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The Discretionary Squeeze



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Both Kevin Williamson and Veronique de Rugy have today pointed to the ways in which the president’s budget, by failing to contain deficits and debt, allows interest payments to take an ever-growing part of the budget and how (given that entitlements will keep growing) this means discretionary spending gets squeezed out. David Brooks in his column today makes a similar argument. I think it’s an extremely important point that should greatly distress both Democrats and Republicans.
 
We on the right often complain about waste in the discretionary budget, but the discretionary budget is not where the fiscal problem is greatest and it is where a great deal of what we see as most essential to the government’s proper role is funded. For the left, of course, as Brooks well argues, it is where there is room to set priorities and direct funds in a concerted way to assorted projects and programs, rather than spend automatically in accordance with pre-set formulas.
 
And yet, looking at the House, Senate, and administration budgets it would seem that there is a bipartisan consensus to squeeze discretionary spending in the next 10 years. The House Republican budget does this the least, however, while the two Democratic budgets do it most (and nearly equally), and the reason for that, as Kevin pointed out, is interest payments. Or put another way: the reason for that is that the Obama and Senate-Democratic budgets run far higher deficits than the Ryan budget, and therefore increase the debt more and have significantly higher interest payments that squeeze out all other spending and especially discretionary spending.
 
The three charts below demonstrate the discretionary squeeze proposed by the three different budgets over the coming decade. (Note that these are charts of entitlement, discretionary, and interest spending as a portion of each budget, so they don’t reflect the fact that the Ryan budget spends a lot less than the other two overall, and in each category. They just chart how the budgets prioritize or proportion the three spending categories.)
 
 
 
 
I got the data for these simply from the summary tables of the House, Senate, and White House budgets, which means that the squeeze in the Obama budget is a little understated because OMB (which scored Obama’s budget) is a little more optimistic about interest costs than CBO (which scored the other two). We’ll have a CBO score of the Obama budget fairly soon, I bet, and it will make that budget look even worse. But the basic gist on this front will be the same. This year, discretionary spending will account for 34% of the budget. In 2023, the Ryan budget would have it fall to 25%, and the Murray and Obama budgets to 22%. Mandatory spending rises a bit as a share of the budget over the period in all three budgets, but it is interest costs that do most of the crowding out: Interest costs rise from just over 6% of the budget today to 12.7% in 2023 in the Ryan budget and just under 14% in the Democratic budgets.
 
This is one more reason why the head-in-the-sand advice of some on the left, like Paul Krugman, that we ought to just wait until Medicare costs completely blow up the budget before doing anything to fix things is so misguided. Even on the liberals’ own terms, rising interest costs—which are even less optional than entitlement spending, since you can’t legislate them away at all except by reducing deficits and debt—will squeeze out the sort of spending they’d like. And in the longer run, of course, leaving things as they are will mean truly uncontrollable interest costs that can’t be reformed away. It’s also one more reason why the most meaningful of Ryan’s reforms—especially the Medicare reform—should begin sooner than 10 years out.


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