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.

As America gets poorer, Congress gets richer

In a previous post, I commented on how the president and Congress seem to primarily be working for the big guys. Big government has seen its power grow dramatically; Wall Street has been raking in dough; wealthy individuals and corporations can take advantage of numerous tax loopholes. Meanwhile, middle class jobs are being scuttled by powerful special interests such as the NLRB (in the case of Boeing) and the green lobby (in the case of Keystone XL).


One probable reason for this? Congress is populated overwhelmingly by the rich--and is getting richer while the country gets poorer. As you can see from the chart to the right, between 2004 and 2010 the median net worth of Congress grew by 15 percent while the median net worth of all Americans fell by 8 percent. Even more blatantly, the richest 10% of Congress saw their net worth increase by 33%, while the net worth of the richest 10% of Americans was essentially flat. In other words, if the Occupiers think that Congress currently favors the 1 percent, it is probably because Congress is the 1 percent.

Why is Congress getting so much richer? One obvious reason is that they can basically vote themselves a raise every two years regardless of their performance or that of the economy. But the huge windfall for the richest members of Congress is more a result of crony capitalism and insider trading. For example, during the Obamacare debates, John Kerry invested $200,000 in the healthcare company ResMed--and when Obamacare cut Medicare reimbursements, Kerry dumped his holdings in an insurance company that was heavily dependent on Medicare. Similarly, Dick Durbin liquidated a large chunk of his investments in September 2008 after Ben Bernanke warned him of a possible financial crisis. Rep. Darrell Issa (R-CA) once obtained $800,000 in federal earmarks for a road-widening project next to his land holdings.

Clearly, the rising cost of a political campaign (the average successful Senate run cost $10 million in 2010) is a major factor keeping the non-rich out of Congress, as well as giving significantly more power to special-interest donors. But sometimes I feel like we need a third elected branch of government, whose job is to investigate members of the executive and legislative branches and mete out penalties. In sports, athletes who take steroids are suspended for large portions of a season, and colleges that accept illegal donations are forbidden from competing in postseason games. If lawmakers who engage in business or land deals involving a conflict of interest, they need to be fined--or, for repeat offenders, banned from the next election.