Why the budget deficit is so hard for Congress to shrink
Congress has less and less leeway for closing the budget deficit as outlays for entitlement programs grow.
Why are members of Congress making a federal case out of cutting government spending? You just get out your paring knife and whittle a little or a lot, as the case may be, out of things like the Amtrak subsidy, defense contracts, NASA, and education grants. Right?Skip to next paragraph
Not so fast. Even if Congress takes a machete to those kinds of government expenditures – called discretionary spending – it will barely make a dent in the budget deficit. That's because a growing share of the US budget is dedicated to entitlement programs for retirees and the indigent and to paying interest on the national debt – none of which is part of Congress's annual budget cycle or easy to reduce.
Fifty years ago, Congress had greater control. More than two-thirds of federal spending fell into that discretionary category. Next fiscal year, discretionary spending is expected to account for just over one-third of the budget pie. Rule out cuts in defense spending (which many lawmakers want to do), and the share of the budget over which Congress has discretion falls to 12 percent.
That's why focusing cuts on high-speed rail or public broadcasting won't do much to contain soaring federal deficits and an unsustainable national debt, analysts say.
"Domestic discretionary spending is a very small area of the budget," says Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan group dedicated to educating the public about fiscal policy. "You're not going to fix this massive problem by focusing on this tiny slice of the budget pie."
The giants of the budget, Medicare and Social Security, "are on autopilot," and their outlays are rising at a faster clip than the economy, she adds. "If you don't fix the problem area of the budget, then the problems are going to stay. That's the problem."
Such pronouncements have long been a staple of blue-ribbon fiscal panels, most recently President Obama's National Commission on Fiscal Responsibility and Reform. But with the first of the baby boomers eligible to retire this year, the matter is taking on greater urgency. If current policy does not change, rising retiree health costs and claims on Social Security will propel mandatory spending to levels never seen before, squeezing out room for future discretionary spending.
Here's the glide path the US is on:
•By 2025, Medicare, Medicaid, Social Security, and interest on the federal debt would claim all federal revenues.
•Interest on the national debt would rise to nearly $1 trillion nine years from now, up from $200 billion today.
•US debt held by the public would grow to 185 percent of the national economy by 2035, driving up interest rates and lowering growth and living standards.
With a presidential election cycle already ramping up, neither the White House nor congressional leaders are eager to be the first to touch popular entitlement programs, known as the "third rail" of American politics. In the past, even suggesting the need for cuts has been a death blow to political candidates.
Mr. Obama's $3.7 trillion budget plan for next year proposes a five-year freeze on nonsecurity discretionary spending in a bid to cut $400 billion over 10 years. That would bring discretionary spending to "the lowest share of the economy since Dwight Eisenhower," Obama said Feb. 15 during a press conference.