Budget Debates Matter: The Difference in GOP and Democratic Levels of Discretionary Spending for 2014 Translates into Nearly 1 Million Jobs
Americans probably have a vague sense (and dread) that Washington will once again be preoccupied with budget issues this fall. Debates over the budget get airy and general very quickly, so it’s useful to focus on some key, specific issues that actually matter. One of these real issues—one that matters a lot for the pace of economic recovery—is the level of discretionary spending that will be agreed to in the “continuing resolution” for fiscal year 2014.
The current fiscal year ends September 30, so some arrangement to fund the federal government after this date must be arranged. But because prospects for agreeing on any substantive change to spending priorities is so dim, the assumption is that a “continuing resolution” will be passed that simply funds the government at levels currently called for under law.
But even this budget auto-pilot approach will not be uncontroversial, and the major sticking point regards discretionary spending levels for 2014.
In essence, the GOP’s opening offer is reflected in the spending levels established in the House Budget Resolution passed last winter (sometimes referred to as the “Ryan budget,” after the House Budget Committee Chair Paul Ryan). The Ryan budget’s proposed discretionary spending levels limit total base discretionary spending (spending aside from designated disasters and overseas contingency operations) to $967 billion for the fiscal year that begins October 1.
House Democrats’ opening offer is essentially the levels passed in the Senate budget resolution, which are mirrored in the House Budget Committee alternative budget (sometimes referred to as the “Van Hollen” budget after House Budget Committee Ranking Minority member Chris Van Hollen). The Democratic budget supports higher levels of base discretionary spending than does the Ryan budget—$1,058 billion to be exact, or $91 billion more than the Ryan budget.
The difference between these discretionary spending levels can be summarized in one word: sequestration. The Ryan budget preserves it while the Democratic budgets do not. And this difference is large—see the table below which breaks out these automatic spending cuts (ie, the sequester) through 2021.
The difference between these two budgets is not just accounting. There are economic implications as well. If the Republicans’ preferred level of base discretionary spending for FY2014 were legislated in the continuing resolution, as opposed to the level preferred by congressional Democrats, it would have a large economic impact. We estimate that the lower level of discretionary spending would decrease gross domestic product (GDP) by 0.77 percent and decrease nonfarm payroll employment by 995,000 in FY2014, relative to a scenario where the automatic spending reductions did not take place. This is consistent with other studies on the effect of the sequester—CBO estimates that if the sequester was canceled in August for the rest of FY2013 and FY2014, the economy would see an additional 900,000 jobs by the fourth quarter of FY2014.
We’ve noted before the bizarre irony that just as the intellectual case for austerity has fallen away, American policy is now set on an extremely austere auto-pilot that will slow growth and employment, all while the economy remains very far from recovered from the Great Recession. The debate over the funding levels in the continuing resolution are exactly about whether or not we want to continue to allow the recovery to be throttled by austerity, or whether or not fiscal policy should ease up to allow some growth. To be clear, $91 billion is nowhere near enough to push us back to full recovery (for numbers on what that would take, see here), but, it’s not pennies, either.
Lastly, we should note that the sequester and the damage it causes and will continue to cause is the direct legacy of the disastrous brinkmanship engaged in by the GOP in the summer of 2011 as they demanded these cuts in exchange for raising the nation’s legislative debt ceiling. The debt ceiling will need to be raised again in October, and anybody who tells you that the last go-round was a lot of sound and fury that didn’t result in anything should remember the 995,000 Americans who won’t be working at the end of FY2014 if the cuts from the sequester come to pass.