September 3, 2014

Administration’s Updated Projections Show Little Change in Big Fiscal Picture

With the economy continuing its slow recovery, the administration’s Mid-Session Review budget projections released on Friday show little change in the overall outlook. Under the President’s policies, the Office of Management and Budget (OMB) anticipates a deficit for the current fiscal year of $583 billion, down $66 billion from the administration’s March projection and far below the trillion-dollar-plus deficits that came with the Great Recession.

It is important to remember, however, that the federal debt -- high by historical standards, at nearly $17.6 trillion -- remains a deep concern, even with quite favorable economic and political assumptions.

Under its proposed budget, the administration says, the 10 annual deficits over the next decade would add another $5.5 trillion to that total. That is up by nearly $600 billion over the March budget.

While the deficit is lower than the earlier projection for 2014-16, it is higher in all subsequent years. The biggest change is that revenues are now projected to be $760 billion lower over the coming decade.

As a result of higher deficits in the out years, debt held by the public is now projected to be slightly higher (72 percent of GDP) in 2024 than projected in the March budget (69 percent). Net interest, however, is projected to decline slightly because of lower interest rates.

The Mid-Session Review calls for “an orderly appropriations process” at a time when hopes for that seem to be fading on Capitol Hill. Instead, lawmakers appear to be moving towards another massive, inefficient omnibus bill -- or a placeholder “continuing resolution” -- to avoid a government shutdown when Fiscal 2015 begins Oct. 1.

This does not bode well for the type of bipartisan cooperation that would be necessary to pass sweeping fiscal reforms and put the federal budget on a more sustainable long-term path.

It will take more than economic growth alone to reach that path. That point will be underscored again on Tuesday, when the Congressional Budget Office (CBO) is scheduled to release its latest long-term budget projections. Those look well beyond the usual 10-year “window” for legislative analysis.

The American public as well as elected officials need to keep the bigger, longer-term picture in mind. Substantial changes in the federal budget are needed; otherwise it will face more and more pressure as the result of an aging population, rising health costs, an inefficient tax system and snowballing interest payments.

In addition, unforeseen problems inevitably appear, urgently demanding attention -- and tax dollars.

The Mid-Session Review makes a number of worthwhile points. Although the unemployment rate is at its lowest level in more than five years, the administration says, more needs to be done to make government programs more effective, accelerate economic growth and create greater opportunities for all Americans.

The administration continues to call for curbing inefficient tax breaks and approving “pro-growth, common-sense immigration reform,” noting CBO projections that such reform could help reduce future deficits.

Once again, the White House raises questions about some of the steep cuts that are scheduled in coming years for “discretionary” federal spending -- domestic and defense outlays that Congress approves on an annual basis. The administration calls for higher spending on domestic initiatives and proposes alternative cuts and higher revenues to pay for them.

The Mid-Session Review also urges members of Congress to proceed with an orderly appropriations process that “should include reconciling funding levels for individual appropriations bills, and passing legislation without ideological provisions.”

This will hard to achieve. Despite high hopes on Capitol Hill earlier this year for an orderly appropriations process, the House at this point has only passed half of its spending bills while the Senate hasn’t passed any.

At the same time, big “mandatory” programs like Social Security and Medicare remain on autopilot, consuming large parts of the federal budget each year without congressional action. To its credit, the administration continues to propose roughly $400 billion in savings from health care programs.

However, Republicans are not interested in enacting any of the President’s plans. And he, conversely, is not going to accept the Republican budget put together by Rep. Paul Ryan, chairman of the House Budget Committee. The stalemate seems likely to continue.

Meanwhile, lawmakers struggle with long-postponed problems like replenishing the Highway Trust Fund before it runs out of money in a few weeks. And less political cooperation rather than more can be expected as the fall election approaches.

The American public deserves more than a budget process that degenerates each year and allows lawmakers to duck the tough budget decisions that they were sent to Washington to make. The public has a right to expect more than last-minute crisis management in government.

But there is little at this point that is moving the ball forward. The missing element is still meaningful negotiation over how best to meet the nation’s big fiscal challenges.