U.S. Spending Obligations Surge

By Beacon Staff

The Democratic-controlled Congress and the Bush administration have presided over a surge in new federal spending obligations that may be the most enduring legacy of the 110th Congress.

From new entitlements such as a GI bill for military veterans to recent federal commitments to shore up a troubled housing market, Washington is taking on obligations with long-term consequences for taxpayers. At the same time, critics say, lawmakers aren’t exercising the oversight needed to keep these commitments manageable.

“In the last three or four months, the momentum has really built up for more spending,” says Michael Franc, vice president of government relations for the Heritage Foundation, a conservative think tank in Washington. “Congress has moved a whole range of bills that take the problem up another notch.”

Last month week the White House Office of Management and Budget (OMB) projected the US budget deficit for the next fiscal year to be $482 billion, the largest deficit in US history in nominal terms.

Relative to the size of the US economy, the deficit would make up 3.3 percent of the gross domestic product. OMB director Jim Nussle noted during the July 28 mid-session review that, in those terms, the projection is “well below the record deficit of all time, which was 6 percent of GDP back in 1983.”

“The important point to remember is that near-term deficits are both temporary and manageable if, and only if, we keep spending in check, the tax burden low, and the economy growing,” Nussle said. “Excessive spending beyond the president’s budget plan will make the problem worse.”

Congress has yet to approve even one of the must-pass annual spending bills for the fiscal year that begins Oct. 1.

Democratic lawmakers blame the soaring deficit on the Bush tax cuts, especially for people with the highest incomes.

“Mr. Bush came to office with the biggest surpluses in history and he will leave office with the biggest deficits in history. That’s the bottom line,” said Rep. John Spratt Jr. (D) of South Carolina, chair of the House Budget Committee, on July 28.

One reason for the surge in red ink is the joint decision by Congress and the Bush administration in February to pass an economic package, including stimulus checks for most American families. If that plan had not been passed, the projected deficit for the current fiscal year would be $117 billion lower than the estimated $389 billion, Nussle said. Congress and Bush agreed that “getting the economy back on track was a higher priority than immediate deficit reduction,” he added.

But these record-high estimates don’t capture some new programs Congress has approved recently, such as the housing bill, or a rollback of cuts in entitlement programs, such as last month’s mandated cuts to doctors treating Medicare patients. Defying a presidential veto, Congress put off a 10.6 percent cut in payments to doctors in the Medicare program, which had been slated to take effect July 1. The cuts were intended to ensure that Medicare costs could be sustained in the long term.

Before leaving for August break, Congress also passed a rewrite of the Higher Education Act that increases the maximum Pell grant for low-income students to $8,000 a year by 2014, up from $4,800, and extends the grants to part-time students. College costs have tripled in the past 20 years, and lawmakers said they wanted to help families catch up.

Critics say the bill, at $169 billion over the next five years, is a budget buster that didn’t get enough scrutiny in an election year. On Sept. 18, the House Financial Services Committee will open a hearing on whether government must do more to ensure that lenders have the capacity they need to make loans to students.

The law also bans the US Department of Education from imposing mandates on colleges and universities, including testing to measure student progress along the lines of the No Child Left Behind Act.

It’s hard to put a price tag on recent US support for the housing market. If the market recovers, the cost to taxpayers would be zero, according to a Congressional Budget Office estimate of the housing-rescue law. But if the market worsens, this new commitment could cost taxpayers at least $25 billion before the authority expires in December 2009.

On July 14, the Bush administration authorized the Treasury to purchase obligations and securities of government-sponsored enterprises that deal with housing (Fannie Mae and Freddie Mac, and the federal home loan bank) – a potential commitment that’s even tougher to estimate.

“Congress didn’t get into this by choice,” says Sen. Christopher Dodd (D) of Connecticut, who chairs the Senate Banking, Housing, and Urban Affairs Committee. “The Bush administration failed in its oversight.”