Addressing Spending Begins and Ends With Mandatory Outlays

Discretionary Spending Should Be Cut, But It Ain't the Problem, Folks

Prior to the weekend, I had a fairly intense conversation with a conservative colleague who works on the Hill on federal spending. He was trying to convince me that the Fiscal Responsibility Act doesn’t really do anything to reduce the deficit and that far-right conservatives’ effort to pass appropriations bills for FY 2024 that appropriate at FY 2022 levels is worth the fight. If you’re going to fight for something, focus on the larger issues with federal spending.

Of course, I’m skeptical of the claims because the Fiscal Responsibility Act does in fact cut discretionary spending year-over-year between FY 2023 and FY 2024 and any appropriations bill(s) that pass the House at FY 2022 levels are dead on arrival in the Senate. If it doesn’t have 60 votes for cloture in the Senate, you’re wasting time.

The counterclaim is that the Limit, Save, Grow Act gave Speaker McCarthy room to negotiate on the debt limit and put pressure on the White House. I find that claim to be dubious because time was the biggest factor in those negotiations, and the Limit, Save, Grow Act wasn’t a serious attempt at legislating. I suppose the Speaker could claim that the House passed something while the Senate didn’t, but no one outside of the House Republican Conference took that bill seriously.

Let’s first look at the Fiscal Responsibility Act. According to the Congressional Budget Office, the Fiscal Responsibility Act reduces discretionary spending relative to the baseline by $64 billion in FY 2024 and $107 billion in FY 2025. Over the ten-year budget window, the reduction is $1.526 trillion. However, the difference in cumulative budget deficits is not nothing, but there’s still a lot of red ink. Budget deficits between FY 2024 and FY 2033 are projected to be $18.791 trillion under the Fiscal Responsibility Act compared to $20.314 trillion under the baseline.

The Limit, Save, Grow Act cut $4.804 trillion between FY 2023 and FY 2033 (note the additional year), but it still would’ve left a cumulative budget deficit of $17.049 trillion. Under the same ten-year window, the impact on the deficit would’ve been $15.925 trillion. It’s worth noting that $460 billion in savings included in the Limit, Save, Grow Act has been resolved because of the Supreme Court’s recent decision in Department of Education v. Brown.

There’s no question that the Limit, Save, Grow Act would’ve been better from a purely fiscal perspective, but, again, there weren’t 60 votes for that bill in the Senate. Considering the slight majority Democrats hold in the Senate, there weren’t 50 votes for that bill in the chamber. Limited to just discretionary spending, which is what this is all about, FY 2022 spending levels are pretty much a no-go for the Senate. Speaker McCarthy already negotiated a deal, and the Senate is highly unlikely to go any lower on discretionary spending.

If House Republicans continue to push the issue, a continuing resolution (CR) is the probable outcome. If that CR is in effect at the beginning of the year, absent any other congressional action, 1 percent across the board will be cut from discretionary spending.

Now, the discretionary spending caps in FY 2024 are probably the ones worth paying the most attention to because those appropriations bills theoretically have to be complete by September 30. That’s unlikely to happen because of legislative gridlock. The FY 2025 caps will be worth paying attention to depending on the outcome of the presidential and congressional elections. Although there are discretionary spending caps for FY 2026 through FY 2029, it’s hard to take those seriously based on past congressional behavior.

Separately, I find the entire discussion about discretionary spending to miss the larger points. It’s a distraction from the larger issues with federal spending considering that all but $280 billion of discretionary spending in FY 2024 will be borrowed. Yes, Congress has enough revenue coming to cover mandatory spending, interest on the debt, and $280 billion of discretionary spending. Mandatory spending—driven by Medicare and Social Security—and interest on the debt will continue to explode.

In FY 2023, mandatory spending is 62 percent of all federal outlays. Discretionary spending is 27 percent. The rest is interest on the debt. In FY 2047, interest on the debt will overtake discretionary spending in dollars spent. Mandatory spending will rise from 15.1 percent of gross domestic product (GDP) in FY 2023 to 16.9 percent in FY 2053. Discretionary spending will be crowded out and decline from 6.5 percent of GDP in FY 2023 to 5.4 percent in FY 2053.

Like I mentioned, the focus on discretionary spending is a distraction. That said, I’m beginning to think those who keep talking about it want that distraction because they don’t have to address, you know, the actual problems with deficits and debt.