Saturday, December 31, 2011

Baseline budgeting: legalized fraud in Congress

This past summer, the government reached a debt-limit deal where they agreed to cut federal spending by $2 trillion over the next 10 years. However, federal spending is still expected to increase by $7.5 trillion over that period. Keep in mind that the total expenditures for 2011 were about $3.4 trillion. How can it be, then, that after $2 trillion in so-called cuts, federal spending is still projected to triple in the next 10 years?

Part of the answer is a nefarious scheme called baseline budgeting. In baseline budgeting, every part of the budget automatically increases based on predictions by the Congressional Budget Office (CBO). For example, let's say that the budget for Health and Human Services (HHS) is scheduled to increase by 10% according to CBO projections. After a budget battle, fiscal conservatives in Congress successfully argue for a smaller 6% increase in the HHS budget. This would be reported as a 4% cut (and would result in much wailing and gnashing of teeth from progressives)--even though spending actually increases by 6% compared to the previous year.

On a larger scale, the CBO's "baseline" for the next 10 years includes a federal spending increase of $9.5 trillion. Say that Congress agreed to keep spending exactly the same for the next 10 years. That would be reported by the CBO as a $9.5 trillion budget cut. Democrats would be up in arms, vilifying Republicans for slashing social services and destroying the safety net--when in fact, not a cent of nominal federal spending would actually be cut. 

Some people have proposed zero-based budgeting (i.e. starting each year's budget from scratch) as an alternative, which would be preferable in theory. But that would greatly increase the time and complexity of the budget process because each line item would have to be re-approved every year, and the already terrible level of partisan gridlock would probably escalate by several orders of magnitude. A simpler solution would be to eliminate the automatic increases--in other words, the baseline for 2011 would be exactly the same as 2010 spending adjusted for inflation. This is how most corporations do their budgets. 

Now, it may be perfectly reasonable to occasionally increase some parts of the budget by a few percent due to population increases or higher costs. But that should be reported as a spending increase. Reporting it as a cut (because the baseline called for an even higher increase) is simply legalized fraud. If any business tried to report a 6% spending increase as a 4% cut (or vice versa), they would be thrown in jail right next to Bernie Madoff and the Enron execs.

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