Stealth U.S. Austerity

Spending After the Budget Wars

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Thanks to a 2011 budget agreement that mandated a decade of spending reductions, the U.S. is in the midst of budget cutting that comes straight out of the Republican playbook – a battle House Republicans won over three years while hardly realizing it. Now President Barack Obama is calling for an end to this age of stealth austerity. Republicans think there’s more budget fat to be trimmed.

 

The Situation

Obama has requested a spending increase for fiscal 2016 about 7 percent above spending limits. These limits were set in a 2011 budget act that ordered automatic cuts if Congress couldn’t agree on what to trim to meet the targets. In 2013, Congress couldn’t agree. So the automatic cuts kicked in, a process known in Washingtonese as “the sequester.” Half the cuts came from domestic programs most Democrats favor and half from military programs most Republicans favor. Many Republicans in Congress, their hand strengthened by winning control of both the House and Senate in the 2014 elections, want to make deeper spending cuts. Other Republicans worry that the automatic military cuts are weakening the U.S. It has become routine for Congress not to finish individual spending bills by the Oct. 1 start of the new fiscal year so they have to resort to short-term spending bills, known as continuing resolutions. If Congress doesn’t reach a budget deal, there is a risk of another government shutdown. In good-government circles, this process is held up as evidence of dysfunction. From the perspective of those who think government is too big, it functions nicely.

Source: Congressional Budget Office
Source: Congressional Budget Office

The Background

Republicans took control of the House in 2011, elected on a promise to cut the budget. Democrats wanted to keep spending to drive the economic recovery. Republican demands that an increase in the debt ceiling be tied to deep cuts brought the government to the brink of default. After a grand bargain of cuts and tax increases fell through, the parties were forced to resort to a backup plan — 10 years of automatic annual spending cuts, deliberately written to be unpopular with both parties as a way of prodding them on to a better agreement. Two years of brinksmanship followed, capped with a 16-day government shutdown in October 2013 over Republican demands to delay and defund Obamacare. Fed up with the endless showdown cycle, lawmakers just two months later passed a bipartisan agreement struck by the House and Senate Budget chairmen at the time, Paul Ryan and Patty Murray, that kept spending mostly flat for two years. That expires at the end of September. Lost amid Republican cries for more cuts, year-end tallies showed the cutters were winning. Ryan’s budget proposal for fiscal 2012 called for $3.53 trillion in spending, while Obama wanted $3.71 trillion. Actual outlays that year were $3.54 trillion. And in fiscal 2013, outlays dropped to $3.45 trillion.

The Argument

Democrats say there’s now room to spend, noting that the size of the deficit has declined to its smallest share of GDP since 2007. Republicans point to worrisome projections that show deficits widening again as the large baby boom generation retires and starts collecting Social Security and Medicare. Economists at the U.S. Federal Reserve say previous cuts created “fiscal headwinds” that held back the recovery. On the horizon loom two triggers that set off the budget battles in the first place: a need to raise the debt ceiling and the September deadline to set spending levels for the 2016 fiscal year.

The Reference Shelf

  • The Library of Congress tracks the status of appropriations bills.
  • The Congressional Budget Office has a baseline of what spending will look like through 2024.
  • A primer on how the Budget Control Act of 2011 would automatically cut spending in future years from the Center on Budget and Policy Priorities.
  • The White House’s view of the sequester.

First Published May 1, 2014

To contact the writer of this QuickTake:

Derek Wallbank in Washington at dwallbank@bloomberg.net

To contact the editors responsible for this QuickTake:

Jodi Schneider at jschneider50@bloomberg.net

Anne Cronin at acronin14@bloomberg.net