6 Takeaways From the Senate Budget Proposal

COMMENTARY Budget and Spending

6 Takeaways From the Senate Budget Proposal

Oct 3, 2017 5 min read

Commentary By

Justin Bogie @JustinBogie

Former Senior Policy Analyst in Fiscal Affairs

Adam Michel

Former Senior Policy Analyst, Grover M. Hermann Center

Frederico Bartels

Former Senior Policy Analyst, Defense Budgeting

The Senate budget resolution takes a key step toward triggering the reconciliation process, paving the way for comprehensive tax reform. iStock

Key Takeaways

This Senate resolution paves the way for comprehensive tax reform, a much-needed step toward unleashing economic growth and prosperity.

The proposal would also cut more than $630 billion from nondefense programs in the next 10 years.

It makes much-needed reforms to domestic spending, but falls short on meaningful reforms to mandatory programs and revitalizing our national defense.

Last week, the Senate Budget Committee released its long-awaited fiscal year 2018 budget resolution.

The purpose of such a resolution is twofold. First, as a visionary document, it lays out the policy priorities of the majority party. And second, it is a necessary step in invoking reconciliation, a powerful tool in the hands of senators.

This Senate resolution contains much to applaud. Most importantly, it paves the way for comprehensive tax reform, a much-needed step toward unleashing economic growth and prosperity. It would also stick to the 2011 Budget Control Act spending cap and reduce total spending by $5.1 trillion over 10 years.

But the resolution isn’t all good news, as it fails in some other important areas.

It keeps the Budget Control Act’s defense and nondefense spending firewall, meaning that national defense remains underfunded while much-needed reforms to domestic programs are delayed. It also fails to include specifics on mandatory spending reforms.

By contrast, the House budget proposed $200 billion in mandatory cuts through reconciliation. At the least, the Senate should seek this level of savings. The current proposal spends too much and ignores the key drivers of the national debt.

Here are six major takeaways from the Senate’s budget proposal:

1. Paves the way for tax reform.

The budget resolution gives reconciliation instructions to the Senate Finance Committee, which allow revenues to be decreased by up to $1.5 trillion over the next 10 years. The Joint Committee on Taxation will measure this revenue reduction dynamically and will incorporate the economic benefits of tax reform.

A $1.5 trillion tax cut is truly a good step away from the revenue-neutrality constraint that had previously shackled the tax reform discussion. But it is still only a relatively modest tax cut of about 3.5 percent of the roughly $43 trillion of projected federal revenues over the next 10 years.

Because the Joint Committee on Taxation staff will dramatically underestimate the economic growth of tax reform, the true cost to the budget will be much smaller.

A budget resolution that allowed for revenue reduction in the neighborhood of $3 trillion over 10 years, or included a longer budget window, would have undoubtedly set tax reform up for an even greater chance of success to benefit the American people.

2. Fails to balance the unified budget.

The Senate proposal would reach an on-budget surplus of $79 billion by 2026. It excludes the off-budget portion of the federal budget—most notably Social Security.

Over the past several years, congressional budgets have achieved balance on a unified basis taking into account the impact of both on- and off-budget programs.

According to a Congressional Budget Office analysis, the Senate proposal would have a deficit of $424 billion in 2027 on a unified budget basis. This is more than a trillion less than projected under current law, but far from balancing.

The off-budget distinction for Social Security was originally intended to protect the trust fund’s surpluses from being diverted to pay for other, unrelated spending. Expenses from the trust fund now outweigh revenues, and reserves from the combined Old Age, Survivor and Disability Insurance trust fund are projected to be depleted by 2034.

Failing to include off-budget programs makes for an incomplete view of the current budget crisis, and could lead lawmakers to continue delaying reforms to Social Security and other entitlement programs.

3. Stays within the Budget Control Act caps.

The Senate budget assumes total base discretionary funding of $1.065 trillion in 2018, the same level proposed by the Budget Control Act caps.

Through 2021, base discretionary spending would be $140 billion below the Budget Control Act level. All of the reductions would come from reforms to domestic programs, while defense spending would remain at the current law levels.

The proposal would also cut more than $630 billion from nondefense programs in the next 10 years.

If the Senate sticks to these levels, the cuts to domestic programs would be a step in the right direction. However, the Senate Appropriations Committee has marked up its 2018 bills $5 billion higher.

The proposal also provides for a deficit-neutral reserve fund that would allow for adjustments to the budget resolution to be made, should Congress decide to raise the Budget Control Act caps again. Congress should reject such a revision and prioritize funding within the current cap.

4. Fails to prioritize national defense.

The Senate resolution would maintain the current trajectory of our defense budget and effectively contribute to the further deterioration our armed forces. It punts on defense and assumes that current Budget Control Act-level of funding is sufficient to meet the current requirements of our armed forces.

The resolution would give the Department of Defense increases that are barely enough to keep up with inflation. It would also phase out the overseas contingency operations account without a commensurable increase in the base budget.

These levels are well below the 3 to 5 percent annual increases that Defense Secretary James Mattis said would be required to maintain our military capabilities at the current levels. They are also close to $100 billion below what Sen. John McCain, R-Ariz., has assessed to be needed to rebuild our military.

Congress should eliminate the Budget Control Act defense/nondefense firewall and prioritize national defense funding within the total discretionary cap.

5. Falls short on specific mandatory reforms.

The House budget released earlier this year provided specific reforms to Medicare and Medicaid. This proposal fails to provide any details on reforms to these programs. Combined with Social Security, these programs are the biggest drivers of spending and the federal debt.

Most of the $4.3 trillion in mandatory savings come from unspecified policy assumptions. Concrete proposals are needed to reform these programs and correct their unsustainable trajectory.

6. Continues to provide disaster relief funding cap adjustments.

Finally, the Senate budget would provide $7 billion in above-the-cap disaster relief funding each of the next 10 years.

While disaster relief funds are legitimate when used properly and responsibly, they are far too often used as a tool to increase spending and circumvent the budget caps.

Rather than making broad exceptions to the budget caps for disaster relief, Congress should budget for recurring expenses through the annual appropriations process and reserve disaster and emergency adjustments for truly unpredictable events.

In sum, the Senate proposal makes a significant stride in putting forward reconciliation provisions that will pave the way for comprehensive tax reform. It also makes much-needed reforms to domestic spending, but falls short on meaningful reforms to mandatory programs and revitalizing our national defense.

In the end, the proposal will do little to hamper Washington’s uncontrolled spending addiction over the long term and address the biggest drivers of our national debt.

This piece originally appeared in The Daily Signal