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.

Building A House

Remember when Republicans were saying: government should act like American households when it comes to its budget? It was a great line. Short, easy to understand, and appealed to the GOP base (aka Tea Baggers) which allowed them to get excited. It then culminated with the recent shellacking this past election. The household analogy was used time and time again even though it was false. While it would be great to be able to print our own money (or if money grew on trees), we gave that right to the federal government when we ratified the Constitution.

But because elections have consequences, the two parties will be fighting to show who is most fiscally conservative. Obama announced today that he will be issuing a two year pay freeze that will save the federal government two billion during current fiscal year, twenty-eight billion over next five years, and sixty billion over ten years. While it sounds good on paper, it's really a political move. It's worth pointing out that it won't really be known how much is being saved until President Obama is out of office. And it's no accident. That way the White House can keep citing those numbers as a way to say the deficit is being reduced. Also, the pay of federal employees isn't the problem, it's the benefits they get that is driving costs up. That's why Defense Secretary Robert Gates is looking at ways to raise funds for the militaries Tricare. Of course, the new health care law will help maintain some of those costs, but apparently most of the new GOP governors won't enact the policy in their states.

This pay freeze announcement comes on the same day that several liberal think tanks are unveiling plans that are trying to tackle the federal deficit, all of which cut programs by federal agencies. In the meantime, government bureaucrats are always lobbying to keep their programs running. Think of it as an annual review where you have to tell your boss what you did this past year. You have to go through everything to show what you did while having to worry about keeping your job. Government agencies worry about the same thing, except it's all the time. They will give grand presentations, trips, gifts, and anything else that is legal to make sure they get the funding they think they need. While Obama doesn't have a J. Edgar Hoover problem, he still needs to make sure his employees are happy.

And do I even need to go into the special interest lobbyists like Jack Abramoff? There are plenty of those guys too. But whether you know it or not, you too have someone lobbying for you. For instance, do you want to save the environment? There are plenty of environmental groups out there who talk to members of Congress and their staff every day. Just look up The Environmental Defense Fund and read about how the Environmental Protection Agency was created.

One of the most contentious issues when it comes to the budget is taxes. No one likes them, and if a politician ever talks about them, he/she better say they will be lowered. But if you want a balanced budget someone's gotta pay for it.

The White House is right on this one, extend the Bush tax cuts for the middle class and let them expire for the rich. When people earning over a million dollars get a tax cut, they don't spend the money, and it does nothing for the economy. What makes raising taxes even more volatile this year is that state governments have had to raise their taxes over the last four years. So if Congress does nothing, the people who need help the most will be giving more than they can. Middle and working class Americans need the break and will spend it on the items they need to live, which will also help the economy. They deserve the extension.

It is baffling me how many Republican candidates are considering running for President in 2012. Just today John Bolton (who has never run for public office before) is thinking about running for President. Political Action Committees are already in the first couple of primary states for Mitt Romney, and Sarah Palin will probably run as an average Joe just to make a few more million. In the meantime, decisions need to be made, and the people who actually have to balance their budget are hurting the most.