America’s budget deficit is a ticking time bomb

The Chairman of the Senate Banking Committee, Sen. Mike Enzi (R-Wyo.), recently acknowledged that the budget process has failed. As one indication, Congress is supposed to pass 12 separate appropriations bills by the start of the fiscal year, October 1. The last time all 12 bills were passed by October 1 was 1994. In recent years, instead, we get continuing resolutions and omnibus appropriations bills that cover the entire budget and reach thousands of pages with no time for reflection on priorities.

Indeed, the budget for the current year ran 2,232 pages and was voted on by the House 17 hours after its release, and by the Senate the next day. It is pretty clear that not one member of Congress read the bill. Certainly there was not time to reflect on the appropriateness of every line item.

{mosads}As Enzi has expressed, a major reason for the failure of the process is the inability to come close to a balanced budget. Nobel Laureate, James Buchanan, and his colleague, Richard Wagner, discussed the reasons behind this using the theory of public choice in their 1977 book, “Democracy in Deficit”. One reason is that there are few winners in reducing government spending and few winners in increasing taxes.

While since 1960 we have had five budgets with surplus, 1969 and 1998-2001, the Congressional Budget Office’s (CBO) latest predictions show budget deficits of $981 billion in 2019 and in excess of a trillion dollars through 2028.

The real problem is not the process by which discretionary spending is enacted each year. I suspect following Enzi’s suggestion of eliminating the Senate Budget Committee and other major changes to the annual process would not have much effect. The reason that it is so difficult to balance the budget using discretionary spending is that discretionary spending makes up such a small portion of the total federal spending. It is mandatory spending that is driving the deficits, thus making it impossible to balance the budget using annual appropriations, whether they be in the form of 12 bills or an omnibus bill, or whether there is a Senate Budget Committee or a budget resolution.

Using CBO’s latest estimates, the 2019 budget deficit will be $981 billion. Total spending is estimated at $4.470 trillion. Of this total, mandatory spending will be $2.719 trillion. This is spending that is spent no matter what Congress does, as it is mandated through Social Security, Medicare, Medicaid and other spending programs that are set in statute and are outside the budget process. If Congress never passed an annual budget bill, this amount would be spent since the particular statute, such as the Social Security Act, requires the spending.

Net interest on the national debt, which has to be paid in order to avoid a default, will be $390 billion. This means that the total discretionary spending for 2019 will be $1.362, or only $381 billion more than the deficit. So if you eliminated all discretionary spending, including defense, you will barely balance the budget. Realistically this means either you give up on balancing the budget or you address mandatory spending, in particular Social Security, Medicare, and Medicaid, which make up about three-fourths of mandatory spending.

One way to do this would be to require all spending to be annually appropriated. The state of Michigan constitution requires that all expenditures be appropriated annually. If the federal government were to adopt such a regulation, then each year Congress would vote on the total spending for Social Security, as an example. If Social Security were to be set at $1 trillion rather than the projected $1.043 trillion, then each recipient would receive a proportionately reduced payment. Of course, if Congress cannot pass the existing 12 appropriations bills it may be assuming to much that it could pass an annual appropriation for Social Security.

There are other ways to approach the problem, including moving Medicare and Medicaid to health saving accounts, and extending the retirement age for Social Security. Whatever legislative solution that is put forward will have to satisfy 60 Senators to get around a filibuster. This will not be easy but the process must begin, since the number of people qualifying for benefits under these programs will continue to increase with the aging of the baby boomers and the solution only gets more difficult as time moves on.

Gary Wolfram is the William Simon Professor of Economics and Public Policy at Hillsdale College.