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No Way To Run a $6 Trillion Enterprise

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Richard F. Keevey
January 23, 2023

The government of the United States recently approved a budget for Fiscal Year 2023—months after  October 1, 2022, the start of the federal fiscal year. For these months, the government operated on a series of Continuing Resolutions (CRs), where a CR is a temporary spending law authorizing the operations of the government when Congress fails to approve the required Appropriation Bills. The Congress and the president should have approved 12 separate appropriation bills by October 1st. Without CRs, there is no authority to expend funds resulting in a government shutdown.

Most corporations, each of the fifty states and several thousand local units of government approve spending bills at the beginning of their fiscal year. Occasionally, a few might be tardy by a day or so, but months of delays—never. The federal government, however, does it frequently. There have been 47 CRs between 2010 and 2022, ranging in duration from 1 to 176 days. On three occasions no CR was approved resulting in a governmental shutdown.

What a way to operate an almost $6 trillion enterprise which provides direct services to hundreds of millions of Americans and pays for the civilian work force and the armed forces.

The Budget Process in Brief

By law, the president submits a budget to the Congress in January outlining proposed spending goals for the upcoming fiscal year. According to statutes, several committees (i.e., the Budget Committees and the Authorization Committees) review the proposed budget, primarily focusing on broad policy and spending goals. Their input is provided to 12 Appropriation Committees. Each of these Committees focuses on a separate government agency (e.g., departments of Defense, Health and Human Services, Labor, etc.).

After each Appropriation Committee reviews the president’s budget and makes whatever changes they deem appropriate, each bill is submitted to the full Congress for approval; and then submitted to the president for approval. The president can either sign the bill(s) into law or veto the bill. Unlike most state governments, the president does not have line-item veto power to eliminate items added by Congress that he does not approve. Occasionally, the Appropriation Committees agree to combine the 12 bills into one omnibus bill. In fact, this recently happened when the Congress approved the spending for Fiscal Year 2023.

Where Does the Money Go?

Based on the prior year, the total budgetary expenditures of $5.9 trillion is divided into three major components: $3.8 trillion (66 percent) for mandatory programs; $1.6 trillion (27 percent) for discretionary programs; and $400 billion (7 percent) for interest on outstanding debt. The mandatory programs are dominated by spending for the Social Security, Medicare and Medicaid. Almost 52 percent of the discretionary budget is for defense spending ($825 billion) and the remainder ($780 billion) for all other programs.

Especially important and less understood, the mandatory programs are on ‘automatic’ spending authority. These programs are permanently authorized unless Congress takes specific actions to change their statutory provisions. This means only $1.6 trillion of the total budget is annually reviewed and approved by Congress.

For example, the recently approved omnibus appropriation act was for $1.6 trillion—not $5.9 trillion. Does that mean that if Congress had not passed the omnibus law Social Security, Medicaid and Medicare payments would still have been made? Yes, because these programs are on ‘automatic pilot.’ However, all other government functions, including defense spending, would have ceased.

Pending Problems: Raising the Debt Ceiling

But, once federal spending has been authorized, the government needs cash to make payments. Alas, the annual revenues are not sufficient to pay all the bills, and the government must borrow to balance  revenues and spending. Roughly speaking, in FY2022 the government collected $4.9 trillion and spent approximately $5.9 trillion. The difference was covered by borrowing $1 trillion.

The current total debt of the federal government (i.e., the cumulative total of all prior deficits) is now approximately $31 trillion and will continue to grow in the coming years. However, there is an overall debt limit set by Congress. The current limit is set to expire in mid-May. Although a somewhat arcane procedure, raising the debt limit allows the U.S. Treasury to pay for Congressionally approved spending. Raising the debt limit does not authorize additional spending; instead, it is simply paying for the approved budget.

The need to raise the debt limit has occurred almost one hundred times since World War II. Usually, the passage is routine but, in some years, it becomes a contentious issue. Congress last struggled with the debt ceiling in 2021 and after protracted negotiations with the president extended the debt ceiling to a level that authorized the issuance of debt but only until mid-FY 2023. However, raising the debt ceiling often becomes a big political issue. If the debt limit is not raised in a timely manner, the United States risks default on its debt and/or indefinite delays in making critical payments, such as Social Security or pay to our troops.

One might ask, just what is the purpose of this debt ceiling? Did the Congress not just approve spending, knowing that some of the costs must be paid for with borrowed funds? If Congress did not wish to borrow the necessary funds, why not reduce spending, or raise additional revenue? Should be easy—right? However, remember over 80 percent of all federal spending is for Social Security, Medicare, Medicaid, interest on the debt and defense. As such, options for spending reductions are limited and painful and increasing taxes is often politically risky. So, eliminate the debt ceiling and budget properly.

Author: Richard F. Keevey held two presidential appointments as CFO at the Department of Housing and Urban Development and as deputy undersecretary at the Department of Defense. He was the Executive Officer of a nuclear missile unit in Europe and was appointed by two New Jersey governors as State Budget Director. He is currently a senior policy fellow at Rutgers University and lecturer at Princeton University.  

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One Response to No Way To Run a $6 Trillion Enterprise

  1. Minchin Lewis Reply

    January 24, 2023 at 12:58 pm

    It is no way to run a $6 trillion enterprise either. What does “budget properly” mean? Budget deficits increase the debt. Budget surpluses would decrease the debt. We might be concerned because increases in the debt increase the amount of interest that must be paid each year. At 7% of the total budget, interest is about 25% of the “discretionary” budget. The problem might not be the debt limit.

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