How the GOP Will Whiff on the Debt Ceiling Showdown

There are three long-term budget numbers that tell you all you need to know about why the upcoming debt ceiling battle is likely to result in a big whiff when it comes to ameliorating that nation’s roaring fiscal crisis. To wit, CBO’s current Rosy Scenario budget outlook projects $60 trillion of revenues but $80 trillion of Federal outlays over the next 10 years—with the following crucial allocation among the major spending categories.

CBO February 2023 Projections of 10-Year Federal Outlays:

Mandatory Programs: $48.2 trillion
Discretionary Programs: $21.2 trillion
Net Interest: $10.5 trillion

So here’s the meat of the matter with respect to any so-called 10-year deficit reduction plan. You would need a strong majority in both houses and a presidential signature to save even one dime of the $48.2 trillion in mandatory spending. Getting all three at the same time is an exceedingly tall order in today’s fractured political environment, where a 1965-style Lyndon Johnson/overwhelming Congressional majority set-up has not been seen for more than a half-century.

Yet absent that confluence of powers, entitlements simply do not get curtailed or reformed. Non-action is the embedded default policy position, meaning that relentless spending growth is the order of the day.

Lack of overwhelming tripartite control of the legislative machinery, in fact, is the reason that during the last 25 years there has been virtually no legislation to reduce entitlement spending by any material amount.

As a result, entitlement-driven mandatory spending has risen at an 6.5% annual rate since 2000 or  more than 1.6X faster than the 4.0% rate of nominal GDP growth.

Now, however, the situation is actually worse. Even if Sleepy Joe capitulated and the divided Senate rolled over, the Trumpified GOP House majority has become a flat-out flock of chickens with their head in the sand when it comes to entitlement reform.

For want of doubt, here is what they are actually proposing with respect to the built in gross spending (before off-setting receipts) of $52.7 trillion for mandatory/entitlement programs over the next decade.

Foremostly, the GOP’s latest plan proposes a zero percent cut on the Big Four Untouchables, which will cost $37.5 trillion over the next decade and account for 54% of total non-interest spending.

Big Four Untouchable Entitlements, 10-Year Outlays:

Social Security: $18.8 trillion;
Medicare: $14.8 trillion;
Veterans Compensation & Pensions: $2.9 trillion;
Military Retirement: $0.9 trillion;
Subtotal, Big Four Untouchables: $37.5 trillion;
GOP Proposed Savings: $0.0 trillion;
Percent savings: 0.0%;

In the case of the three major means-tested entitlements it does propose a strengthened work requirement, which is estimated to save $100 billion over the 10-year budget window. That’s all to the good, except in the scheme of things it amounts to only 1.2% of the $8.4 trillion baseline for these programs, and a mere 0.48% of CBO’s projected $20.3 trillion deficit over the period.

Three Mean-Tested Entitlement Program Outlays, FY 2024-2033

Medicaid: $6.8 trillion;
Food Stamps: $1.2 trillion;
Family Assistance/Foster Care: $0.36 trillion;
Subtotal, Three Means-Tested Entitlements: $8.38 trillion;
GOP proposed Savings: $0.10 trillion;
Percent Savings: 1.2%;

Beyond these, over the next ten years there is an additional $6.86 trillion for other entitlements. So far, the GOP plan has called for zero savings in these areas, as well.

Other Entitlements—10 Year Outlays:

Federal civilian retirement: $1.48 trillion;
Earned Income & Child Care Credits: $0.88 trillion;
ObamaCare: $0.87 trillion;
SSI for the aged, blind and disabled: $0.70 trillion;
Unemployment Insurance: $0.50 trillion;
Child Nutrition: $0.45 trillion;
Farm Subsidies: $0.19 trillion;
Child Health Insurance: $0.19 trillion;
All Other Mandatory Programs: $1.60 trillion;
Subtotal, Other Entitlements: $6.86 trillion;
GOP Proposed Savings: $0.0 trillion;
Savings Percent: 0.0%

In all, the GOP proposes to save $100 billion from the CBO baseline projection of $52.7 trillion for mandatory programs over the next decade. That is to say, the alleged fiscal hawks on Capitol Hill huffed and puffed and came up with a 0.19% savings in the very budget precincts which amount to ground zero of the nation’s fiscal doomsday machine.

By contrast, they have proposed a $3.2 trillion ten year savings—or 32X more— for defense and nondefense appropriated programs. And on paper that’s politically as easy as pie. That’s because appropriations legislation is only good for the current year. The claimed “savings” for the next nine-years consist of merely assumed, not statutorily enacted, deficit reductions. So in this case, upwards 95% of the claimed $3.2 trillion “savings” is on the come.

In fact, these “assumed” discretionary savings are to be achieved by rolling back appropriations to FY 2022 levels, and then permitting them to grow at 1% per annum thereafter. Well, discretionary outlays during the Donald’s first year in office (FY 2017) were $1.20 trillion, which figure soared by nearly 40% to $1.664 trillion by FY 2022.

As it happened, the Omnibus Appropriations bill for FY 2023 passed earlier this year will generate outlays of $1.736 trillion, meaning that the GOP’s proposed rollback will amount to $72 billion or -4.1% from current year levels. That’s something, of course, but it’s still 24% above FY 2019 levels and 40% higher than FY 2017.

So in the GOP’s new form of budget austerity, apparently, huge increases are the new cuts!

The truth of the matter is that the $21.2 trillion of discretionary or appropriated spending for FY 2024-2033 is a big budgetary airball. The cynical pols of the bipartisan uniparty know that 10-year “savings” are not really binding, and that “out-year” caps enacted this year can be overridden by a series of annual exceptions based on the kind of unanticipated domestic and/or foreign “emergencies” (wars, hurricanes, pandemics, border crises etc.) which are par for the course in Washington.

Actually, the near certainty that out-year “discretionary caps” will be over-ridden lies in the long standing pork barrel politics of the appropriations committees. To wit, the current $900 billion defense budget monster is a prodigious dispenser of home district pork and military-industrial complex lobbying and campaign funds. It is therefore virtually guaranteed that a goodly number of the neocons and GOP porkers on the Appropriations Committee will swap votes for cap-busting domestic spending in return for feeding the monster on the Pentagon side of the Potomac.

That’s why, of course, we showed yesterday that the Rube Goldberg budget device Speaker John Boehner concocted at the time of the 2011 debt ceiling showdown was such a spectacular failure and scam. It was supposed to limit appropriated defense and nondefense spending to $8.45 trillion over ten years, but the actual level, as it turned out, was $10.60 trillion. That is to say, these fakers missed their targets by $2.15 trillion or 25% over the period!

At the end of the day, duck on entitlements and cover on phony discretionary spending cuts is a well-honed Washington game—one which the current House GOP is pushing to ludicrous extremes. We seriously doubt that even 10% of the $3.2 trillion discretionary savings will be actually realized over the 10-year budget window, meaning minimal additional savings on debt service as well.

The tip-off on this is that there are not even separate sub-ceilings for defense and nondefense accounts. This means Speaker McCarthy will keep his caucus in line on the debt ceiling fight by telling the defense hawks that the preponderant share of the savings will come from nondefense programs. In the year-by-year massive 4,000 page Omnibus Appropriations bills, however, that will never happen. Nor will the aggregate ceiling ever hold.

In sum, of the $80 trillion of total baseline outlays shown above, we think the GOP plan would be lucky to generate $500 billion of savings over the period—consisting of $100 billion of the above referenced work requirement based entitlement cuts, $350 billion from discretionary accounts and $50 billion from the $10.5 trillion of projected net interest expense.

That amounts to, well, 0.6% of total baseline spending and 2.5% of the massive $20.3 trillion of projected baseline deficits. Or stated differently, if that’s the conservative party’s best shot at reining in the deficit monster, then it’s all over except the shouting.

To be sure, the GOP plan also proposes to reverse Biden’s idiotic student debt cancellation at a 10-year savings of $500 billion and cancel most of the green energy credits included in last summer’s hideously named Inflation Reduction Act (IRA), generating an estimated deficit reduction of about $300 billion.

But here’s the thing. The CBO’s latest Rosy Scenario budget projection underestimates the 10-year red ink flow by upwards of $5 trillion. You will actually get $25 trillion of baseline deficits if you factor in another recession, higher interest rates and the fact that trillions of expiring current law tax cuts and scheduled out-year spending reductions will be reversed at the 11th hour, as they always are.

In short, the GOP plan will not even hold the 10-year deficit to $20 trillion or the public debt to under $50 trillion by 2033.

Nevertheless, the hour of debt ceiling reckoning is just around the corner, as further indicated by Friday’s Daily Treasury Statement. The cash balance of the Treasury General Account (TGA) rose by just $14.8 billion amid sharply lower than expected tax receipts.

This means that with the peak of tax season now behind us, 2023 is shaping up as a catastrophic year for the Uncle Sam in terms of tax receipts. At the current level of $172 billion, the Treasury’s cash balance now stands woefully below last year’s level when it was nearly $1 trillion.

There is no secret as to why. During the big April tax payment week last year, the cash balance rose by more than $400 billion or by well more than double this year’s increase of just $180 billion.

So the debt ceiling battle will be reaching a fever pitch soon. But whatever 11th hour compromise is reached between the Biden spenders and the so-called GOP savers, it won’t amount to a hill of beans with respect to America’s headlong plunge into fiscal disaster.

Like a half dozen times since 2008, the GOP is doing what it does best: To wit, preparing to whiff on the tough fiscal substance, even as it loudly virtue signals about its abiding commitment to fiscal rectitude to the folks back home.

Reprinted with permission from David Stockman’s Contra Corner.

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