Tax Day Thoughts on Budgeting

Weekly WastebasketTax Day Thoughts on BudgetingThe federal tax filing deadline is approaching

Budget & Tax,  | Weekly Wastebasket
Apr 12, 2019  | 6 min read | Print Article

The federal tax filing deadline of April 15, April 17 for any of you procrastinating residents of Massachusetts or Maine, is an opportunity to reflect on the cost and returns of government. With a federal debt standing at $22 trillion and the approach of trillion dollar annual deficits, this reflection is needed. Yet instead of debating potential consequences of, or alternatives to, this unsustainable path, many lawmakers are proposing ways to make this debt out of sight and out of mind.

Recently released budget proposals are the first bit of evidence. Lawmakers are feeling the squeeze of spending caps they set in law under the Budget Control Act of 2011 (BCA). Left unchanged these limits would reduce spending below this year’s level—by $116 billion in 2020 and $98 billion in 2021. Lest you think that is crippling, the BCA-capped FY2020 funding level is nearly $50 billion higher than what was considered fine for spending levels in FY2017. But instead of debating how to offset increased spending with other cuts or new revenue, Congressional factions are fighting over just how high to raise spending. While the House resolution increases the two-year limits by $358 billion, lawmakers left town before voting on whether to add $67 billion more to make non-defense spending equal to defense spending.

Unwilling to choose between complying with the spending caps or raising them ever higher, lawmakers are resorting to simply pretending the spending isn’t happening. At least in a budgetary sense. The BCA limits don’t address spending done through mandatory entitlements or under emergency. So taking spending “off-budget” is a neat little trick. The largest pot of off-budget money is the Overseas Contingency Operations (OCO) account. The House and Senate have $67 billion for the gimmicky account which seems paltry in light of the Administration’s request to stuff $165 billion in it. The problem is an increasing amount of non-contingent, non-overseas spending is being crammed into OCO in order to evade spending caps.

While OCO fever is a little constrained, Congress is going loco proposing to move plenty of other spending “off budget.” There’s $22 billion for veteran’s healthcare. The Census gets $7.5 billion. Lawmakers are pushing to increase spending on port projects by taking the harbor maintenance trust fund off-budget to the tune of $10 billion. Whatever you think of the merits of these programs, none of them were unforeseen. Lawmakers have been debating them for years, or decades. The Census is conducted every 10 years, it hardly snuck up on us. But this leads to another increasingly common condition in Washington – reliance on “emergency” appropriations for non-emergencies.

Because fiscal year 2020’s $1.295 trillion in the regular appropriations process isn’t enough to satisfy annual spending cravings, lawmakers have started adopting supplemental bills to fund “emergency” needs. Since 2017, $120 billion worth of spending has been made in supplemental appropriations in the wake of natural disasters. Some of these funds are a necessary immediate national response to real disasters, but a lot of it isn’t spent for years and some isn’t really emergency or disaster related. The most recent version of this year’s additions seeks $17.2 billion more. Like shifting funds off-budget, designating spending an “emergency” means it does not count against annual spending caps. It does, however, add to the nation’s debt.

The growth in frequency and size of “emergency” spending is in part because lawmakers are misusing these bills to increase spending on special interests that they were unable to achieve in other bills because it would increase costs. So while lawmakers tout a deficit neutral farm bill, they’ve used “emergency” spending bills to expand subsidies to cotton, propose the government eliminate the farmer’s share of crop insurance premiums, and also want federal bailouts in place of private sector insurance for harvested grain.

And the kicker. Even though the big tax cut bill that passed in December 2017 has led to less revenue and aided in creating trillion-dollar deficits, lawmakers are looking to cut revenue even more. There’s a tax extenders bill to revive numerous “temporary” tax cuts, including losers like a biodiesel tax credit and provisions to accelerate depreciation for race horses and NASCAR tracks. Lawmakers are also looking to restore numerous tax deductions scrapped by H.R. 1, such as the limit on State and Local Tax deduction and mortgage interest. Like these deductions or not, any revival of them will lead to a reduction in revenues and an increase in deficits.

Lawmakers should be sober and honest. However you categorize it, in the end all federal spending ends up on the same taxpayer tab. Washington needs to start setting priorities and sticking to them. When contingencies or emergencies arise, we can certainly afford to spend the cash. But we also must account for this spending in our budget. And we must learn to live within our means before we lose the means to live with a government providing the kind of services voters demand.