What We Hope to See in the President's FY 2022 Budget
The White House is slated to release President Biden’s first full budget proposal this Friday. Although the Fiscal Year (FY) 2022 budget request will be released the Friday before a holiday weekend, it’s important that it not go unnoticed. The President’s budget is meant to provide a roadmap for the President’s policy vision and what it means for the nation’s fiscal outlook over the next decade. With debt now larger than the economy and headed toward record levels this year, the President’s budget is perhaps more important now than ever.
The Committee for a Responsible Federal Budget will produce a summary and analysis of the President’s budget once it is released. We hope the budget will include the following:
- A Framework to Address Rising Debt Levels. Under current law, federal debt held by the public is on course to reach a record 108 percent of Gross Domestic Product (GDP) this year – more than twice its historic average – and rise further to 113 percent of GDP by the end of the decade. While recent borrowing to address the COVID-19 crisis was largely justified, the ten-year budget should include a plan to stabilize and then reduce the debt-to-GDP ratio once the economy has recovered. To achieve this goal, any budget will need to go beyond simply paying for new spending to include measures to close the existing structural deficits. (This could include measures to secure federal trust funds, reduce health care costs, cut low-priority spending, and raise additional revenues.) The point of a full budget is to lay out the nation’s priorities and show how all the various pieces fit together.
- Offsets for New Initiatives and Spending Increases. The President’s budget is likely to include $5 to $6 trillion in new spending and tax breaks to reflect the President’s American Jobs Plan, American Families Plan, and proposed discretionary spending increases. The budget should propose and itemize specific savings measures to fully cover these new costs. To the extent policies are still being developed, offsets should be at least as detailed as new spending increases or tax breaks.
- Plans for Expiring Provisions. Currently, a number of tax and spending provisions – some enacted by the previous administration and others by this one – are slated to expire at some point over the next five years. Extending these provisions without offsets would substantially worsen the fiscal outlook, and ignoring how to address them will not make them go away. The President’s budget should clearly articulate a plan for dealing with each expiring provision – whether extending it with offsets, reforming it, phasing it out, or letting it expire.
- Includes Reasonable Economic and Policy Assumptions. Too often, budget proposals are riddled with gimmicks that obscure the fiscal implications of the budget and allow policymakers to sidestep the tradeoffs involved in budgeting. While it’s reasonable for the President’s budget to incorporate the potential economic impact of its own proposals, assumptions regarding growth, employment, inflation, and interest rates must be reasonable and internally consistent. The budget should also avoid relying on timing shifts, “magic asterisks” (placeholders that assume budgetary savings without policies to achieve them), inflating savings, or other gimmicks designed to make the budget seem more responsible than it is.
As the President frequently emphasizes, a budget is a statement of values and priorities, and the President’s budget must show how they fit together within a sustainable framework. The country should not be enacting a massive agenda of new initiatives without an understanding of how it fits within the overall budget context. We hope the President’s budget will begin this important conversation.