Debt Digest | Fiscal Courage in Short Supply
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts:
Stick to the caps. The May Fiscal Responsibility Act (FRA) capped base discretionary spending for FY2024 at $1.59 trillion. “Alongside the FRA, policymakers reportedly agreed to several ‘side deals’ that would allow them to cover about $46 billion (up from $15 billion in 2023) of nondefense costs through a variety of rescissions and budget gimmicks and designate an additional $23 billion of ordinary nondefense spending as ‘emergency’ (up from $13 billion in 2023),” writes the Committee for a Responsible Budget. Congress should stick to the agreed-upon caps and set up budget controls to prevent phony emergency spending and budget gimmicks.
Fiscal courage in short supply. Representative Chip Roy (R-TX) argues that Republicans under Biden have willingly passed a $4 trillion increase in the national debt. “To right the ship, it will require of Republicans a level of determination heretofore absent…we must meet the moment and actually cut spending year over year in 2024…But, to achieve actual year-over-year cuts, we cannot ignore so-called ‘emergency’ spending.” Rep. Roy is right to call for fiscal responsibility. Accounting for and offsetting emergency spending would restore fiscal credibility and reduce the temptation to abuse emergency designations.
Account for executive costs. Under the FRA, all executive actions must align with “pay-as-you-go” (PAYGO) rules. That means increased budgetary costs must be paid for by equivalent cuts in the relevant agency. As the American Enterprise Institute’s Mark Warshawsky explains, “In just [the Social Security Administration and the Centers for Medicare and Medicaid Services], there are four actions in the last few months that, in addition to being bad policy, will conservatively cost nearly $70 billion over the next 10 years with no PAYGO in sight.” Warshawsky suggests cutting top-line spending in the budget for the remainder of FY2024 by the amount Biden violated the FRA.
Reform Congressional scorekeeping. Matthew Dickerson of the Economic Policy Innovation Center argues, “The distortions in the baseline bias the budget process in favor of higher spending and higher taxes.” He explains, “The official [Congressional Budget Office] baseline incorporates current policy principles for most spending programs but follows strict current law rules for 99 percent of revenues.” One distortion: discretionary appropriations are assumed to be continued and grow with inflation each year. Accordingly, “under the laws governing the budget baseline, preventing tax increases on families and small businesses would be scored as increasing the deficit while continuing discretionary spending at current levels would be scored as deficit reduction.” Boccia offers additional insights on improving Congressional scorekeeping here.
Monitoring for Medicare waste. Maggie Shi of the National Bureau of Economic Research studied the largest Medicare program that monitors wasteful spending, the Recovery Audit Contractor (RAC) Program. She found that “every dollar Medicare spent on monitoring generated $24–29 in government savings,” with 90 percent of savings stemming from the deterrence of future spending rather than reclaimed payments from prior care. Moreover, Shi did “not find evidence that the health of the marginal patient is harmed, indicating that monitoring primarily deters low-value care.”
Department of Defense (DoD) fails audit. For six years in a row, the DoD has failed to pass an audit. In annual audits, the DoD is broken down into 29 “components” which are then analyzed individually. Only seven of these 29 components passed inspection with a clean audit. For context, the DoD holds $3.8 trillion in assets and $4 trillion in liabilities. Promises that the DoD is making incremental progress is “little comfort that an agency with trillions of dollars in assets and whose annual budget stretches past $800 billion can muster a passing grade on only a quarter of its programs’ finances,” writes Reason’s Joe Lancaster. As former Cato scholar Chris Preble opined a few years back, “There are reasonable doubts about the Pentagon’s ability to be a responsible steward of the vast sum of money shoveled its way every year. So long as these doubts persist, we shouldn’t expect that Americans will want to spend even more.”
More federal workers, less spending? Vivek Ramaswamy, republican presidential hopeful, wants to cut the federal civilian workforce by 75 percent to “cut wasteful expenditures.” That might be the wrong approach. As John DiIulio argued back in 2015, the federal government’s paid proxies – incompetent, overpaid, or corrupt for-profit contractors and the nonprofit grantees – are often behind performance failures. “There is no empirical evidence that outsourcing saves money, and a small but growing body of evidence shows that it actually costs more than it would to have government workers supply the same services.” To truly control federal spending, the U.S. needs to address the expanding scope of government activity as Boccia explains here.
Spending drives debt. Representative Ro Khanna claimed that tax cuts and overseas wars caused the national debt. “This is obviously spectacularly false,” argues Brian Riedl. Revenue remains in line with historical averages going back to the 1960s. Meanwhile, spending in the last two decades has skyrocketed above the historical average and will continue to grow. The claim about defense spending driving debt is similarly wrong. Defense spending makes up just 13 percent of the federal budget, compared to the 57 percent of the budget made up by major entitlements. Spending on entitlements is larger and growing faster than defense spending (see Riedl’s graphic below).
