President Biden’s decision to end his 2024 presidential campaign naturally dominated the news over the past several days. There was, however, some news on the fiscal front worth noting.
- The President’s Office of Management and Budget (OMB) released its Mid-Session Review (MSR) of the president’s budget, showing a $14 billion increase in the projected deficit for this year and a $1.2 trillion increase in projected deficits over the 2025-2034 window.
On the positive side, OMB now projects that revenues would be $939 billion higher over the next 10 years under the President’s policies. Much of this is the result of an improved economic forecast with higher projections of wages and salaries that boost income and payroll tax receipts. Stronger economic growth is also projected to increase corporate profits, leading to higher corporate income tax receipts.
The added revenue, however, falls well short of offsetting revised spending projections ($2.1 trillion, including $261 of added interest cost) plus enacted legislation ($36 billion) since the President’s March 2024 budget. Most of the upward spending projections come from technical revisions of higher enrollment in the major healthcare programs (Medicare, Medicaid, and refundable premium tax credits). Together, these healthcare programs are now projected to cost $1.4 trillion more over the next 10 years under the President’s budget policies than they did in the March budget.
The MSR estimates that the President’s budget would still decrease projected 10-year deficits by $3.3 trillion but the higher baseline spending means that even with that amount of deficit reduction the debt would now be 106.9 percent of the gross domestic product (GDP) in 2034 (a record high) rather than 105.6 percent as projected in the March budget.
- Congressional work on the 12 annual appropriation bills needed to keep government agencies open beyond the end of the fiscal year (Sept 30) ground to a halt as the House adjourned for the summer.
It comes as no surprise, but Congress is once again on track for one or more continuing resolutions to avoid a funding lapse (i.e., shutdown) on October 1st. Not only are the House and Senate far apart on top line numbers, but it’s also proving difficult to move bills through the respective chambers. The House has passed five of the 12 bills. The Senate has passed none.
Recent stalemates have been resolved by the House Leadership relying on Democratic votes to get compromise spending bills over the finish line. That result, which is always controversial among some members of the Republican caucus, might be even more difficult to achieve in the midst of the fall campaign. Then again, the idea of a shutdown in the middle of a campaign would carry risks of its own.
The chronic inability of Congress to carry out one of its most basic functions – passing appropriation bills – has not gone unnoticed. Two major credit rating agencies (S&P and Fitch) have downgraded U.S. government debt from the highest rating of AAA to AA+, due to both rising debt and political dysfunction.
A third major credit agency, Moody’s, has maintained the AAA rating but late last year lowered its outlook for the U.S. from stable to negative saying, “At a time of weakening fiscal strength, there is an increased risk that political divisions could further constrain the effectiveness of policymaking by preventing policy action that would slow the deterioration in debt affordability. These risks underscore rising political risk to the U.S.’ fiscal position and overall sovereign credit profile.”
A protracted fight over keeping the government funded into the next fiscal year would simply confirm and perhaps enhance these concerns.
- A bipartisan group of 20 House members wrote to Speaker Mike Johnson (R-LA) and Leader Hakeem Jeffries (D-NY) saying that “our fiscal position remains unsustainable,” and urging them to “continue working to find bipartisan ways to reduce our national debt.”
In the face of disputes such as those described above, it is always welcome to see a bipartisan group coming together with a reminder to their leaders and colleagues of the larger stakes at issue. In this case, the reminder came from the Bipartisan Fiscal Forum co-chaired by Representatives Scott Peters (D-CA) and Bill Huizenga (R-MI).
“As we engage in the Fiscal Year 2025 appropriations process,” they wrote, “it should remind all of us that a strong fiscal foundation is necessary to meet our nation’s goals as well as address future emergencies as they arise. The more our debt grows, the more difficult it will be to respond….The United States must remain the leading economy and a leader on the world stage. We cannot do so from a position of fiscal weakness. We need resilience and flexibility to engage both threats and opportunities as they arise. We look forward to working with you on these important objectives.”
- The Peter G. Peterson Foundation released seven plans from prominent think tanks of diverse perspectives, that would each “reduce and stabilize the long-term trajectory of the debt relative to the current law.”
If congressional leaders want to take up the Bipartisan Fiscal Forum’s call to action, they can draw inspiration and ideas from the seven comprehensive fiscal sustainability plans released by the PGPF this week. Participating organizations included the American Action Forum, the American Enterprise Institute, the Bipartisan Policy Center, the Center for American Progress, the Economic Policy Institute, the Manhattan Institute and the Progressive Policy Institute.
These are not cookie-cutter plans. Some of them recommend higher spending paid for with higher taxes. For example, the Economic Policy Institute’s (EPI) plan would raise spending to 35 percent of GDP by 2054 while raising revenues to 34 percent of GDP. Those numbers in 2024 are 24 percent and 17 percent respectively in CBO’s most recent baseline. Under the EPI plan, the debt would be reduced to 79 percent of GDP in 2054 (the CBO current law projection of debt in 2054 is 166 percent of GDP).
A very different route to roughly the same destination of debt was presented by the American Enterprise Institute (AEI). Under the AEI plan, both spending and revenues would be about 19 percent of GDP in 2054 and the debt would be reduced to 85 percent of GDP.
Overall, the plans demonstrate that fiscal responsibility can co-exist with very different visions of the size and scope of government. It is a transcendent value and one that is necessary over the long-term to sustain any preferred policy agenda. These plans can provide the building blocks for those on Capitol Hill who are ready to get serious about a sustainable fiscal path.
