Washington's Big Budget Bandaid

December 15, 2013 Topic: EconomicsPolitical Economy Region: United States

Washington's Big Budget Bandaid

Another deal that fails to address the growing debt crisis.

The House is heading home for the holidays, and the Senate will soon follow, but not without first leaving behind a new spending tab for the American taxpayer.

Many had hoped that the first budget conference in four years would produce a deal that would make substantive progress in reining in the government’s growing spending and debt problems. But the budget conference leaders, Paul Ryan (R-Wis.) and Patty Murray (D-Wash.), did no such thing.

Instead, the budget deal that passed the House Thursday and is expected to win Senate approval next week green-lights a short-term spending increase in exchange for a mix of immediate revenue increases and a promise of spending reductions to come later.

This is not the first time Congress has played this trick on the American people. Pushing promised spending reductions into the future for an immediate spending increase is a common Washington gimmick. The bottom line on this deal is that it increases the deficit for nine years, before any deficit-reduction would take place.

The deal increases the discretionary budget by $63 billion in just two years. That additional spending is divided equally between defense and nondefense accounts. This takes some pressure off the Pentagon, which faced an additional $20 billion in spending cuts under the Budget Control Act (BCA). But a better approach would have been to fully fund the nation’s defense while cutting spending elsewhere to stay within the BCA spending caps. Instead, domestic programs, which were spared from cuts under the 2014 sequester, got a new funding boost.

K Street lobbyists have already put the bubbly on ice, anticipating that the Senate will follow the House lead in approving the deal. And President Obama has signaled that he will clinch the deal by signing the “Bipartisan Budget Act of 2013” into law. And why wouldn’t he? Bigger government and higher spending have been the twin pillars of the President’s own budget proposals since entering the Oval Office.

The deal's most significant shortcoming is that the conferees punted on making urgent reforms to the programs most responsible for driving the nation deeper into debt. According to Congressional Budget Office projections, Medicare, Social Security, Medicaid and related health spending, like Obamacare's exchange subsidies, will consume 74 percent of all tax revenue by 2023. Add in projected interest costs on the growing national debt, and entitlement programs plus the cost of the debt alone would consume all projected tax revenues less than twenty years later.

While lawmakers punted on the issue yet again, there is no doubt that pressure to rein in entitlement spending will only intensify over time. The only question is: Will lawmakers release steam from this pressure cooker in time, or will they let it burst like it did in Greece?

Early on in this year’s negotiations, the conferees resigned themselves to merely tinkering around the edges of the budget. The resulting deal promises deficit reduction—nine years off into the future—that amounts to less than one percent of the deficit. Meanwhile, today’s $17.2 trillion national debt remains on course to rise to $26 trillion by the end of the decade.

Supporters of the deal hail it as an important compromise that averts a government shutdown in January. But the deal merely puts a band aid on a gushing wound. Meanwhile, the debt limit lurks right around the corner, poised once again to confront Washington politicians with the fruits of their fiscal profligacy.

Supporters have also depicted the deal as a small first step toward a more functional Congress—something that brings us closer to bigger budget reforms in the future. But steps that accept more spending now in return for doubtful, future spending reductions only carry us further down the path to a full-blown debt crisis.

Certainly Congress has passed much worse deals than the Murray-Ryan budget compromise. But if this is the best that the first budget conference in four years can achieve, the future does not look good. This agreement takes the pressure off of Congress to address the real spending and debt challenge. America is heading toward a self-inflicted debt crisis, which threatens to raise taxes and slow economic growth, because lawmakers are failing the nation at entitlement reform.

Romina Boccia is the Heritage Foundation’s Grover M. Hermann Fellow in Federal Budgetary Affairs.

Image: Flickr/Alex Barth. CC BY 2.0.