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Week Ending April 7, 2006

HCR 376 The House Fiscal Year 2007 budget

Under the heading of “Strength, Spending Control and Reform” the House puts forth its version of the FY 2007 budget that will later be reconciled with the President’s budget and that of the Senate. The House did not manage to complete the bill prior to the Easter recess but will take it up again in late April.

Under “Strength” the bill tends to build on the recent economic success illustrated by a modest economic growth rate of 3% since 2003, creation of 5 million new jobs in 2 ½ years, a low unemployment rate of 4.8% and a 15% increase in revenues since 2005.

The bill matches the President’s request for a 7% increase in defense spending (not including the cost of the wars that continue to be funded off-budget), a 3.8% increase in homeland security spending and sets aside a $50 billion reserve for future war costs. $2.3 billion would be placed in reserve for avian flu.

Other reserve funds are created for disposing of underutilized federal real estate, the reauthorization of the Secure Rural Schools and Community Self-Determination Act and the National Flood Insurance Program. The resolution provided no money for those funds.

Under “Spending Control” the bill targets non-security discretionary and entitlement spending restraints. Non-security discretionary spending averaged 7% growth over ten years but this budget, similar to last year, will hold that spending increase to 1.3% or below, a figure well below adjustment for inflation therefore, essentially, a cut in spending for those programs. That spending peaked at $485 billion and is expected to drop to $432 billion in 2006 and further to $413 billion in 2007. When appropriations are made for the individual departments and programs later this year some programs could be given more while those considered under-performing or obsolete could receive less or no funding at all. Those programs that will likely get significant funding increases include Veterans affairs, education and the National Institute of Health.

Entitlement spending ‘savings’ come under the ‘Spending Control’ category and the House budget would find ways to save $6.8 billion in the areas of reducing fraud and overpayment, eliminating corporate subsidies, strengthening retirement security and ‘restoring market forces’. Retirement security efforts would eventually dissolve the Pension Benefit Guarantee Corporation that assures pensioners are not shortchanged by under-funded pensions, but recent new law would force pension plans to better fund their programs. Restoring market forces refers to applying ‘market thinking’, where appropriate, to government programs.  More of a philosophy that guides, the bill recognizes that entitlement programs are “a critical safety net for millions of Americans” but need oversight to make sure they provide what they were intended to provide. What shakes supporters of this resolution is the conclusion that without oversight such programs will consume 64% of mandatory spending in ten years.

Data from the House Budget Committee concludes that even if the budget were balanced growth of mandatory spending at its current clip would cause deficit spending within a year {Readers should note that the fastest growing outlay and one not addressed with any specificity in this budget resolution is the interest on the public debt that is growing at well over 30% as this Congress continues to spend off-budget, Editor}  Budget Committee data is a bit skewed in that it reports net interest for 1995 at +15%, 7.4% in 2005 and 8.1% in 2016. Left out is the creation of surpluses that reduced the percentage from 1995 to 2000. Reinterpreting the data shows that this Congress increased the deficits and therefore the debt and therefore net interest on the debt since the Bush administration took power and, apparently, intends to see that percentage increase to 8.1% in ten years. {Ten year projections are seldom accurate because too many unpredictable things can happen to impact budgets in that time span, Ed}

Reform. As it is that emergencies are the major reason for off-budget, deficit and public debt increasing spending the Resolution aims at softening future disaster spending by creating a $4.4 billion reserve fund for natural disasters, not including Katrina spending. The amount set aside is a ten year average but last year alone over $70 billion was appropriated for Gulf Coast and Florida disaster relief from three hurricanes. The definition of emergency spending was modified in 2002 to include a ‘temporary’ category that would legitimize off-budget spending for Iraq and Afghanistan. Other justifications for emergency off-budget spending include unforeseen, urgent situations and those causing an immediate threat to life or property. Naturally, a provision allows for Congress to increase spending limits if emergency spending exceeds reserves.

Automatic tax increases are prevented and previously passed tax relief is included in the Resolution. Another reserve fund of $228 billion is established to mitigate and reconcile taxpayers caught in the Alternative Minimum Tax law that originated to make sure the very wealthy did not escape all taxes through loopholes.

Deficit reduction is to be accomplished mostly by increased revenues and the near-freeze on non-security discretionary spending. Another source of deficit reduction would be the collection of unpaid taxes that would be deposited directly in the Treasury for the purpose of deficit reduction.

The bill projects deficits to drop from the current projected $423 billion to $191 billion in FY 2009. The Resolution directs the appropriate committees that govern departments and programs to make spending cuts to mandatory programs through 2011. The departments and expected cut amounts are as follows:

Sponsor: Rep. James Nussle (R-IA-1st)

Vote: Bill was withdrawn by House Majority leaders.

Cost to the taxpayers:

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No reproduction, language translation or distribution without written permission from TheWeekInCongress.com.(TM)