How cynical can lawmakers get?

Photographer: Mark Wilson/Getty Images

Congress's Budget Game Gets Uglier

Peter R. Orszag is a Bloomberg View columnist. He is a vice chairman of investment banking at Lazard. He was President Barack Obama’s director of the Office of Management and Budget from 2009 to 2010 and the director of the Congressional Budget Office from 2007 to 2008.
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The budget resolution before the Senate this week is either dishonest or deeply problematic. Consider, as just one example, the way it treats non-defense discretionary spending.

Constraints on discretionary spending are being used, once again, to make the deficit numbers look better over the medium term. Unfortunately, both Republicans and Democrats have bought into this Beltway game: Slap down some unrealistically low numbers for discretionary spending in the future, and presto! You’ve made the deficit magically smaller -- and you don't even have to say how you'll hit the target.

This game was once played modestly; nips and tucks around the edges made the projections appear a bit better. The game got more serious in the 2011 budget deal, when the discretionary numbers were knocked down further and then locked in with spending caps. That deal continues to be a problem, because the discretionary levels were set too low.

This week's budget resolution, however, takes the game to new extreme, brazenly putting non-defense discretionary spending on a path so unrealistic, no serious person could defend it with a straight face. The spending is kept at a level only slightly above what it was in 2008 -- all the way through 2025. From 2018 to 2025, it is straight-lined at about $550 billion a year in nominal terms. In other words, it's assumed to not even keep pace with inflation, population growth or economic activity.

Keep in mind, this is the part of the budget that funds the Federal Bureau of Investigation, the National Institutes of Health, the Food and Drug Administration, the Transportation Security Administration and most other government agencies -- whose responsibilities typically expand with the size of the economy. At the very least, their work increases with inflation and population. It's just not credible to assume the U.S. will experience no nominal growth over eight years, let alone 18; that’s never happened since the data began being collected in the 1960s.

For perspective, it helps to examine such spending as a share of the economy. Over the past 50 years, non-defense discretionary spending has averaged just under 4 percent of gross domestic product. It reached its lowest level, 3.1 percent of GDP, in the late 1990s, and last year it was 3.4 percent.

Under the proposed budget resolution, by 2025, non-defense spending would fall to 2 percent of GDP -- about half its historical average and a third less than its lowest share in the past five decades. To put it another way, the resolution assumes a spending cut of almost $500 billion in 2025 compared with the historical share of GDP. Even relative to the much more conservative official baseline from the Congressional Budget Office (which, because of the 2011 deal and other technicalities, also assumes we wind up well below the historical average by 2025), the budget resolution makes additional cuts of $126 billion in 2025, according to calculations by Richard Kogan of the Center on Budget and Policy Priorities.

That brings me back to the Beltway game. I doubt very much that Congress will stick to these numbers; there's no plausible political path to achieve them. Over the past several years, Congress has adopted mini-deals to loosen its own discretionary caps -- and previous caps have been much less aggressive.

To stick to the new thresholds would involve slashing investments in port security, medical research, education, environmental protection and other essential activities. By not showing the details on how much each program would be affected, the resolution makes it easier, for now, to pretend the cutbacks are harmless. In fact, they would be disastrous for the economy.

The irony in all of this is that the federal government's projected long-term deficit has come down substantially in recent years. This is in no small part because of the deceleration in health-care costs. On an apples-to-apples basis, projected debt in 2040 as a share of GDP has fallen in half since 2010, according to Kogan. Given that there are some early signs that the slowdown in Medicare may be partially reversing, the best thing Congress could do to improve the U.S.'s long-term fiscal outlook would be to double down on reforms, including shifting away from fee-for-service medical payments, that have recently helped slow the growth in Medicare costs.

The budget resolution doubles down instead on gimmicks,  especially cuts in future discretionary spending. So which is it? Is Congress putting fake numbers on paper as part of a cynical game, or does it mean to cut well beyond budgetary fat into crucial muscle?

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Peter R. Orszag at porszag3@bloomberg.net

To contact the editor on this story:
Mary Duenwald at mduenwald@bloomberg.net