Leveling the Budgetary Playing Field

The Congressional Budget Office (CBO) released its most recent baseline budget projections, and the outlook is predictably bad: deficits of roughly $1 trillion annually and a total of nearly $12 trillion in deficits over the next 10 years. The CBO baseline is constructed by first projecting the economy over the next 10 years. Then the CBO projects how much revenue will be collected and how much spending will occur under current law over the next 10 years. The basic idea is to give lawmakers some sense of what happens if they do nothing. CBO baseline projections are the answer to the question, “What happens if we put the budget on autopilot?”

Almost.

For taxes, current law is the projection. So, for example, when the lower individual tax rates in the Tax Cuts and Jobs Act (TCJA) expire in 2026, the baseline projections show higher tax revenues. On the spending side, however, things are not so straightforward. Even though, for example, the TANF (Temporary Assistance for Needy Families), SNAP (Supplemental Nutrition Assistance Program), and TAA (Trade Adjustment Assistance) programs expire before the end of the 10-year window CBO is examining, the baseline contains spending on those programs for the full 10 years. Why? As CBO put it: "In keeping with the rules established by the Deficit Control Act, CBO’s baseline projections incorporate the assumption that some mandatory programs will be extended when their authorization expires, although the rules provide for different treatment of programs created before and after the Balanced Budget Act of 1997 (P.L. 105-33). All direct spending programs that predate that law and have current-year outlays greater than $50 million are assumed to continue in CBO’s baseline projections. Whether programs of that size established after 1997 are assumed to continue is determined on a program-by-program basis, in consultation with the House and Senate Budget Committees."

In short, CBO is following the rules set by Congress. Those rules mean that if tax cuts sunset, legislation to prevent those sunsets will increase the measured budget deficit. But those rules mean that if a spending program sunsets, legislation to prevent those sunsets will not increase the deficit. That’s an important difference.

CBO's most recent report contains a table (Table 3-3, "Costs for Mandatory Programs That Continue Beyond Their Current Expiration Date in CBO's Baseline") that shows roughly $1.3 trillion in spending authority stems from assuming that these programs continue. That sum might seem small when compared to the total spending of $58 trillion or even the $37 trillion in mandatory spending. But notice that it is roughly the same size as the TCJA that created so much political controversy.

A principle of good budgeting is to consider all programs on a level spending playing field, all taxes on a level revenue playing field, and taxes versus spending on a level budgetary playing field. The current treatment violates this principle. It is an important topic for budget reform.