What We Hope to See in the President's FY 2023 Budget
President Biden is slated to release his Fiscal Year (FY) 2023 budget proposal on March 28. 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 inflation at a 40-year high, ongoing military and public health crises, and a national debt nearly as large as the economy, the President's budget is perhaps as important now as 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 Plan to Tackle Inflation: Inflation, as measured by the Consumer Price Index, totaled 6.7 percent in calendar year 2021 – the highest in four decades – and has continued to rise rapidly in the first two months of 2022. Excessive fiscal stimulus in response to the COVID-19 public health and economic crisis is at least partially responsible for the high inflation, boosting consumer demand well in excess of supply. While the Federal Reserve is chiefly responsible for addressing inflation, the President's budget should identify areas where fiscal policy can assist. This begins by doing no harm and avoiding further increases in near-term deficits. However, the budget should go further, laying out a plan for unwinding remaining COVID relief spending, lowering health care costs, reducing deficits to tamp down demand, and identifying targeted reforms to promote labor force participation and address supply chain issues.
- A Framework to Reduce Deficits and Reverse Growth in the Debt: The national debt is nearly the size of the economy and is on course to reach a record 107.5 percent of Gross Domestic Product (GDP) by the end of the decade, up from 79.2 percent of GDP at the end of FY 2019. While annual budget deficits are likely to decline over the next couple of years as COVID relief ends, they will remain elevated over the next decade and grow dramatically over the long-term. Given the state of the budget and economy, the President's budget should put forward a plan to reduce near- and long-term deficits below what is projected under current law, putting debt on a downward path relative to the economy over the next decade and beyond. To achieve this goal, the budget will need to go beyond simply paying for new spending, and include measures to raise more revenue, reduce health care costs, and cut other spending. As part of this plan, the budget should propose reasonable and responsible defense and non-defense discretionary spending levels, backed up with a call for discretionary spending caps.
- Trust Fund Solutions for Social Security, Medicare, and the Highway Trust Fund: Under current law, the Medicare Hospital Insurance trust fund will be insolvent by 2026, the Highway Trust Fund by 2027, the Social Security Old-Age and Survivors Insurance trust fund by 2033, and the Social Security Disability Insurance trust fund by 2057. These trust funds face combined cash deficits of $3.5 trillion over the next decade. To secure the health of our major trust funds, the President's budget should put forward trust fund solutions to lower Medicare costs, slow the growth of Social Security, raise additional revenue for those programs, and close the highway trust fund shortfall. Thoughtful solutions would not only prevent abrupt across-the-board cuts upon insolvency, but also improve the programs themselves, accelerate economic growth, and improve our long-term fiscal outlook.
- Offsets for New Initiatives and Extensions of Current Policies: The President's budget is likely to include new spending and tax breaks to reflect the President's policy vision. The budget should propose and itemize specific savings measures to fully cover these new costs; plenty of offsets are available. In addition, the President's budget should articulate a plan for dealing with expiring policies – either by extending them with offsets, reforming them, phasing them out with offsets, or letting them expire. Failure to offset these costs would substantially worsen the fiscal outlook. This includes funding any extension of the 2017 tax cuts, which would cost roughly $1.9 trillion through 2032 to continue in full.
- Reasonable Economic and Policy Assumptions: Too often, the President's budget is rife with gimmicks that obscure its true fiscal implications 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 economic growth, inflation, and interest rates should be reasonable and internally consistent. The budget should also avoid relying on arbitrary expirations, timing shifts, placeholders that assume budgetary savings without policies to achieve them ("magic asterisks"), inflating savings, rosy economic growth assumptions, or other gimmicks designed to make the President's budget seem more fiscally responsible than it actually is.
With inflation at a 40-year high, debt at a 75-year high, and elevated international and public health threats, now is no time for the United States to be operating without a plan or without a budget. Given the current state of the economy, it is time to pivot away from emergency borrowing and toward bringing our deficits, debt, and trust funds under control. We hope the President's Budget will take steps to put the nation on more solid fiscal ground.