Business Ethos Blog

U.S. Budget: What Are the Chances?

Dr. David Mielke, Retired Dean of the College of Business at EMU

Now that the attempt to repeal and replace Obamacare has been withdrawn, it appears that tax reform is the next issue for Congress to consider. However, by the end of April, Congress must pass a budget for the current year. The budget has been delayed at least twice because Congress could not agree and instead passed continuing resolutions. Whether or not Congress can agree for this year a bigger battle appears on the horizon for 2018. President Trump has unveiled his initial budget for 2018. What are the key provisions of his proposal? What is the likelihood that his budget will be passed? Should the bulk of his budget be passed? What is the “Right Thing to do?” Let’s look at some issues:
1. The broad outline of the administration’s budget is to increase military spending by 10%, or $52.3 billion, boost Homeland Security by 6.8% or $2.8 billion and Veteran Affairs would get $4.4 billion more, an increase of 5.9%. The total $54 billion increase will be offset by an equivalent amount of reductions in other programs and agencies to avoid increasing the budget deficit and to comply with budget caps set under current law. There are also no changes in entitlements, the largest components of the over $4 trillion federal budget.
2. The White House is proposing shifting 1.35% of the total federal budget. Overall, defense spending has fallen to about 3% of the economy from 4.7% in 2010. Domestic discretionary spending boomed until the GOP Congress started to rein it in after fiscal 2011. Despite that, the number of federal employees has grown from 1.978 million in 2009 to 2.137 million this year, about 150,000 or an almost 8% increase.
3. Every department would face cuts and funding would be eliminated for nearly 20 independent agencies as well as 11 programs within bigger agencies. Examples of independent agency eliminations are the African Development Foundation, Appalachian Regional Commission, Chemical Safety Board, Corporation for National and Community Service (AmeriCorp), the Corporation for Public Broadcasting, Legal Services Corporation, National Endowment for the Arts, National Endowment for the Humanities, the US Institute of Peace and others.
4. The EPA would be cut by 31.4% or $2.6 billion, eliminating programs such as the Clean Power Plan, Great Lakes Restoration Program, international climate change programs and another 50 initiatives such as the Energy Star program for appliances.
5. The State Department and USAID would be cut 28.7% or $10 billion. While funding for embassy security and diplomatic duties wouldn’t be crimped, foreign aid and support for multilateral organizations such as the Global Climate Change Initiative would be cut or eliminated.
6. Health and Human Services would be cut $15.1 billion and the National Institutes of Health $5.8 billion, eliminating such programs as the Low Income Home Energy Assistance Program.
7. Housing and Urban Development would lose $6.2 billion, with program deletions including the Community Development Block grants. This program has spent $150 billion since 1974 with little community development.
8. The Department of Transportation would lose $2.4 billion capping funds for new mass transit programs and would eliminate other grant programs and privatize the Federal Aviation Administration.
9. The Department of Energy would lose $1.7 billion primarily impacting research and eliminating the Weatherization Assistance Program. Research would focus on applied R&D and eliminate the investment fund that provided the funding for Solyndra.
10. Other department cuts include Agriculture, 20.7% or $4.7 billion, Labor, 20.7% or $2.5 billion, Commerce, 15.7% or $1.5 billion, Interior, 11.7% or $1.5 billion, Treasury, 4.4% or $519 million, Education, over $3.6 billion and Justice 3.8%.
There is plenty in the budget to like and dislike and criticism from both sides of the aisle has come out hard and fast. The politicians have already decided that the budget proposal is dead on arrival in Congress. Even if that is the case, is there a lesson to be learned from this proposal? Does the proposal demonstrate how difficult spending choices are going to be if entitlements aren’t reformed? Is there another big question: Which activities are properly and best performed by the federal government and which activities are properly left to other bodies, such as states, local governments, the private sector or nonprofit organizations? Should parts or the whole budget be passed? What is the “Right Thing to do?” There is no doubt that every suggested reduction or program elimination will cause an outcry from one constituency or another. The result will be that nothing is accomplished, the military and VA will not get the additional funding they need and we are likely to get a continuation budget exactly like the one Congress must deal with before the end of April this year. It is time to look at the whole, perhaps with little attention to the parts of the budget cuts. Certainly, if the parts are examined then a serious discussion must occur as to whether or not the federal government is the proper and best organization to deal with the issue. In my opinion, pass the proposal. It has been too long since a serious review of expenditures has occurred. This is a form of zero based budgeting that has been an important part of business for years. Time for government to consider it too. What are the chances that this proposal will be adopted? Slim and None.