The Budget Process Is a Bipartisan Fraud

It is two months late, but President Obama has finally submitted a budget proposal to Congress. The House Republicans have a budget of their own, as do the Senate Democrats. There is much discussion about how these three budgets vary and much of that discussion focuses on differences in spending, revenues, and debt levels over the ten projected years that each proposal contains.

The problem with this debate is that it is pointless. What the general public needs to know is that the ten year projections are nonbinding, have no legal force, and are really just political posturing by all sides. The ten year numbers are a sham and just distract people from the actual budget, which is for one year.

Here are the only real numbers: House Republicans propose spending $3.53 trillion, Senate Democrats want $3.72 trillion, and President Obama is asking for $3.78 trillion in spending. These are the numbers for fiscal year 2014 (October 2013-September 2014). That is a range of $247 billion in federal spending proposed for the next budget year, a difference of about 7%.

There are some differences on the revenue side, but since revenue is not fully under the government's control (it sets tax law and then waits to see what revenue shows up) it is better to focus on spending unless large scale tax changes are under consideration.

While $247 billion sounds like enough money to be worth fighting over, politicians in favor of reducing the size and scope of government (basically a subset of the Republican party) and others who really want to rein in government should focus on two budgetary ploys that are the true driving force behind our nation's current fiscal problems: the budget baseline and allowing ten years for budget offsets.

The budget baseline dates to the Congressional Budget Act of 1974, was formalized in the Deficit Control Act of 1985, and was last modified in 1997. In the 1985 Act, the baseline budget was assumed to be last year's spending, with no adjustment for inflation or anything else unless Congress had legislated something different (say, under a five-year farm bill). Unfortunately, over time an inflation adjustment was added and then in 1997 an additional 3% annual increase was incorporated into the baseline. Essentially, the current law means that the baseline budget now increases at 6-7% per year.

In other words, the difference in spending between the House Republican budget and the White House budget is about equal to the difference between the original concept of the budget baseline and the current one with its automatic spending increases.

It is this automatic increase in the budget baseline that lets Democrats accuse Republicans of wanting to cut spending when they propose spending less than the budget baseline even if that spending proposal would be an increase over last year. The automatic increases now built into the budget baseline are why President Obama can claim to have achieved or proposed $4.6 trillion in deficit reduction when, in actuality, his budgets just get bigger and bigger. He is comparing things to current or previous baselines, not to actual past budgets.

This sort of fraud needs to end. The current law enables politicians to deceive the public while retaining some claim to be telling the "truth," even though no normal person would call a smaller-than-planned increase a "cut." Slowing the growth in spending should not be called a cut.

If the Republicans in Congress want to do the most good for the future of the country they should put more effort into modifying the Deficit Control Act to remove the automatic increases in the budget baseline than into the fight over this year's budget. I would much prefer the smaller spending level that the Republicans have proposed for the next fiscal year, but the big savings and changes in the size of government can only be achieved if the law is changed to return the budget baseline to one without the automatic increases.

How big could the savings be? The difference between a budget baseline with no increases at all and one with an automatic 7% annual increase in spending adds up to about $14 trillion over ten years. Would it be better to save $247 billion or $14 trillion? I think we can all figure that out.

The second big change that would pay huge benefits for our future would be to disallow the ten year budget projections from being used for spending offsets. The ten year budget projections are something called for in the same budget laws, but they are nonbinding and really only meant to illustrate what might happen in the future if Congresses left things on autopilot.

However, for politicians who want to increase spending, the ten year projections provide an enormous opportunity. If you want to increase spending this year while avoiding criticism, you simply propose a spending increase this year and an offsetting spending cut sometime in the future, say, five years from now. According to the ten year budget projections, there is no increase in spending. That is, these budget laws let an actual spending increase be offset by a hypothetical future spending cut.

If this is not clear enough, note that while the future spending cut will enter into an adjusted budget baseline, all that needs to happen to avoid that cut is to repeat the above process. In five years, one simply adds back the spending that was to be cut and offsets that increase with a new, hypothetical, future spending cut. Thanks to this legal subterfuge, the spending increase happens, but the spending cut never has to materialize.

Congress has the power to change the budget rules to require real offsets for any spending increase, and, in fact, has operated under such rules at times in the past. While not as important as eliminating the automatic spending increases in the baseline, eliminating this loophole to spending increases would still be beneficial. Spending increases should be balanced with spending cuts or revenue increases in the same year, or the politicians should have to admit that they are increasing spending and the deficit.

As Congress and the President begin a spring and summer of budget negotiations, I am calling on those who are serious about fiscal sanity to work on legislation that would bring truthfulness back to the federal budgeting process. Eliminating the automatic increases in the budget baseline should be the number one priority. Dropping the reliance on ten year spending and deficit totals should be second.

These changes would move the spending debate's point of reference to reality instead of an imaginary baseline future. Only real cuts in spending can secure our fiscal future; cutting imaginary future spending only delivers benefits to politicians. Taxpayers want real cuts.