Budget Deal’s Impact Is Only a Blip

Center on Budget and Policy Priorities Nondefense discretionary spending as a share of gross domestic product. Source: Office of Management and Budget and Congressional Budget Office data.

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr.

Back in October, when the House and Senate budget conferees first got together, I predicted that it would be possible for them to design a budget package that helped the economy a bit by replacing some of the sequester cuts.  Well, such a package has cleared both the House and Senate now, and most economists agree that it will slightly reduce fiscal headwinds over the next couple of years.

It’s a two-year package that would replace $63 billion of sequestration cuts in 2014 and 2015, paid for by back-loaded fees and other spending cuts.  No one should mistake it for great fiscal policy â€" it only partially defuses a fiscal time bomb set by Congress itself.  So far, there is no action to extend unemployment benefits, despite historically high level of long-term joblessness.  Still, grading on a steep curve, I give the deal a pass.

It’s important, however, to use this little deal to make a broader point: policy makers have done serious long-term damage to an important part of the budget that has few defenders and many defunders: NDD, or nondefense discretionary spending.  The new budget agreement has almost an imperceptible impact on that development.

This is the part of the nondefense budget that Congress funds annually, as distinct from the “entitlement” programs that are automatically financed. Nondefense discretionary spending pays for environmental protections, education, job training, border security, low-income assistance including housing and Head Start, transportation, economic development and more.  One-third of it goes to states and localities for K-12 education and infrastructure.

Perhaps because that’s a diverse set of programs lacking a large and vocal constituency, NDD has become the part of the budget that both parties have been going after in recent budget deals (to be clear, and fair, there have also been cuts to the defense side).

The chart above tells the story.  It’s nondefense discretionary spending since the early 1960s as a share of gross domestic product, and yes, there are a bunch of lines in there toward the end, but you need them to explain the recent history of the bipartisan attack on this budget category.

Historically, nondefense discretionary spending has ranged from around 3 to 5 percent of G.D.P., ramping up in downturn, most recently as part of the Recovery Act.  But in the president’s recent budgets, as shown in the top line over the forecast period, it was already on track to fall to its lowest levels on record as a share of the economy.

Future nondefense discretionary spending took another big hit in the Budget Control Act of 2011 and then, because Congress couldn’t agree on a budget compromise, sequestration kicked in earlier this year and ratcheted down such spending once more.

The punch line to all this is the little blip you see â€" just barely â€" in red.  That’s the partial replacement to the sequestered cuts in 2014-15 from the Murray-Ryan deal.

Even those who recognize the importance of the NDD programs listed above don’t expect its budget share to remain at Recovery Act levels. But by 2010, that countercyclical funding was already leaving the system. Adjusting for inflation, NDD funding levels in 2014 would be 15 percent below its 2010 level and in 2015, 17 percent below.

Moreover, it is widely recognized that our long-term fiscal pressures are not coming from this part of the budget.  They’re coming mostly from the collision of aging demographics with health care spending that has historically outpaced overall growth (though in an important fiscal development, these costs have slowed significantly of late).

This relentless whacking away at nondefense discretionary spending is all very shortsighted.  Many of these programs, like early childhood education, housing support, college tuition assistance, and job training, are essential if we want to push back on the inequality and immobility that are increasingly holding back the least advantaged â€" the very targets of much of NDD spending.

The new budget deal, as limited as it is, is a welcome return to the compromise that is essential if we are ever to escape the dysfunctional gridlock that has characterized Washington politics for years now.  But as the chart reveals, it does almost nothing to fix the long-term damage that both sides have done to an increasingly necessary part of the budget.