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President Biden’s FY 2023 Budget: An Exercise in Futility?

Presidents are required both by the Constitution and more specifically by the Congressional Budget Act to submit their budget blueprint in the spring for a forthcoming fiscal year. President Biden met that statutory requirement by submitting his budget last week. Does it matter?

An old congressional staff joke goes, “The president’s thick budget makes a great door stopper.”

A little harsh, but not without some truth particularly in this chaotic, uncertain spring. A war in Europe, a stubborn, hard to predict virus, rising interest rates and general inflation at a 40-year high, and a midterm election that could and most likely will change the makeup of the U.S. Congress all combine to make producing a budget nearly six months out from the beginning of the 2023 fiscal year nigh near impossible.

Nevertheless, it can be argued that if ever there were a need for a federal fiscal blueprint, however questionable its implementation, it is now more than ever. On at least an annual basis the 50 states, millions of families, businesses, farms, colleges, and universities, put pencil to paper and figure out how they will balance their expenditures with their income. Uncertain times put a premium on planning, and the federal government should not be exempt.

A year ago, President Biden’s first budget submission expected federal spending would reach $6 trillion and revenues $4.2 trillion, with a $1.8 trillion deficit. Now with almost three-quarters of the fiscal year over, budget experts forecast final spending will be nearly $500 billion less and revenues $200 billion more, and therefore, a deficit $700 billion less than what was initially proposed. Obviously, the president’s stalled Build Back Better plan explains a significant portion of the reduced spending, but also stronger than expected economic growth has resulted in greater revenues.

In addition, the president’s economic forecast foretold 2022 inflation slightly over 2%, and the 10-year Treasury note at 1.4%. Today, a consensus of nearly 50 leading business economists expect inflation to average over 6% and the 10-year Treasury note to be double the forecasted level.

The lesson: the president’s second budget numbers will also not turn out as planned. In part, due to failure to achieve his proposed legislative agenda, offset by unexpected emergencies, possible cyber-attacks, untold natural disasters, additional military and humanitarian support for Ukraine, not to mention the inability to accurately forecast a volatile domestic and global economy.

If only interest rates were adjusted to the new reality of today, and as economists like to say, “ceteris paribus” (all other things remaining unchanged) the federal deficit would increase nearly $150 billion this year and over $1.5 trillion over the next decade. This should be the focus of the president’s budget submission, not in the short term but in the long term.

The question to be addressed, is the federal government’s long-term fiscal blueprint sustainable? The late Herb Stein, chairman of the White House Council of Economic Advisers in the early 1970’s, was known for his quip, “if something cannot go on forever, it will stop.” That has been translated into budget talk as when interest payments on the federal debt exceed the growth of the economy, an unsustainable outcome exists.

The federal government’s debt held by the public today exceeds $25 trillion. Over the next decade, this debt is estimated to reach $36 trillion. The rate of growth in debt at 4.4% annually exceeds the projected annual growth of our economy at 3.7%. Sustainable? Questionable. These are the numbers I will be looking at in the president’s budget.

Pundits and commentators should also not focus solely on the president’s 2023 budget submission for the upcoming year. While the president’s current budget plan is important for debating and developing policies that address existing commitments and may help identify needed investments to spur long-term growth, what is more important is the longer-term path of spending, revenues, and debt. Is the president’s fiscal plan one that is sustainable over the long term even after he may have left the office?

An unsustainable fiscal path would mean reduced living standards for our children and grandchildren, weakened national security, and a threat to our democracy’s future. The country’s future should be our focus, not the upcoming midterm elections.

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