The President’s Fiscal Year 2006 (FY06) budget was released today and contains deep cuts in domestic discretionary spending outside of homeland security. Overall, the president’s $2.57 trillion budget seeks to cut non-defense domestic discretionary spending by one percent – eliminating dozens of popular government program and drastically reducing funding for many others. Hardest hit among the federal agencies are the Departments of Housing and Urban Development (11.5 percent cut in discretionary authority), Agriculture (9.6 percent cut), Transportation (6.7 percent cut). Justice (5.5 percent cut), and Labor (4.4 percent cut). These figures do not include the impact of inflation, which would exacerbate the impact of the cuts. OMB Watch will provide updates on further programmatic impacts. The administration has focused on increases in non-defense domestic discretionary spending as the cause of the budget deficits incurred since the president took office in 2001. Unfortunately, the numbers tell a different story. A number of analyses have shown that roughly half of the deficit incurred since 2001 has been caused by the massive 2001/2003 tax cuts – which primarily benefited upper-income Americans. Rather than rolling back these tax cuts in his budget in order to stave off drastic cuts to other programs serving low-income Americans, the president has proposed extending those cuts permanently. The result is that the five-year deficit projections actually increase according to the administration’s own numbers despite crippling cuts to numerous domestic programs. The long-term projection is even worse. The long-term view in the figure below shows the current enormous deficits as just the tip of the iceberg. As the baby boom generation ages, the deficit as a percentage of GDP will take a steady and sharp nose-dive after 2013. This graph shows the current tax and budget policies to be unsustainable and highly irresponsible in the long run. Budget Process Changes Unfortunately the proposed budget numbers and horrific long-term fiscal outlook are not the only bad news in the budget release. The president has also included a number of proposals that would significantly change the process by which Congress develops and approves the federal budget. Taken in total, these proposals would be make it very hard to increase spending on entitlement programs, would do nothing to pay for additional tax cuts, and would greatly constrain spending on non-defense discretionary spending over the next five years. Special Treatment of 2001 and 2003 Tax Cut Legislation The radical proposal in the budget concerns rules on scoring the 2001 and 2003 tax cuts. These tax cuts are set to expire at various times from now until 2010. The President is proposing that the Congressional Budget Office (CBO) and the Office of Management and Budget (OMB) consider the extension of those tax cuts as if they have already happened in all future cost projections. By doing this, any legislative proposals to actually extend those cuts would be seen (in CBO and OMB cost projections) as revenue neutral – or as not costing any money. In fact, current CBO projections show the extension of the tax cuts as costing $2.1 trillion – quite a bit more than zero. One-Sided PAYGO rules The administration is also proposing one-sided Pay-As-You-Go (PAYGO) rules that would bar any legislative changes to mandatory spending that would increase the deficit or raise taxes. The only option for increasing funding for mandatory programs under this proposal would be decreases in funding for other mandatory programs, once again pitting programs serving low- and moderate-income Americans – such as unemployment insurance, Food Stamps, and Medicaid – against each other. This proposal changes the old version of PAYGO rules, which required both mandatory spending increases and tax cuts to be paid for. Under the President’s proposed change, there would be no limit on the number or amount of tax cuts and no requirement those cuts be paid for. By doing this, the administration opens the door for further government busting deficit-financed tax cuts. Discretionary Spending Caps The President also proposes spending caps on discretionary spending from FY 05 through FY 10 that would be divided into defense, non-defense, highway, and mass transit categories. From FY 08 through FY 10, the defense and non-defense categories would be collapsed, allowing money within the cap to be used for either defense or non-defense activities. (The highway and mass transit categories would continue to remain separate, providing their funding.) The combination of the defense and non-defense categories creates a financial squeeze, especially in FY 08 – FY 10, as the Defense Department budget will increase faster (in percentage terms) than the rest of discretionary spending. The remaining discretionary programs will be forced to fight for a proportionally decreasing slice of the pie with the military. The implications of these caps are huge. The Center on Budget and Policy Priorities has calculated that if defense, homeland security and international affairs are funded at the levels the President proposes, by 2010 the rest of discretionary spending will need to be cut by 16 percent to remain under the total discretionary cap (See Assessing President Bush’s New Budget Proposal). For reference, the president has proposed cutting this group of programs by one percent in FY06. Therefore those programs would most likely see a four percent cut each year after FY06 on average. Other Proposals The President has also proposed a number of other budget process reforms that would greatly increase the power of the Executive branch of government. The first is a line-item veto for appropriations bills. With this power, President Bush and future presidents could sign appropriations bills into law, but strike out specific spending earmarks within the bill. As written in his own budget proposal, this power would, “give the President authority to defer new spending whenever the President determines the spending is not an essential Government priority.” This power (which was already struck down by the Supreme Court as unconstitutional during the Clinton administration) would greatly undermine the constitutional power of the purse that is given to Congress. Another proposal involves changing the congressional budget resolution from a “concurrent resolution” to a “joint resolution.” This means the yearly budget resolution – which serves as a non-binding roadmap for Congress as it moves through the budget process – would be subject to presidential approval or veto. This would greatly increase the control the President has over the content of the budget resolution. In another proposal that would give the President more control over the actions of Congress, President Bush proposes requiring both Congress and the President to concur on what can be called “emergency spending.” Since spending designated “emergency” would be excluded from budget caps, this power would allow the President to force Congress to include “emergency spending” items identified by Congress along with regular funding priorities under the budget caps if the President disagrees. Other reform proposals, such as biennial budgeting, automatic appropriations, and ten-year sunsets on all programs, would also greatly weaken the power of the legislative branch while shifting power to the executive. These are drastic and unprecedented proposals that must be rejected by Congress.