Finally, Some Not-So-Bad News on the Budget

The big surprise in the Congressional Budget Office mid-year budget estimates released today isn’t that the year-to-year deficit shrank again.  Or that the long-term liabilities in Medicare and Social Security continue to impend. 

The surprise is that federal spending will only grow about 3% in the current fiscal year that ends this October.  That’s a big improvement over the annual average 7% growth we’ve seen since the first day of the George W. Bush presidency.

How did that happen?  Those familiar with my previous research will probably not be surprised to hear that the new political reality – divided government – has something to do with it.

True, agriculture subsidies are lower this year as a result of higher crop prices.  And the run-up in spending on a variety of programs in 2006 – like the payouts on flood insurance policies after Hurricane Katrina – was temporary.  The most remarkable factor in the trends, however, is that non-defense discretionary spending has been frozen for the first time since the maiden budget of the “Republican Revolution” Congress.  (If the trends CBO estimates hold for the remainder of the year, such spending might actually decline by $1 billion.) 

Sure, part of this is also the result of a decline in spending on federal Katrina relief.  But there’s something else going on, too.  Earlier this year, the new Democratic Congress decided to put the federal budget on auto-pilot until October.  Instead of passing new appropriations bills to fund the government for the entire year, they passed what is called a “continuing resolution” to keep the government operating. 

This didn’t happen because the Democrats were all that interested in spending less money.  They just wanted to get the old budget work left to them by the outgoing Republican Congress off the table so they could get on with more ideological-base-friendly legislation, like the minimum wage increase.  And the Democrats knew that the president might finally start vetoing legislation, too.  A protracted battle over the budget wasn’t something they wanted to spend their energy on in the first half of the year.  Thus, the auto-pilot continuing resolution: a piece of legislation that keeps the government running at basically the inflation-adjusted level of the previous year. 

With the White House veto strategy finally a credible threat*, it looks like we might have a similar sort of outcome on spending this year, too.  Isn’t divided government wonderful? 

* As I told David Jackson of USA Today a few weeks ago, George W. Bush “dislikes Democrats more than he likes big government.”