Budget: What’s to Negotiate?


Policy pundits on either side of the political aisle would be hard pressed to argue that for the last six months the U.S. Congress has successfully moved legislation.

Consider, the U.S. Senate has held 15 confirmation votes for Administration positions including Secretary of Defense, U.S. Attorney General, Chairman of the National Transportation Safety Board, Assistant Secretary of the Department of Homeland Security, Assistant Secretary of the Department of Transportation, Undersecretary of National Institute for Standards and Technology and four District Judges.  Issues covering human trafficking, Medicare doc fix and reauthorization of Children’s Health Program, surveillance, cybersecurity, African Growth Opportunity Act and congressional oversight of a potential White House deal with Iran were adopted. in the Senate a test vote occurred on the reauthorization of the export-import bank.  Both congressional chambers of Congress adopted a budget resolution – the first since 2009.  Both congressional chambers of Congress adopted the (annual) National Defense Authorization Act (NDAA) (the Senate failed to pass NDAA the past two years).  And, most recently, both congressional chambers gave the Obama Administration a huge victory in passing Trade Promotion Authority and the Trade Adjustment Act.

This is exactly what the U.S. electorate expects of their congressional leaders.

But last week upon the introduction in the U.S. Senate of the FY 2016 appropriations bill that will fund the U.S. military from October 1 , 2015 to September 30, 2016, Senate Democrats blocked the motion that would allow the Senate to proceed to debate the spending measure on the Senate floor.  Democrats argue that while they support the U.S. military and the proposed increase in spending levels for the military, other U.S. domestic programs also needed to be increased.  Democrats have vowed to filibuster all 12 annual spending bills that come before the U.S. Senate in order to build pressure on Republicans to agree to negotiate another bipartisan budget agreement.  Many Washington observers are citing this occurrence as the resurfacing of gridlock for Congress.


Immediate and long term spending caps (known as sequestration) were put in place until 2021 by the adoption of the Budget Control Act (BCA) of 2011 (P.L. 112-25). These spending caps were established in the BCA and were traded for increases in the amount the U.S. may borrow (debt ceiling). The BCA was necessary because the U.S. increased federal speRecession Recovery signpostnding for at least a decade after the September 11 terrorist attacks, including the wars in Iraq and Afghanistan and passage of the American Recovery and Reinvestment Act of 2009 (ARRA) to prevent deepening of the recession. The Congressional Budget Office (CBO) reported that discretionary spending had increased  from 6% of Gross Domestic Product (GDP) in 1999 to about 10% in 2009. Exacerbating this increase in GDP was the financial crisis that sent the U.S. unemployment rate to a high of 10% and deflated tax revenues by $460 billion in just over a two year time frame.

The Bipartisan Budget Act (BBA) of 2013 (P.L. 113-67) was adopted in December 2013.  The BBA increased the sequestration caps for FY 2014 and 2015, to $1.012 trillion and $1.014, respectfully, and extended the spending caps into 2022 and 2023.

In the Administration’s FY 2016 (October 1, 2015 to September 30, 2016) budget request published in February 2015, President Obama proposed a 7 percent increase in discretionary spending.  This amount would be evenly split between defense and non-defense programs. Non-defense discretionary spending would increase to $530 billion, about $37 billion above the spending caps. Defense spending would increase to $561 billion, about $38 billion above the spending caps.  The Obama administration proposed to eliminate sequestration adopted in the BCA.

Administration Proposal       ($ Discretionary)          Congress

Defense               + $38 billion DoD                                                  +$38 billion OCO

Non-Defense       + $37 billion, other domestic programs

What’s to Negotiate?

It is estimated that over the remaining six-year life of sequestration (to 2023) about $500 billion will be saved.

To give this some perspective….

The total U.S. debt is $18,152,658,501,837.  Assuming the total $500 billion (accumulated over the next six years) went to pay down U.S. debt it would amount to a payment of under 3%.

Moreover, lawmakers have basically agreed to exceed the spending caps by at least $38 billion.  The argument is more about which account it goes in, Department of Defense (DoD) or the Overseas Contingency for Operations (OCO).  There will not likely be an agreement on the additional request of $37 billion for non-defense programs.

What’s More Troubling….

Multiple budget experts agree that mandatory entitlement programs need to be overhauled and the growth of benefits reduced BEFORE discretionary spending is addressed. Total discretionary spending (FY 2015) is just over $1 trillion and only makes up less than 30% of all U.S. outlays. Mandatory spending, including Social Security, Medicare and other entitlement programs make up about 65% of U.S. outlays and are projected to increase by 70%, from $2.27 trillion in FY 2015 to $3.86 trillion in FY 2025.

Yet, Congress is arguing over minuscule amounts ($38 billion) of discretionary spending and threatening to slow down progress.

Just five days ago on June 16, 2015, CBO published their Long-term Budget Outlook for the U.S.  CBO found that over the next ten years with policies INCLUDING SEQUESTRATION held consistent, “budget deficits would not substantially increase at first, but eventually they would begin to rise. Deficits would approach 4 percent of GDP toward the end of the 10-year period.”  With deficits projected to remain close to their current percentage of GDP for the next few years, the U.S. will be unable to pay any amount toward the $18 trillion federal debt.  U.S. debt “would remain at a very high level, between 73 percent and 74 percent of GDP, from 2016 through 2021 (two years prior to the end of sequestration). Thereafter, the larger deficits would boost debt—to 78 percent of GDP by the end of 2025” (two years after sequestration).

Fiscal Cliff Ahead iStock_000020775494XSmallWhat is troubling, is our congressional leaders become distracted and dysfunctional over minuscule issues.  So what should the U.S. electorate expect from its elected leaders when it comes to more difficult issues that need to be addressed sooner-rather-than-later? Will issues like overhauling the U.S. tax code, revamping Social Security, Medicare and other entitlement programs, and ridding the code of arcane and overreaching regulations ever be seriously debated on the floor of either chamber?

The U.S. has accumulated over an $18 trillion debt, an amount that seems to be insurmountable. Some of the best economic minds at CBO could not predict how long the U.S. could sustain such growth in federal debt. At some point, investors, including foreign nations like China which holds $1.263 trillion of U.S. debt, could begin to doubt the government’s willingness or ability to meet its debt obligations.  At this point they may require the U.S. to pay much higher interest costs in order to continue borrowing money.

What’s more troubling is by losing focus and momentum over trivial and unnecessary arguments federal lawmakers are signaling to holders of U.S. debt their inability to abide by self-imposed austere measures and thus an unwillingness to meet U.S. debt obligations.  Such actions weaken domestic and international investor’s confidence.  CBO warned saying such actions causing weakening investor confidence could lead to, “a fiscal crisis (that) would present policymakers with extremely difficult choices and would probably have a substantial negative impact on the country.”

Going Forward

Going forward our elected leaders in Congress must begin to address the critical policy needs of the U.S. that ensure long-term prosperity.  While there remain numerous other challenges congressional leaders are encouraged to prioritize and maintain there collective focus on reducing U.S. debt, Changes to mandatory spending programs, Overhauling the U.S tax code, Eliminating arcane laws and regulations and improving efficiency in government functions.

Congress will hopefully agree to continues to build on the progress achieved in the first six months on this year.  Going forward we offer our elected leaders these thoughts to help you achieve collective policy goals important to future U.S prosperity and limit (not prohibit) dysfunction.

  • Keep in mind your position as an elected official was never meant to be easy.  With all the issues of the day you deal with it is easy to forget our Founding Fathers purposefully created dysfunction in government with a president, a judiciary, and two chambers of Congress. According to the National Constitution Center, in Federalist Paper #51, James Madison, known as the “Father of the Constitution,” actually embraced gridlock. Madison said, the “interior structure” of the government ensured that the different branches would “keep…each other in their proper places.” Ambitious men would always seek to amass power; that was human nature. But under the Constitution “ambition” would “counteract ambition.”
  • Keep focused and work toward “win-win” solutions.  Align Republican and Democratic policy objectives.
  • Employ non-threatening communications.
  • Deploy uninhibited brainstorming. At times like these we need all ideas out on the table.
  • Build consensus around the most plausible ideas that are most promising for future U.S. prosperity.
  • Motivate one another.
Tim Cansler