push the cumulative federal deficit over the next 10 years above $13 trillion.

It is now widely expected that the government will run a deficit next year of more than $1 trillion, and the gap between projected revenue and spending will only widen from there. 

For years, when out of power, Republicans proposed budget plans that assumed deep cuts in appropriated accounts as part of their balanced-budget plans. This assumption was never realistic because there is strong bipartisan support in Congress for raising, not lowering, discretionary spending on both defense and nondefense accounts by many tens of billions of dollars annually. 

In the case of the military, there’s little question that more funds are needed, given the many security threats emerging globally. For nondefense accounts, there are some programs that should get more funding and some that should get much less or be terminated.

Unfortunately, there is seldom a majority for cutting any domestic spending in Congress, as there are enough Republicans who will join with nearly all Democrats to support just about every line item in the budget. 

The result is that Republicans are about to agree to a massive increase in appropriated spending that runs directly counter to their previous budget plans.

In its 2018 Budget, the Trump administration assumed discretionary spending for non-defense programs and agencies would fall from $619 billion in 2017 to $601 billion in 2018, and then to $429 billion in 2027.

The emerging deal on appropriations would instead add hundreds of billions of dollars to domestic discretionary spending over the coming decade.

Republicans now control Congress and the White House, which means they carry much of the responsibility for running the federal government. It is not possible in this context to advance budget proposals that contain assumed reductions that even Republicans don’t support.

The difficult reality is that the federal government’s budget is badly out of balance, and the solution isn’t going to come from deep cuts in appropriations spending, which is already low by historical standards relative to the size of the national economy.

What’s needed is a serious plan to restrain the growth of entitlement programs over the medium and long term. Spending on these programs has been growing more rapidly than the economy for many years and thus is the real source of the government’s fiscal problems. 

The sooner Republicans accept and act on this reality, the better.

James C. Capretta is a resident fellow and holds the Milton Friedman chair at the American Enterprise Institute.