Policy Resource

Babies and the Budget: Changing the Structure of Budgeting

Jun 8, 2011

Much of the current debate over budget cuts and the debt ceiling relates not to cuts to individual programs, but to changing the structure of budgeting.

The federal budget process is confusing enough, so what would these changes mean, and do infant-toddler advocates really need to be paying attention? In the current debate, structural changes mean creating automatic mechanisms to force major spending reductions. These mechanisms would go into effect if Congress and the President cannot find the will or the way to make decisions that reduce the budget imbalance.

The cuts these mechanisms compel would literally restructure the size and direction of the federal government and make the usual bickering over trimming appropriations seem trivial. Infant-toddler advocates therefore must pay attention to these debates, even though they seem far removed from the child development programs we care about. Their outcome will determine the capacity for federal investment in young children long before anyone mentions Early Head Start or child nutrition. What we don’t know can hurt kids, so we must equip ourselves with the knowledge to engage in these discussions. Here are some of the approaches being considered.

Global Spending Caps:

This drastic form of spending cap would limit federal spending to a percentage of the nation’s total economic output, or Gross Domestic Product (GDP). Previous spending caps have usually limited total discretionary spending. Global caps would apply to all federal spending and would require automatic across-the-board cuts (known as “sequesters”) to achieve the targeted levels.

Looking at one version of these caps helps us understand what they mean. A proposal by Senators Corker (R-TN) and McCaskill (D-MO) would phase in a cap of 20.6 percent of GDP. This year, federal spending could approach 25% of GDP, so this new target would require a big drop in spending even phased in over time. This is particularly problematic during a recession, when GDP shrinks. Analysis by the Center on Budget and Policy Priorities, based on Congressional Budget Office projections, suggests that massive cuts to the major entitlement programs (Social Security, Medicaid, and Medicare) would be required to achieve the lower spending targets. Protecting these programs from cuts would require unthinkable amounts of cuts to all other programs, including those serving infants and toddlers, slashing them virtually in half to meet the cap.

Balanced Budget Amendment:

A balanced budget amendment seems simple: it would amend the Constitution to require that total outlays for a fiscal year not exceed the total receipts, or revenue, for the same year. Adding an amendment to the Constitution requires support from two-thirds of the House and Senate plus ratification by 38 states. A super-majority of votes (e.g., two-thirds of the House and Senate) is usually required to spend more than the limit, which would be enforced through automatic cuts. Given that our current budget is out of balance by $1.3 trillion, the magnitude of the cuts that could be necessary is very large. Balanced budget amendments currently being considered by Congress contain additional wrinkles, including global spending caps as low as 18%, so spending could not increase even if adequate revenues were available.

A mechanism that ties Congress’ hands in their response to shifting needs is a troubling way to balance the budget, especially if it is enshrined in the Constitution. Automatic cuts could result in hard hits to programs serving young children. Many economists criticize balanced budget amendments, as well as global spending caps, because they remove the stabilizing effects of federal programs during times of economic downturn. During recessions, as revenues decrease, federal programs such as SNAP and Unemployment Insurance automatically expand, cushioning the recession’s impact on individuals and families. These programs generally contract as the economy recovers and the need diminishes. Under automatic spending restraints, these programs could not expand as needed, and in fact might have to be cut, unless a supermajority approves more spending. Obtaining such broad support for spending could be difficult. Families that need help could wait a long time for Congress to act.

Deficit Caps:

Another approach that ties the federal budget to the national economy would cap the amount of the deficit, rather than spending, as a percentage of GDP. President Obama proposed such a cap to go into effect in 2014. If the debt did not decline as a share of the economy, additional savings would be achieved through cutting spending as well as increasing revenues. This approach thus would spread deficit reduction pain across more sectors of the budget. However, increases in revenue are more difficult to achieve politically, and an automatic increase triggered by deficit spending would be doubly so. Although Senate Majority Leader Reid and Finance Committee Chairman Baucus have endorsed the concept of a deficit cap, this approach does not appear to have much momentum.

Not so simple:

Mechanisms such as global caps and balanced budget amendments sound like simple ways to enforce fiscal discipline, but the reality is more complex. They rely almost totally on spending cuts, creating high barriers for using revenues to help ease the deficit situation or even raise the debt ceiling to allow more borrowing. Deficit caps could help keep borrowing in check, but exactly how they would work is unclear.

Decisions about spending and revenue are never easy, yet debates about them set our national priorities. Automatic, across the board cuts are often the easy way out, because they relieve lawmakers of taking responsibility for specific votes to cut popular programs. They also complicate the federal government’s ability to respond to economic crises. Almost half of very young children live in low-income families and are at some risk. The potential threat these structural budget changes pose to the broad range of services that support healthy development should be enough to make us all pay attention.

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