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The Budget Deal’s High Price

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The Budget Deal’s High Price

February 8, 2018

On Wednesday Senate leaders announced they had reached a tentative deal on a broad two-year budget deal that would also increase the federal debt limit. In a time of heightened partisanship, what could be fueling this new bipartisan streak? A smorgasbord of more than $500 billion in additional spending over the next two years. In the likely event that future Congresses show no more fiscal restraint than today’s, the deal could eventually add about $1.5 trillion to the debt over the next decade.

Shifting away from a series of continuing resolutions and debt limit showdowns and towards a more regular stable order is a worthwhile ambition, but the price of getting to that point is too steep and would exacerbate problems with the long-term fiscal trajectory.

The agreement between Senate Majority Leader Mitch McConnell (R-KY) and Senate Minority Leader Chuck Schumer (D-NY) would increase spending caps by about $300 billion over the next two years, with defense spending caps going up by about $165 billion and nondefense caps rising by $131 billion. The deal also includes a further $90 billion in disaster relief and $160 billion for overseas contingency operations not subject to the cap. Overall, the bill could add more than $500 billion in additional spending.

The bill would also raise the debt limit so it would not be reached until March 2019, removing any potential debt ceiling confrontations between now and the midterm elections. 

The related package of offsetting budget savings would only cover about $100 billion of the proposed spending increases, and some critics contend that only a portion of these offsets represents real savings instead of budget gimmicks.

According to the Treasury Department, the federal government ran a budget deficit of $666 billion in fiscal year 2017, a 14 percent increase over fiscal year 2016. Even before this budget deal and tax reform, the Congressional Budget Office projected in 2017 that deficits would exceed $1 trillion again by 2022 and continue to increase thereafter.

The lower rates in the tax reform law will likely result in increases in tax revenues as companies return operations to the United States. These additional revenues are expected to offset static losses of $10 billion and $15 billion per month than, starting in February. However, the effects are unknown, and the Joint Tax Committee projects another $1 trillion added to the debt over the next decade. The new budget deal would also add significantly to the debt over the next decade, and the impending infrastructure package proposal would likely add even more, although some of those details will not be known until the infrastructure outline is released next week.

Using the details that are available, the Committee for a Responsible Federal Budget estimates that the budget deal would increase the deficit to $850 billion in 2018, and $1.15 trillion in 2019. If these spending amounts become the new baseline and future sessions of Congress do nothing to pare them back in the future, the effects of the budget deal would be much larger.

The deal is scheduled for a vote in the Senate on Thursday, where it is expected to pass. The House is less certain, as House Minority Leader Nancy Pelosi has signaled opposition to the bill unless she receives guarantees that an immigration bill will be voted on, and some Republicans could oppose it as well due to the significant spending increases. However, Speaker Paul Ryan said that he thinks he has sufficient support in the chamber to pass the deal.

Meanwhile, neither party has shown an appetite for reforming the major entitlement programs that are the main drivers of the long-term debt. Prospects for any kind of substantial reform to Medicaid, Medicare, or Social Security look increasingly unlikely to occur this year.

More than anything, the announced budget deal represents a missed opportunity. The compromise was only attained by granting more spending in different areas to secure support. Hard decisions about finding offsets for these spending increases, or enacting comprehensive reforms to major entitlement programs to put them on a more sustainable trajectory, have been delayed to some unspecified later date and relegated to being the problem of some future Congress. Unfortunately for the American people, the price of this procrastination and these higher spending levels will soon have to be paid.

Charles Hughes is a policy analyst at the Manhattan Institute. Follow him on Twitter @CharlesHHughes

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