Representative Ed Case

Aloha, Friend.Last Friday, President Biden released his Administration’s proposed federal budget for the upcoming year and the rest of the decade. His budget seeks large increases in federal spending, annual deficits and total national debt. It begs broad policy questions about the overall size and expense of our federal government and whether and to what extent large federal deficits and debt matter.As a member of the U.S. House Committee on Appropriations, responsible for all federal discretionary spending, I must address the Administration’s budget and these basic questions in the next few months as we approve our country’s financial plan. In this e-newsletter, I would like to review the federal budget process and this proposed budget with you and again ask for your guidance.The Basics. Our federal budget runs on a fiscal year beginning October 1st of each year. We are currently in Fiscal Year 2021 (FY21), and the budget we are now working on is FY22 beginning this October 1st. Budgets have to be passed by Congress every year; the Administration’s budget is just its proposal to Congress.Our federal budget is not much different from our personal or business finances. Though much larger and much more complex, it still has revenues (taxes and fees) and expenses (programs and payments). If revenues are more than expenses, we have a surplus that can be used to reduce taxes and fees or increase programs and payments or save for later. If expenses are more than revenues, we have a deficit. Unlike our state and county governments, though, our federal government can borrow money to make up deficits in any year. This money is largely borrowed from issuing government bonds which investors all over the world (including countries like China) buy with the expectation that they will be repaid with interest. The sum of all yearly deficit balances and borrowings at any time is our total national debt. A large portion of our expenses every year is interest on that debt.Most households and businesses have some debt and pay some interest. The problem is when it’s so high that it overcomes the budget and too much is going to pay interest. There are various measures of this in federal budgeting, but the most common is the debt-to-GDP ratio, meaning how much is our total debt compared to our gross domestic product (generally our economy).The Facts. Our last federal budget surplus was two decades ago, when total national debt was $5.8 trillion. With twenty straight years of deficits since, our total debt is now $28 trillion. Twenty years ago debt-to-GDP was 55%. Today, it is over 130%, higher even than World War II when we borrowed heavily for the war effort.In FY19, our last full fiscal year before COVID-19, debt was already $22.7 trillion and debt-to-GDP was 107%. COVID-19 materially worsened our budget situation because our economy stalled and we had to borrow trillions for our federal emergency assistance programs.Why has our budget and debt situation worsened so substantially in the past two decades? Simply put, our expenses consistently grew far faster than our revenues. There are all kinds of reasons for that, including tax cuts, recessions, wars, crises and increased or new programs, and the merits of each have been debated at length. But there is no doubting the result to our federal budget.The Administration’s Budget. In FY19, the last year before COVID-19, total federal expenses were around $$4.4 billion. But they went up to around $6.5 trillion in FY 20 and $7.2 trillion in FY21 because of some $5 trillion in COVID-19 emergency assistance.The Administration’s budget proposes to stay at $6 trillion for FY22 rather than revert to pre-COVID levels, and increase to $8 trillion per year over the next decade. These large increases in federal expenses over pre-COVID levels would come largely in non-defense programs like commerce, education, energy, environmental protection, foreign aid and infrastructure (including the President’s $4 trillion American Jobs Plan and American Families Plan). Defense spending, which is about half of the budget, would increase only slightly if at all.The Administration’s budget proposes additional revenues from tax changes, like increasing the corporate and top-end personal tax rates back to pre-Trump Administration levels, but these increased revenues don’t come close to covering the increased expenses. As a result, its budget projects further deficits of over $1.3 trillion per year for the budget’s ten years, and total debt growing to some $40 trillion by the end of the period. The Administration projects that debt-to-GDP will decline because it also projects our economy will grow by over 4% per year throughout. It also is projecting that interest payments will be manageable because interest rates will remain at historic lows.The Issues. The Administration’s budget presents some clear policy choices, including:-Do we want, do we need, and can we afford the substantially increased level of federal government spending that the Administration proposes? Most of us agree that our needs are great and should be addressed in some way. Likely many of us would agree with many of the individual proposed increases in the Administration’s budget. But are these all for our federal government to undertake, and can we sustain the resulting levels of expense over time? And if we substantially increase federal spending, should it all be in non-defense given our increasingly difficult world?-If we do need large spending increases but do not want to worsen our deficits and debt, we can make some headway in running a less wasteful and more efficient government, but that alone won’t come close to making up the deficits. We must then increase revenues, but how? That can only come from economic growth and/or raising some taxes or fees somewhere. But the Administration’s budget already assumes a consistently higher level of growth than the roughly 2% per year pre-COVID, so increased taxes and fees are unavoidable. But then the age-old question is whether and when higher taxation will stall overall economic growth and resulting revenues.-Can we sustain these levels of annual deficits and this level of increase in our debt over time? Most economists believe that high deficits, debt and debt-to-GDP levels – and the Administration’s are some of the highest in our history – eventually catch up with an economy in higher inflation and interest and lower investments, harming government’s ability to deliver on real needs, as has been the case with many other countries that have gone down this path. But others argue that we should not worry about deficits and debt, that these increased programs are not only needed but will lead to economic growth, that we have the means to control the potential downsides. My Views. We are in the early stages of considering the Administration’s budget, but these are my initial views: (1) we do need increased federal spending in various areas including defense; (2) debt and deficits do matter and on this trajectory they will cripple us over time; (3) we must face the music on restoring fiscal responsibility and sustainability over time, meaning that we can’t do everything we want and what we do can’t worsen our already difficult situation; and (4) we can’t depend for revenues only on optimistic growth projections but must consider fair tax and fee adjustments. The Administration’s budget falls short in all of these areas, and my own efforts will be focused on improving it as Congress develops our own proposal.Your Guidance. As always, I seek and ask for your own views and guidance. Will you please take a few minutes to fill out this online survey here? Please note that the survey is completely anonymous; I can’t track your responses back to you. Please contact me at ed.case@mail.house.gov with any questions and comments. Be safe and be well.

Aloha, Friend.

Last Friday, President Biden released his Administration’s proposed federal budget for the upcoming year and the rest of the decade. His budget seeks large increases in federal spending, annual deficits and total national debt. It begs broad policy questions about the overall size and expense of our federal government and whether and to what extent large federal deficits and debt matter.

As a member of the U.S. House Committee on Appropriations, responsible for all federal discretionary spending, I must address the Administration’s budget and these basic questions in the next few months as we approve our country’s financial plan. In this e-newsletter, I would like to review the federal budget process and this proposed budget with you and again ask for your guidance.

The Basics. Our federal budget runs on a fiscal year beginning October 1^st of each year. We are currently in Fiscal Year 2021 (FY21), and the budget we are now working on is FY22 beginning this October 1^st. Budgets have to be passed by Congress every year; the Administration’s budget is just its proposal to Congress.

Our federal budget is not much different from our personal or business finances. Though much larger and much more complex, it still has revenues (taxes and fees) and expenses (programs and payments). If revenues are more than expenses, we have a surplus that can be used to reduce taxes and fees or increase programs and payments or save for later. If expenses are more than revenues, we have a deficit.

Unlike our state and county governments, though, our federal government can borrow money to make up deficits in any year. This money is largely borrowed from issuing government bonds which investors all over the world (including countries like China) buy with the expectation that they will be repaid with interest. The sum of all yearly deficit balances and borrowings at any time is our total national debt. A large portion of our expenses every year is interest on that debt.

Most households and businesses have some debt and pay some interest. The problem is when it’s so high that it overcomes the budget and too much is going to pay interest. There are various measures of this in federal budgeting, but the most common is the debt-to-GDP ratio, meaning how much is our total debt compared to our gross domestic product (generally our economy).

The Facts. Our last federal budget surplus was two decades ago, when total national debt was $5.8 trillion. With twenty straight years of deficits since, our total debt is now $28 trillion. Twenty years ago debt-to-GDP was 55%. Today, it is over 130%, higher even than World War II when we borrowed heavily for the war effort.

In FY19, our last full fiscal year before COVID-19, debt was already $22.7 trillion and debt-to-GDP was 107%. COVID-19 materially worsened our budget situation because our economy stalled and we had to borrow trillions for our federal emergency assistance programs.

Why has our budget and debt situation worsened so substantially in the past two decades? Simply put, our expenses consistently grew far faster than our revenues. There are all kinds of reasons for that, including tax cuts, recessions, wars, crises and increased or new programs, and the merits of each have been debated at length. But there is no doubting the result to our federal budget.

The Administration’s Budget. In FY19, the last year before COVID-19, total federal expenses were around $$4.4 billion. But they went up to around $6.5 trillion in FY 20 and $7.2 trillion in FY21 because of some $5 trillion in COVID-19 emergency assistance.

The Administration’s budget proposes to stay at $6 trillion for FY22 rather than revert to pre-COVID levels, and increase to $8 trillion per year over the next decade. These large increases in federal expenses over pre-COVID levels would come largely in non-defense programs like commerce, education, energy, environmental protection, foreign aid and infrastructure (including the President’s $4 trillion American Jobs Plan and American Families Plan). Defense spending, which is about half of the budget, would increase only slightly if at all.

The Administration’s budget proposes additional revenues from tax changes, like increasing the corporate and top-end personal tax rates back to pre-Trump Administration levels, but these increased revenues don’t come close to covering the increased expenses. As a result, its budget projects further deficits of over $1.3 trillion per year for the budget’s ten years, and total debt growing to some $40 trillion by the end of the period. The Administration projects that debt-to-GDP will decline because it also projects our economy will grow by over 4% per year throughout. It also is projecting that interest payments will be manageable because interest rates will remain at historic lows.

The Issues. The Administration’s budget presents some clear policy choices, including:

-Do we want, do we need, and can we afford the substantially increased level of federal government spending that the Administration proposes? Most of us agree that our needs are great and should be addressed in some way. Likely many of us would agree with many of the individual proposed increases in the Administration’s budget. But are these all for our federal government to undertake, and can we sustain the resulting levels of expense over time? And if we substantially increase federal spending, should it all be in non-defense given our increasingly difficult world?

-If we do need large spending increases but do not want to worsen our deficits and debt, we can make some headway in running a less wasteful and more efficient government, but that alone won’t come close to making up the deficits. We must then increase revenues, but how? That can only come from economic growth and/or raising some taxes or fees somewhere. But the Administration’s budget already assumes a consistently higher level of growth than the roughly 2% per year pre-COVID, so increased taxes and fees are unavoidable. But then the age-old question is whether and when higher taxation will stall overall economic growth and resulting revenues.

-Can we sustain these levels of annual deficits and this level of increase in our debt over time? Most economists believe that high deficits, debt and debt-to-GDP levels – and the Administration’s are some of the highest in our history – eventually catch up with an economy in higher inflation and interest and lower investments, harming government’s ability to deliver on real needs, as has been the case with many other countries that have gone down this path. But others argue that we should not worry about deficits and debt, that these increased programs are not only needed but will lead to economic growth, that we have the means to control the potential downsides.

My Views. We are in the early stages of considering the Administration’s budget, but these are my initial views: (1) we do need increased federal spending in various areas including defense; (2) debt and deficits do matter and on this trajectory they will cripple us over time; (3) we must face the music on restoring fiscal responsibility and sustainability over time, meaning that we can’t do everything we want and what we do can’t worsen our already difficult situation; and (4) we can’t depend for revenues only on optimistic growth projections but must consider fair tax and fee adjustments. The Administration’s budget falls short in all of these areas, and my own efforts will be focused on improving it as Congress develops our own proposal.

Your Guidance. As always, I seek and ask for your own views and guidance. Will you please take a few minutes to fill out this online survey here? Please note that the survey is completely anonymous; I can’t track your responses back to you.

Please contact me at ed.case@mail.house.gov with any questions and comments. Be safe and be well.

P.S. Please sign up for my regular e-newsletter here.

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