What We Hope to See in the White House and Congressional Budgets
The White House will release President Biden’s Fiscal Year (FY) 2024 budget proposal on Thursday, and then the Budget Committees should meet their deadlines of the Senate Budget Committee releasing its budget by April 1 and the Senate and House reconciling their budgets by April 15. With inflation surging and national debt and interest on track to reach record levels as a share of the economy, the President and the Budget Committees should each outline a plan to fight inflation, reel in unsustainable deficits and debt, and improve the nation’s fiscal outlook.
The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:
The President and Budget Committees should do their jobs to produce budgets and lay out responsible fiscal plans for the country.
Passing a budget is of particular importance amidst the tension around the debt ceiling, providing an opportunity to address high inflation and debt through the regular process. Part of the reason we are in such fiscal disarray is the breakdown of the budget process and the failure of the Budget Committees to even attempt to do their jobs. Last year neither Budget Committee even bothered to produce a budget – a glaring abdication of responsibility that we hope will not be repeated.
Inflation is the highest it’s been in over 40 years, the national debt is projected to reach a record share of the economy in just five years, and the deficit is projected to average $2 trillion per year over the next decade. Meanwhile, our major trust funds are on course to be insolvent in the next decade or so. And interest costs are slated to triple over the next decade to a new record as a share of the economy – exceeding the size of the defense budget by 2028 and growing to become the single-largest line item in the federal budget by 2050.
To address these challenges, the President as well as the House and Senate Budget Committees should each put forward their own budget. We hope each will include the following:
A Plan to Fight Inflation by Reducing Short-Term Deficits: To help address surging inflation, the budgets should begin deficit reduction immediately and generate substantial savings in their first two years. Thoughtful near-term deficit reduction can help the Federal Reserve fight persistent inflation and reduce the risk of a recession. Although the Fed is appropriately in charge of stabilizing prices, contractionary fiscal policy can help by tempering demand, boosting supply, and directly lowering some prices. While most spending cuts and tax increases can help to fight inflation, policies to lower prices in Medicare could be particularly effective in the near term. It is critical that the budget blueprints do not include plans to increase deficits in the next two years.
A Plan to Reduce the Debt Trajectory Over the Next Decade and Beyond: Federal debt held by the public is on course to grow from about 98 percent of Gross Domestic Product (GDP) today – already more than twice its historic average – to a record 107 percent of GDP by FY 2028, 118 percent by 2033, and 195 percent by 2053. Such high debt levels can slow economic growth, result in costly interest payments, and heighten geopolitical risk, among other consequences. The budgets should all include a plan to slow the growth of the national debt over the medium term and long term, such as by improving solvency of major trust funds, increasing revenues, controlling discretionary spending growth, cutting unnecessary spending, and lowering health care costs. The President has suggested his budget will have $2 trillion of deficit reduction over ten years. This would only be a quarter of the $8 trillion needed to stabilize the debt as a share of the economy, but it is a realistic target that is achievable and could serve as a good starting point, with further deficit reduction needed in the following years.
Credible Offsets for Any New Initiatives. The budgets will likely include new spending policies and tax breaks. While the focus should be deficit reduction, if there are new initiatives, they should be fully paid for. There is no economic reason to borrow for any of these initiatives. The budgets should propose and itemize specific savings measures to fully cover any new costs – many offset options are available. Failing to adequately pay for new initiatives will further worsen the fiscal outlook and make stabilizing or reducing the debt even more difficult. While new borrowing may make sense in the case of an emergency, as it did in the early parts of the COVID pandemic, there is no justification to layer on new additional borrowing given current economic and fiscal conditions.
A Plan to Address Expiring Provisions. Various tax and spending provisions will expire over the next few years, including many of the 2017 tax cuts and some policies enacted under the current administration. The budgets should clearly articulate plans for dealing with each expiring provision – either by extending them with offsets, reforming them, phasing them out with offsets, or letting them expire. Budgets that ignore these expirations are likely to paint an overly rosy outlook, as extensions without offsets would dramatically worsen the fiscal outlook.
Reasonable Economic and Policy Assumptions. The budgets should avoid gimmicks and rosy economic assumptions. Congressional budgets should base their economic assumptions on figures from the Congressional Budget Office (CBO). Growth, employment, inflation, and interest rate assumptions in the President’s budget may differ from CBO’s assumptions – in part because the budget incorporates the effects of its policies on the economy – but they must nonetheless be grounded in reality and internally consistent. The budgets should also avoid relying on arbitrary expirations, timing shifts, placeholders that assume budgetary savings without policies to achieve them ("magic asterisks"), inflating savings, or other gimmicks designed to make them seem more fiscally responsible than they actually are.
Over the next decade, the country’s fiscal health is slated to deteriorate as debt and interest costs reach their highest levels in history and major trust funds become insolvent. With inflation currently surging and fiscal challenges continuing to grow, it is critical that a plan to bring the country’s finances under control is developed.
The first step is for the President, the House Budget Committee, and the Senate Budget Committee to all lay out their budgetary visions. Failing to do so will add to the complications we will likely see in lifting the debt ceiling. Frankly, every member of Congress should have a sense of how they would address our unsustainable fiscal trajectory, and supporting an existing budget framework or developing an original one would be a useful exercise for every lawmaker. For too long our leaders have avoided their responsibility to budget responsibly.
For more information, please contact Kim McIntyre, Director of Media Relations, at firstname.lastname@example.org.