More About Joel Friedman

Joel Friedman

Joel Friedman is Vice President for Federal Fiscal Policy at the Center on Budget and Policy Priorities, where he specializes in federal budget and tax issues.

Full bio and recent public appearances | Research archive at

Obama, Ryan Miles Apart on Non-Defense Discretionary Funding

April 8, 2014 at 3:35 pm

One especially stark difference between the recent budgets from President Obama and House Budget Committee Chairman Paul Ryan is in non-defense discretionary (NDD) funding, the budget category that includes key investments in the economy, such as education and basic research; support for low-income families, such as Head Start and housing assistance; and essential services that Americans expect, such as veterans’ medical care and food safety inspections.  Obama and Ryan are roughly $1 trillion apart on total NDD funding over the next decade.

First, some background.  Since the fall of 2010, when policymakers initiated deficit-reduction efforts, they have cut funding for NDD programs in three waves:  first, in the appropriations bills for fiscal year 2011, then again in 2012 through the Budget Control Act’s (BCA) funding caps (which extend through 2021), and then again when sequestration (which automatically lowers the BCA caps on defense and non-defense funding) took effect in 2013.

Last December, the Murray-Ryan budget agreement, which was enacted in the Bipartisan Budget Act, alleviated some of sequestration’s effects in 2014 and 2015.  Even so, NDD funding in 2014 under the agreement is roughly 15 percent below the 2010 level, adjusted for inflation, and will be about 17 percent below the 2010 level in 2015.

The President’s budget mitigates sequestration’s effects on NDD programs, adding about $200 billion over 2015-2024 above sequestration’s low levels.  The Ryan budget, by contrast, goes well beyond sequestration, cutting funding for NDD programs nearly $800 billion below the sequestration levels.  That’s a $1 trillion difference over the decade.

Congress has shown little appetite for re-opening the Murray-Ryan agreement for 2015.  The President’s call for more funding that year — offset by entitlement cuts and revenue increases — has gained little traction.  But a key issue is what happens starting in 2016.

As the chart shows, even with the President’s proposed level for 2016 — which would eliminate all of that year’s sequestration cuts for NDD programs — NDD funding would remain 12 percent below its inflation-adjusted 2010 level.  And over the decade, the President’s proposal wouldn’t erase all of the effects of sequestration.

Moreover, under the President’s proposal, NDD funding will still fall by 2017 to its lowest level on record as a share of gross domestic product (GDP) based on data available back to 1962.  That’s true because the BCA’s NDD caps are so tight, even without sequestration.

But the Ryan budget’s NDD cuts go much further.  Their depth is staggering — 25 percent below the inflation-adjusted 2010 level in 2016, and 36 percent below that level in 2024.  (The Ryan budget is 15 percent lower than the sequestration level in 2016, with the cut growing to 22 percent by 2024.)

Policymakers will have to confront the future of NDD programs next year when the Murray-Ryan deal’s modest relief from sequestration ends.   Chairman Ryan’s extremely harsh vision would represent a very large step backward.  Even the President’s proposal, while moving in the right direction, likely won’t be sufficient to meet the nation’s needs over the coming decade.

President’s Budget to Propose Building on Murray-Ryan Agreement

February 20, 2014 at 5:25 pm

The White House announced today that it will recommend $56 billion in additional discretionary funding for 2015 above the level contained in the budget deal that Senate Budget Committee Chair Patty Murray and House Budget Committee Chair Paul Ryan negotiated in December.  The additional funding, which would be evenly split between defense and non-defense, would be fully offset by cuts in mandatory programs and revenue increases.

The Administration’s proposal does not undermine the Murray-Ryan deal, but builds on it.  The Administration’s detailed budget proposal will include line-by-line and program-by-program funding levels that fully adhere to the budget agreement’s 2015 funding caps, which are now the law.  Thus, Congress will have a detailed Administration proposal for how to allocate discretionary resources consistent with the budget agreement.

But the President is also outlining his vision of how to improve upon the budget deal, through a proposal that would invest more in areas important to long-term economic growth — like infrastructure, research, and education — and pay for those investments through entitlement and tax reforms.  He would do so in a way that is consistent with the approach used in the Murray-Ryan agreement, which provided some sequestration relief, offset by a combination of other spending cuts and increased revenues in the form of higher user fees.

The bulk of the sequestration relief in the recent budget agreement comes in 2014.  Its sequestration relief for 2015 is very modest, doing little to mitigate sequestration’s bite.  Under the deal, discretionary funding (adjusted for inflation) will fall in 2015, with funding for non-defense discretionary programs shrinking to 16.6 percent — or one-sixth — below the 2010 level in inflation-adjusted dollars (see graph).

The Administration’s new proposal would provide additional funding for discretionary programs in 2015, while adhering to the framework of the Murray-Ryan deal in key respects.  First, it would split sequestration relief evenly between defense and non-defense, reflecting the fact that sequestration applies equally to defense and non-defense programs.

Second, like the Murray-Ryan deal, it offsets the cost of the funding boost with savings over ten years, shifting the deficit reduction to later years when the economy is expected to be stronger — and when budget cuts should have far less, if any, impact in slowing growth and costing jobs.  By replacing appropriations reductions scheduled for 2015 with what would presumably be permanent changes in entitlement programs and the tax code, the proposal would likely increase the long-term deficit reduction.  It therefore reflects the judgment, shared by most economists and fiscal policy analysts, that the economy would benefit from less deficit reduction in the near term and more in long run.

The proposal does differ from the Murray-Ryan framework in one noteworthy respect.  That agreement included no changes to the tax code; it relied solely on user fees for its revenues.  The Administration’s new proposal, by contrast, would raise some tax revenue by reforming some tax expenditures and closing loopholes.  This overcomes a limitation of the Murray-Ryan deal that heavily constrained the sequestration relief it could provide.

The Administration proposal highlights that the funding levels under current law will deprive the nation of worthy investments in such areas as infrastructure, research, and education, and it urges Congress and the nation to evaluate whether the benefits of higher spending in those areas outweigh the costs of cutting certain programs and raising certain revenues.

House Changes to Military Pensions Would Violate Key Principle of Recent Budget Deal

February 12, 2014 at 8:00 am

The House voted yesterday to undo the military pension savings in December’s Murray-Ryan budget deal and offset the cost by extending the sequestration budget cuts for mandatory programs by one year, from 2023 to 2024.   That was a mistake.  The bill upends a key feature of the agreement, which Congress adopted with a large, bipartisan vote — that policymakers should not pay for higher defense funding by cutting domestic programs.

The budget agreement trimmed annual cost-of-living adjustments (COLAs) by one percentage point for military retirees under age 62.  Once they reach 62, they’ll receive their full benefits, including a catch-up for the years of lower COLAs.  Census data show that over three-quarters of those affected are working in second careers and that nearly 60 percent of them are in the top fifth of the income distribution.

The omnibus appropriations bill that Congress approved last month exempted disabled retirees and survivors under age 62 from the planned cut.  That’s appropriate because they’re less able to work than others who retire early from the military.  This change would also align military pensions more closely with federal civilian retirement, which pays no COLAs before age 62 except to disabled retirees, while retaining most of the provision’s savings.

The new House-passed bill, in contrast, exempts current members of the armed forces and current military retirees from the COLA reduction, which would only apply to those who join the military starting this year.

This “grandfathering” effectively eliminates the ten-year savings that was integral to the Murray-Ryan deal’s careful balance.  The military pension provision helped pay for boosting defense funding above sequestration levels in 2014 and 2015.  These savings, plus higher user fees, covered the cost of the defense increase in the budget deal, upholding the key principle that Congress should not cut domestic programs to pay for higher defense funding.

The House bill violates that principle by replacing the military pension savings with a continuation of the sequestration cuts of mandatory programs, virtually all of which are domestic — such as Medicare, the Commodity Credit Corporation, and the Social Services Block Grant.  That sends the wrong signal, potentially opening the door to further cuts in domestic programs as a way to shift more money to the Pentagon.

The budget deal’s COLA changes to military pensions don’t take effect until the end of 2015, so Congress has ample time to consider alternatives.  Furthermore, a congressionally established commission is reviewing military compensation and retirement issues and is expected to issue recommendations in February 2015, so Congress could consider these recommendations and then make decisions on changes in military pensions on a more informed basis.  That’s the appropriate way to consider changes in this area, as the Pentagon and the Joint Chiefs of Staff have pointed out.

Higher Deficits in New CBO Forecast Don’t Reflect Higher Spending

February 4, 2014 at 5:28 pm

The new Congressional Budget Office (CBO) budget estimates are more pessimistic than those it released last May, showing deficits that are $1 trillion higher over 2014 through 2023.  This worsening budget outlook reflects lower revenues, not higher spending.  In fact, CBO now projects lower spending over the decade than it did last year.

As the chart shows, the $1 trillion increase in CBO’s ten-year deficit forecast reflects a $1.6 trillion drop in CBO’s revenue forecast, partly offset by a $600 billion decline in projected spending.

CBO’s revenue projections have fallen largely because it has lowered its estimates of the size of the economy (gross domestic product or GDP) over the period.

Because of CBO’s lower estimated GDP, spending as a share of the economy is somewhat higher in 2023 than CBO projected last May.  To be sure, spending as a share of GDP is the appropriate metric to assess spending over time.  But this increase is not due to policy changes or any other developments to boost spending, but, instead, to a smaller projected GDP against which spending is measured.  (Stated another way, CBO has lowered its federal spending projection over the next decade, but it has lowered its GDP projection too — and by a larger percentage.)

Murray-Ryan Deal Will Only Temporarily Halt Non-Defense Funding Slide

December 18, 2013 at 3:47 pm

Update, February 14th, 2014: We’ve updated this post to reflect new Congressional Budget Office estimates.

The Murray-Ryan budget deal is a step in the right direction, but it provides only a temporary respite from the cuts in non-defense discretionary programs that sequestration requires.

This part of the budget includes a diverse set of public services, ranging from environmental protection and food safety to veterans’ health care and border security.  It supports investments that can boost future productivity, such as in education and basic research, and helps low-income Americans meet basic needs and climb the economic ladder, such as through Head Start, job training, and services for frail elderly and disabled people.

The Murray-Ryan agreement provides $45 billion of relief from sequestration in 2014, evenly divided between defense and non-defense discretionary programs.  For non-defense programs, that halts a sharp downward trend in funding  — which fell by 18 percent between 2010 and 2013, after adjusting for inflation — and restores a modest amount of the cuts.

But the downward trend begins again the next year.

After accounting for inflation, non-defense discretionary funding is slated to fall in 2015 nearly back to the 2013 post-sequestration level.  By 2016, funding will have dropped below the 2013 post-sequestration level, meaning that all of the gains from the Murray-Ryan deal will be gone (see graph).  The 2016 funding level is $105 billion — or 18 percent — below the 2010 level, after adjusting for inflation.

Just to stay even with inflation (as projected by the Congressional Budget Office), non-defense funding would need to rise by 2.1 percent in 2015 and 2016.  But under the deal, it will rise by less than 1 percent in those years.

Further, looking only at the effects of inflation understates the funding pressures that non-defense discretionary programs face.  Many of them need additional funds to keep pace with population growth; grants to school districts and administering programs like Social Security and Medicare are just two examples.

Some programs can face cost pressures on top of inflation and population growth.  For example, veterans’ medical care grew more rapidly than these factors over the past decade, largely because of rising per-person health care costs across the health care system (both public and private).

And the picture does not brighten after 2016.  Under the Budget Control Act’s funding caps and sequestration, non-defense discretionary funding barely keeps pace with inflation each year from 2017 through 2021.

So while Murray-Ryan was a positive step, policymakers ultimately will need to revisit the funding limits in current law to prevent the further erosion of funding for critical programs.