The (Credibility) Challenge For The Fiscal Huff And Puffers

The U.S. Congress finally finished the spending bills for 2024. For those keeping score, that’s nearly six months past the use-by date to produce a budget deficit of about $1.5 trillion.

Many House Republicans are as indifferent to the delay as they are irate about the deficit, but given their miniscule majority facing a united Democrat-controlled Senate and White House, no more should be expected. Political power matters and conservatives have relatively little.

Could they do much better in 2025 under more favorable circumstances? Would they do enough?

It is reasonable to doubt. To see why, consider the 2024 picture had former President Trump’s policies remained in place, using 2024 as point of reference because the numbers are settled and thus present a firm starting point. In pre-pandemic 2018, that is, CBO forecast a 2024 deficit under Trump’s policies of nearly $1.1 trillion, lower than President Biden’s actual deficit, but hardly grounds for celebration.

If Republicans hold the House, gain a majority in the Senate with votes to spare, and retake the White House, a good place to start on the budget deficit would be to reverse Biden’s roughly $500 billion in excess spending. What would that look like?

Federal spending divides into three big buckets. The first bucket is discretionary spending, the day-to-day spending funded by the appropriations bills that Congress recently finalized. In turn, discretionary spending breaks out into defense and non-defense.

Biden’s 2024 defense spending exceeds what Trump forecast for 2024 by about $140 billion. As conservatives generally understand that America’s armed services are badly underfunded, it is unlikely even fiscally aggressive Republicans would undermine national security further. Defense spending and this $140 billion are off the table.

In contrast, Biden’s non-defense discretionary spending exceeds Trump’s 2024 forecast by nearly $200 billion. This is spending-cut target one, where Democrats squander money like parade confetti.

“Mandatory spending,” the second major category, includes the big 3 entitlements of Social Security, Medicare and Medicaid, and other like programs. Collectively, mandatory spending under Biden in 2024 is about $345 billion above Trump’s number. About a third is higher spending on the big 3. Even leaving the big 3 alone leaves another $200 billion or so to cut. It will take spine and a parliamentary process called “reconciliation” to reverse this spending, but it can be done.

The third major category of federal spending is net interest, which at $870 billion exceeds Trump’s forecast by about $186 billion. Unfortunately, there’s nothing to be done here as it reflects higher past deficits and higher interest rates. Net interest is the price of past sins. Even asking for forgiveness and redemption, the sin and its price remain. Net interest is very Old Testament in that sense.

In summary, a determined Congress could whack non-defense discretionary spending by $200 billion and maybe reverse a similar amount of Biden’s mandatory spending increases. Politically, this would be a heavy lift, but it would still leave a budget deficit in 2025 roughly where Trump had it at about $1.1 trillion, or 3.9% of GDP.

That’s a start, but a lot more will be needed to achieve a sustainable budget deficit of roughly 2% of GDP, or roughly $0.5 trillion. For all the tough talk from today’s irate conservatives, this isn’t going to be easy. What remains after slashing Biden’s spending is the legacy of the deficit policies pursued by Biden’s predecessor; yes, him.

It has to be done or eventually tax hikes will make up the difference.


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