Business Ethos Blog

The Right Thing To Do: The Mielke Way – Something for Everyone

Dr. David Mielke, Retired Dean of the College of Business at Eastern Michigan University

Congress passed and President Trump signed a two year budget bill last week at the eleventh hour. There is no question we needed to pass a budget and to avoid another shutdown. But there are mixed reviews, with one thing for sure, there was little concern about increasing the debt once again. Defense spending was increased by $165 billion and non-defense budgets increased by$131 billion. But that’s not all, there were other expenditures approved that have received little or no attention. You might wonder why our representatives have given up earmarks. Maybe because they can just add funding for their favorite projects to the main budget bill? Should the budget bill have included immigration reform as expected? With the expected impact of tax reform deficits and the added deficit from the new budget we are cruising toward a $1 trillion deficit this year. Should we be concerned? Did we really need all the extra expenditures to assure the budget bill passed? Was the budget bill the “Right Thing to do?” Let’s look at some issues:
1. Although the budget bill established total dollars and some specific uses for those dollars, Congress did not pass an actual budget specifying how all those dollars will be spent. Congress has a deadline of March 23rd to determine and pass the entire budget specifics.
2. In addition, the debt ceiling was suspended until March 1, 2019, sidestepping the fight over government spending and the national debt. Last summer, the Congressional Budget Office estimated that interest costs would grow to $800 billion a year by 2027, when it is expected to be more expensive than Medicaid. The estimate assumed a 3.5% interest rate, modest by historical standards.
3. Although the Democrats had wanted dollar for dollar increases in domestic spending with military spending, they agreed to $131 billion versus $165 billion for defense. It also provides $140 billion in emergency or overseas contingency defense spending for the next 2 years.
4. Included in the $131 billion is a 4 year extension of the Children’s Health Insurance Program, or CHIP. That program had recently been extended by 6 years to end the earlier shutdown. Four additional years were tacked on.
5. $90 billion was added for disaster relief for Texas, Florida and Puerto Rico, including $23.5 for the Federal Emergency Management Agency’s fund for recovery and $28 billion for community development block grants for housing and infrastructure, $2 billion for Puerto Rico’s electric grid, $2.4 billion for Florida’s citrus growers and farmers and $4.9 billion in Medicaid for Puerto Rico and the Virgin Islands.
6. There was another $6 billion over 2 years to fight opioid addiction. It would fund prevention programs and law enforcement operations. A 2016 law provided $1 billion for state grants and to date there has been no feedback what that money accomplished.
7. There is $20 billion in new infrastructure investment, reflecting Republican demands who wanted a portion of the non-defense spending hikes to go to infrastructure. Anyone remember “shovel ready” projects?
8. The bill provides $6 billion of funding to reduce the backlog of more than 400,000 claims at the Veteran Affairs health centers.
9. The deal OKs a 2 year reauthorization of community health centers with more than $7 billion in total funding, a Democratic priority. The Republicans got the repeal of another part of Obamacare—the Independent Advisory Payment Board that could impose price controls on Medicare.
10. The bill also gives $620 million to the National Health Services Corps and $253 million to teaching health centers.
11. Another provision limits the excise tax on investment income at private colleges and universities just passed as part of the Tax Reform Law. How about the provisions that extend the 3 year depreciation for race horses, extend special expensing rules for film and television productions and to theater productions for a cost of $1.3 billion in 2018, inclusion of an energy tax credit for advanced nuclear power facilities, costing $12.2 billion in 2018, $594 million in tax relief for people affected by the California wildfires, including an employee retention tax credit for employers who suffered losses such as wineries, tax relief for plug-in motorcycles and extends for one year the alternative motor fuel credit for qualified fuel cell vehicles at a cost of $4 million. Many of these are considered tax changes and the total cost is not included as part of the budget bill as such.
There is no question that we needed a budget bill to stop the series of continuing resolutions that have plagued the budget process for years. We could applaud the fact that it is a bi-partisan bill and even more so that it originated in the Senate. The next question is whether or not Congress can agree on the details of the spending limits they established by March 23rd. The Devil is in the Details. However, when you look at the basic outline and dollars committed, in some cases to special projects, was there any consideration for how we are going to pay for the increases? Were the bare essentials and top priorities considered or was this a free for all to pack as much as possible into this bill? Did we need all the special tax breaks included? Didn’t Congress just pass tax reform? Has Washington reverted to the old approach to any issue and that is throw some money at it? Was the budget bill the “Right Thing to do?” I agree that we needed a budget bill, especially to increase military spending and to abolish the sequester that had been causing budgetary problems for years. However, the process still needs a lot of work. Congress acted at the eleventh hour, in a sense, buying votes for the inclusion of pet projects. We must get back to the budgeting process, although not used for years, that includes a discussion of each of the budget parts with time to consider rather than cram in points within a day. And then pass it before the October 1st start of the new fiscal year. Since the law passed sets a 2 year budget, we at best won’t see that return to fiscal responsibility for 2 years. It is a good thing that the debt limit fight was also avoided thanks to the bill, but once again the debt needs to be discussed and some agreement as to how and when that problem will be solved. We definitely did not need all the special interest tax provisions. You have to wonder what special interests and lawmaker pet projects didn’t make it in the bill because it seems like there is “Something for Everyone”.