Off the Charts Blog | Center on Budget and Policy Priorities

In a new commentary, CBPP President Robert Greenstein looks at how the new budgets from Senate Budget Committee Chair Patty Murray and House Budget Committee Chair Paul Ryan approach deficit reduction.

As he explains, “The Murray approach is sounder and more even-handed because it calls for both spending cuts and tax increases to reach a more appropriate fiscal goal, doesn’t set back the economic recovery, and spreads the spending cuts across both defense and domestic programs.”

Click here for the full commentary.

House Budget Committee Chairman Paul Ryan’s new budget would cut the part of the budget that supports everything from education and law enforcement to biomedical research to nutrition assistance by more than $1 trillion below the funding caps in the 2011 Budget Control Act (BCA) over the next decade.  That’s hundreds of billions of dollars below the funding levels that would result from nine years of sequestration.

“Non-defense discretionary” programs — which Congress funds through annual appropriations bills — are already slated to fall to historically low levels under the BCA caps (and that’s before sequestration).  Funding for those programs will shrink by 2017 to its lowest level on record as a share of the economy, in data that go back to 1962, and fall further thereafter.  The Ryan budget would cut their funding by $1.1 trillion more over the next decade (see chart).

Under the Ryan budget, these programs would be roughly 18 percent below the BCA caps each year.

These cuts are far more severe than would occur if sequestration were to remain in place in 2013 and beyond for these programs.  Indeed, over the decade the Ryan budget would cut non-defense discretionary programs $700 billion below the post-sequestration levels.

The Ryan budget takes a very different approach to defense programs, however, canceling the sequestration cuts for all years starting in 2014 and funding defense at the BCA cap levels.

The Ryan budget doesn’t specify what programs the $1.1 trillion cut in non-defense discretionary funding would come from.  His budget states an intent to spare veterans’ programs from any cuts; if so, then other non-defense discretionary programs would need to be cut even more deeply to meet its funding levels.

A quarter of non-defense discretionary funding goes for programs that help low-income Americans meet basic needs and climb the economic ladder, such as Head Start, WIC, child care, homelessness prevention, low-income housing assistance, and services for frail elderly and disabled people.  Likewise, a quarter goes to states and localities to provide various public services.  (These two categories overlap, since states and localities provide most low-income assistance.  In all, one-third of non-defense discretionary funding goes for low-income assistance or to state and local governments.)

In addition, non-defense discretionary funding supports investments that can boost future productivity growth, such as in education and basic research, as well as services ranging from border patrol to food and water safety.

Given the extent to which this part of the budget is already shrinking, there’s simply no way to cut it by more than an additional $1 trillion without causing significant harm both now and in the future.

If enacted, House Budget Committee Chairman Paul Ryan’s budget would slow the economic recovery.  Chairman Ryan selectively uses Congressional Budget Office (CBO) analysis to argue that his budget offers long-term economic benefits, while dismissing CBO’s finding — in the very same report — that austerity measures like those that he proposes would take a costly toll on the economy over the next few years and could put the recovery at risk.

The CBO analysis that Ryan uses to justify his budget’s long-term economic benefits looks at the effect on economic activity and the income of U.S. residents of an illustrative deficit-reduction plan with $4 trillion of policy savings phased in over the 2014-2023 period.  CBO finds that such a policy would lower U.S. national income in 2014-2016, because the dominant effect of deficit reduction in this period would be to suppress demand for goods and services.

CBO estimates that the deficit reduction in its generic plan would reduce economic activity on a dollar for dollar basis in 2014, lowering gross domestic product (GDP) by 0.6 percentage points.  The agency does not provide an estimate of associated job losses, but separately CBO estimates that the 0.6 percentage point decline in GDP in 2013 that it attributes to the sequestration budget cuts would cost 750,000 jobs.

Nor does CBO provide year-by-year economic effects but, as the chart shows, the “fiscal drag” from deficit reduction gets larger in successive years.  With its much larger budget cuts, the Ryan plan would present even larger obstacles to the recovery.

In CBO’s illustrative example, the economy eventually overcomes the drag on growth from greater deficit reduction (although not without experiencing lower incomes and greater unemployment and hardship in the meantime).  The longer-term effects of deficit reduction on saving and investment eventually produce higher levels of GDP and national income than those in CBO’s baseline economic projections.

Both the short-term costs of deficit reduction and the longer-term benefits demonstrated in CBO’s analysis reflect mainstream economic thinking.  Ryan, while happy to embrace the longer-term implications of CBO’s analysis, rejects the short-term implications.  Instead, he appeals to a “contrasting view” held by “some economists” suggesting that fiscal austerity would be expansionary even in the short-term — an idea that has become increasingly discredited both in academic circles and by the practical experience of Great Britain and the eurozone countries that have tried it.

CBO’s analysis illustrates the trade-offs that policymakers face in formulating a deficit reduction plan.  Ryan’s appeal to “expansionary austerity” waves a magic wand at those trade-offs.  The sound approach is the one that many mainstream economists, including former Office of Management and Budget Director Peter Orszag and Federal Reserve Chairman Ben Bernanke have recommended:  enact now a combination of policies including both measures that increase the deficit modestly in the short term to strengthen the economic recovery and measures that achieve substantial deficit reduction and are phased in over time.

Millions of people would lose part or all of their Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) benefits under the new budget from House Budget Committee Chairman Paul Ryan, according information that the committee staff provided during yesterday’s mark up.

The Ryan budget, like those he proposed in 2011 and 2012, would slash funding for programs for the needy and disadvantaged.  Although the plan lacks many details, it appears that it would cut SNAP — the nation’s most important anti-hunger program — by $135 billion or almost 18 percent over the next ten years.  Since more than 90 percent of SNAP expenditures go to food assistance, a cut of that size would require restricting SNAP eligibility for needy people, slashing benefits, or both.

To illustrate the size of the cut:

• If the cuts came solely from restricting eligibility, 8 to 9 million people would need to be cut from the program.
• If the cuts came solely from across-the-board benefit cuts, SNAP benefits would have to be cut by $24 per person per month in 2016 dollars.

Chairman Ryan’s budget document focuses on SNAP’s growth since 2001, potentially leaving some with the impression that its growth is a long-term problem and must be curbed.  As we have explained, the recent growth in SNAP expenditures is temporary and already has slowed.

Moreover, SNAP isn’t contributing to the nation’s long-term budget problem.  The Congressional Budget Office projects that SNAP spending will fall to 1995 levels as a share of Gross Domestic Product by 2019.

With all the talk in Washington these days on shrinking deficits and debt, we’ve updated our backgrounder on deficits, debt, and interest — three important budget concepts that are often misunderstood.

Among other changes, we’ve added a section on the debt limit.  It explains:

Congress has exercised its constitutional power over federal borrowing by imposing a legal limit on the amount of money that the federal government can borrow to finance its operations.  The debt subject to that limit differs only slightly from the gross debt. Thus, it combines debt held by the public with the Treasury securities held by U.S. government trust funds.

Once the debt limit is reached, the government must raise the debt limit or default on its legal obligation to pay its bills.  Congress has raised the debt limit more than 90 times since 1940.

Raising the debt limit does not directly alter the amount of federal borrowing or spending going forward.  Rather, it allows the government to pay for spending on programs and services that Congress has already approved.

Nor is the need to raise the debt limit a reliable indicator of the soundness of budget policy.  For example, Congress had to raise the debt limit a number of times between the end of World War II and the mid-1970s, even though the debt-to-GDP ratio fell significantly over this period.  Similarly, debt subject to limit rose in the late 1990s — even though the budget was in surplus and debt held by the public was shrinking — because Social Security was also running large surpluses and lending them to the Treasury.