While Republicans and Democrats agree on the necessity for the federal government to spend less, the question that remains is how to spend less. Within the past week, each party proposed reductions to the federal budget. Republicans in the House passed a bill yesterday with budget reductions for the current fiscal year, while President Obama released his budget on Monday for fiscal year 2012. Even though these proposals have quite a few differences, minor reductions in smaller government agencies are a common theme.
Republicans passed House Resolution 1 at 4:40 a.m. on Saturday with a partisan vote of 235-189. None of the Democratic Representatives voted for the bill and only three Republicans voted against the bill. The bill was debated throughout the week and contains several amendments to the current budget, including:
- Prevent funding for the implementation process of any part of the recently passed health care law (Amendment #102, 104, 105, 106, & 138).
- Prohibit funding for Planned Parenthood (Amendment #95).
- A reduction in the budgets of the Environmental Protection Agency, Department of Justice, Institute for Peace, Small Business Administration, General Services Administration, and NASA (Amendment #23, 27, 47, 69, & 87).
- Prevent any foreign aid for Saudi Arabia (Amendment #40).
- Prevent any funding for non-recourse loans for mohair (Amendment #141).
Altogether, Republicans estimate HR 1 could save the federal government $60 to $100 billion in the current fiscal year. Though, the bill is far from becoming law and likely faces considerable markup in the Senate, where Democrats will likely return the bill to the House with many changes. Regardless of compromises in coming days, the bill at least shows a cohesive effort to immediately reduce federal spending.
However, the bill reduces federal spending in smaller agencies and does not address the main categories of federal spending – medicare & medicaid, social security, and defense. These three categories account for almost 65% of the federal budget. Without seriously addressing these areas, a noticeable reduction in government spending is difficult to achieve.
President Obama’s budget for 2012 [.pdf] similarly resulted with a relatively small amount of savings, despite quite a few proposed changes. The President estimates his budget would reduce the deficit over the next ten years by $1 trillion. Primary savings come from a five-year freeze of non-security discretionary spending and the expiration of the tax cuts for wealthy Americans in 2012. Excluding these two mechanisms, the President’s budget proposes several changes to smaller agencies, such as:
- Reducing the Low Income Home Energy Assistance Program by $2.6 billion.
- Eliminating twelve tax breaks for gas and oil companies to raise $46 billion.
- Reducing funds to Small Business Administration and General Services Administration.
- Reducing defense spending by $78 billion (1% of annual defense spending).
- Reforming educational grants, as well as loans, to save about $1 billion.
Similar to HR 1, the President’s budget offers potential savings through changes to several smaller agencies, but it does not offer a significant proposal to immediately reduce federal spending.
These proposals come as the federal deficit is less than $200 billion away from the debt ceiling of $14.3 trillion. With the deficit currently at about $14.1 trillion, the deficit is expected to surpass the legal limit at the end of March. Interest alone accounted for almost 8% of federal expenditures in January and is expected to sharply rise over the next decade. In addition to rising interest payments, demand for social security will also accelerate over the next decade, due to the aging population.
With looming financial concerns, the government is forced to reduce expenditures, yet none of the major causes of the deficit are addressed in either proposal. As a result, even though the 112th Congress may eventually pass a bill with reduced expenditures for smaller agencies, the deficit will continue to grow.