One Big Bloated Blunder (OBBBA) and Advancing Emergency Spending Reforms
Part 2 of the Annual Recap
This is part 2 of 5 in our Annual Recap series. See here for part one.
The One Big Beautiful Bill Act (OBBBA) was the most significant fiscal news of the summer. The bill extended the 2017 Tax Cuts and Jobs Act, added numerous new tax breaks, and modestly reduced the growth of certain welfare programs, including Medicaid (the state-federal health insurance program) and food stamps. Together, the Congressional Budget Office estimates the bill will add more than $4 trillion to the debt over 10 years, including interest costs—or more than $6 trillion if you assume Congress irresponsibly extends various political giveaways and the administration successfully deports a significant amount of immigrants, who would have otherwise had a net fiscal impact.
Broadly, the bill failed to seriously tackle our fiscal situation. We’d categorize the wins and losses in the bill as follows:
The Good: Permanent extension of the 2017 tax cuts and certain pro-growth tax policies (e.g., permanent expensing), slowing the growth of Medicaid and food stamp spending, reducing federal student loan borrowing limits, and repealing half a trillion dollars in green corporate subsidies.
The Bad: Significant plus-ups to defense spending and border spending at a time when federal spending is topping $7 trillion. Costly political giveaways in the form of increased farm subsidies and unneeded tax breaks, from a new tax exemption for tips to an increase in the senior deduction.
The Ugly: Elevated interest costs will crowd out the positive revenue effects from any increased economic growth, meaning the bill won’t even remotely pay for itself. Altogether, the bill accelerates the nation towards a fiscal crisis at a time when we should be aggressively paring back the deficit each year.
Advancing Emergency Spending Reforms
This summer, members of Congress have reintroduced several bills to stop the abuse of emergency spending, namely the Stop the Baseline Bloat Act and the Emergency Spending Accountability Act. We were an integral part of these efforts. Based on my latest estimates, Congress has spent $15 trillion over the past 35 years as a result of emergency-related designations (new policy analysis forthcoming!). The bills below would help rein in emergency spending abuse and improve the accuracy of the budget baseline:
The Stop the Baseline Bloat Act, introduced by Reps. Grothman (R-WI), Case (D-HI), Stutzman (R-IN), and Perez (D-WA), would help CBO score emergency spending appropriately by ensuring that the emergency is marked as temporary rather than permanent. This prevents a bloated baseline that increases the federal budget permanently.
Rep. Stutzman’s (R-IN) Emergency Spending Accountability Act would mandate that new emergency spending is offset with automatic spending cuts over the following 5 years. This would be a timely and measured step toward restoring accountability to a spending category rife with irresponsibility.
The author thanks Ritvik Thakur for his contributions.