The Politics of Budgets

Did you know that America doesn't actually have a budget? It's true. Congress does not pass one big bill where all the spending is voted on. Instead, all the appropriations are voted on separately and the Congressional Budget Office (CBO) adds them all up. There are so many convoluted ways in which Congress creates America's spending it is no wonder how it has a debt of thirteen trillion dollars.

Every year, the Office of Management and Budget (OMB) reports to the President on spending levels, the debt, and what economists are predicting for the coming year. After this analysis is complete, the President makes his priorities known. Decisions are made on what the tax levels should be, where spending should be cut, and where spending should be increased. Then the president starts pushing these ideas at the State of the Union address.

The CBO and OMB can sometimes come up with different numbers for how much a program can cost, how much the debt will be, or how much the economy will grow, but there usually isn't that big of a difference. The CBO is a non-partisan office, and because of that, their recommendations carry a lot of weight. During the healthcare debate, the CBO estimated that if the healthcare bill passed Congress it would reduce the deficit. The Democrats jumped on this and the Republicans had no reason or will to fight this fact. Of course, they still managed to find other things to complain about.

In Congress, the appropriations committees are filled with members who have a direct interest in seeing money going to their districts. For instance, the House committee on Science and Technology (which oversees NASA), had to deal with one of President Obama's priorities this past year. The president wanted to cut NASA's budget in order to reduce the deficit. But the members of that committee refused to let it happen, and it didn't. NASA was still fully funded for years to come, and for the members whose constituents didn't have a direct effect on the vote, they got a big IOU from those that it did. Needless to say, it is very hard to reduce the deficit this way.

One of the most effective ways the deficit was reduced occurred was when President Nixon was in office. When Nixon was living in the White House, he had the ability to cut spending that he did not think was necessary. Similar to a line-item veto but after the budget was passed. However, while he was in office Democrats controlled Congress, and eventually took this ability away from him, and claiming he wasn't cutting funding in Republican districts.

Before Obama introduces his budget and sets his priorities at the State of the Union, Congress is going to have to vote on its debt ceiling. A lot of pundits are making a big deal out of this because the debt was a big issue in the last election. But this same vote has happened every year for as long as there has been a deficit. And every year the minority party blames the majority party for increasing the deficit. But really, the ceiling is based on the coming years interest on what the government owns. So if a member voted for an appropriation last year that the CBO said would increase the deficit, they only have themselves to blame.

But that does not make it any less important for the debt ceiling to be raised. If it is not, the Treasury will be forced to default on the loans from China and other countries around the world. If you thought the financial crisis was bad, this will be one-hundred times worse. If the United States defaults (which amounts to claiming bankruptcy) the entire world economy will go into an unprecedented tail spin. It won't be just where people invested that will be hurt, this time it will be all the businesses that borrowed money from banks (which is all of them) from all around the world.

If John Boehner wants to give a fight about this, he will be playing a very dangerous game. I know he will be all high and mighty after Pelosi hands him the gavel, but unless he wants to be responsible for what I just described, he will raise the roof.