Welcome to 2009, the Year of the New Budget Debate

Posted January 5, 2009 at 5:30pm

Little that has happened on the federal budget up to now — and I mean over the past few decades rather than just the past few months — has prepared anyone for the politically life-changing debate that will take place in 2009.

[IMGCAP(1)]Anyone who tries to apply the old politics, use past slogans or insist on the still-loosely followed Congressional budget process to understand, support or oppose what is about to happen is very likely to find not just that these previously tried-and-true positions and rationales no longer work, but that their personal credibility on fiscal issues has been seriously damaged.

The first reason for this change is that “the budget” as an issue won’t be as front and center as it has been in the past. Since at least 1974, when the Congressional Budget Act was put in place, through the Gramm- Rudman-Hollings years of the mid- to late 1980s, to the Balanced Budget Act and Budget Enforcement Act of the 1990s, budget considerations typically have been at least lurking in the background of most major policy decisions. In some cases, such as health care reform during the Clinton administration, the budget was one of the primary reasons the policy was not adopted or was used to justify its defeat.

This year, however, fixing the economy regardless of the impact on the budget absolutely is the primary issue. A very strong case can be made that the only mandate the incoming Obama administration received on Election Day was to deal with the economy. All other issues, including the impact on the federal government’s bottom line, are so far back in line that it’s hard even to call them secondary priorities.

This will make it hard for Republican and Democratic fiscal conservatives, Blue Dog Democrats and anyone else in the deficit hawk category to use the budget as a reason to oppose what’s about to be considered. Indeed, the budget impact of the proposals will be applauded by many, or probably most, as the right policies. Those who invoke the ghosts of past budget positions will be labeled as excessively dogmatic and hopelessly out of touch.

The second reason for the dramatically changed budget debate will be the numbers. The sheer magnitude of what very likely will be adopted and the impact on the budget of those policies will be far beyond anything that almost all Members of Congress have ever before been asked to consider seriously, let alone support.

Based on the information available so far, it appears as if the tax cuts and spending increases in the stimulus plan will be close to or exceed $800 billion by the time it is enacted. Some of that spending will occur over two years. Nevertheless, the package will be big by almost any standard. And this will be on top of the very large $700 billion Troubled Assets Relief Program that many gagged on while Congress held its nose and adopted it last year.

When added to the TARP and everything else that has already been approved or which, like the American International Group bailout, was done by executive fiat, the fiscal 2009 deficit will very likely exceed $1 trillion. Depending on how certain budget scoring disputes are settled, it could be several hundred billion dollars higher. That means the deficit could be from 8 percent to 9 percent of gross domestic product, a level that hasn’t been reached since the government was borrowing to pay for World War II. Federal debt held by the public could increase by about $2 trillion in 2009, a 25 percent to 30 percent increase over the current level. Even with the much lower interest rates of the past few months, that will raise the government’s annual interest payment substantially.

Very little of what has taken place on the budget the past few decades provides a context for any of these numbers and, because of that, Members, analysts and pundits will have a great deal of trouble trying to characterize them. It will be like trying to compare the number of people who will be watching this year’s inauguration to the number who were there when Abraham Lincoln took the oath of office: largely meaningless.

Third, the biggest change of all may be that the budget debate will need to focus on several years ahead instead of next year.

Despite a number of spectacularly unsuccessful attempts to impose biennial budgeting and the existing requirement that some departments and agencies — most notably the Pentagon — prepare multiyear requests, the government continues to budget one year at a time. In addition, Congress focuses almost entirely on just the “budget year” — that is, just on the year immediately ahead.

Yes, many programs have multiyear authorizations, tax and entitlement provisions generally continue until they are changed, and multiyear budget estimates are required. But the debate over the budget resolution is almost always about the deficit or surplus that will occur next year, and appropriations decisions are mostly about what will be spent in the year ahead. And few believe the required multiyear projections anyway.

This year, however, the House and Senate Budget committees and everyone else involved in the debate will have little choice but to begin to consider the multiyear impact of what is adopted. The budget will return as the hot issue and the phrase “deficit reduction” will come back into political vogue when the economy starts to recover in what we all hope will be no more than a year or so.

In the meantime, it will be most helpful if the Congressional budget process isn’t allowed to lay fallow but instead is used to get ready for the day when it is again needed.

Stan Collender is managing director at Qorvis Communications and author of “The Guide to the Federal Budget.” His blog is Capital Gains and Games.