Discretionary spending will face another round of cuts if the Super Committee’s plan fails

Discretionary spending will face another of cuts if Congress does not approve the deficit reduction plan submitted by the Super Committee. Failure to pass the deficit reduction plan in December will trigger $1.2 trillion in automatic cuts to defense and non-defense discretionary budgets. Adding that to the $1 trillion reduction already imposed by the Budget Control Act, total cuts to discretionary spending could amount to more than $2.2 trillion.

Sen. Patty Murray (D-WA), Co-Chair of the Joint Committee on Deficit Reduction. PHOTO SOURCE: deficitreduction.gov

“Congress has gone to this relatively small pot with cuts and spending caps again and again while leaving many other pieces of the budget essentially untouched,” said Sen. Patty Murray (D-WA), Co-Chair of the Joint Select Committee on Deficit Reduction. “So if this committee works together on a bipartisan plan to reduce the deficit, we need to keep in mind the cuts that have already been made, the role discretionary spendings play in our overall deficit and debt problem, and the impact irresponsible slashing could have on our economic recovery and middle-class families across the country.”

At the request of the Super Committee, the Congressional Budget Office provided projections comparing the impacts of the automatic cuts versus proportional cuts to defense and non-defense discretionary budgets. The projections, as well as information on the historical trends of discretionary spending, were presented by CBO Director Doug Elmendorf at the Super Committee hearing on Oct. 26th.

How will automatic cuts impact defense discretionary spending compared to proportional cuts? 

Automatic cuts (aka “sequestration”) would mean $882 billion less in defense discretionary spending between 2012 through 2021. In comparison, proportional cuts would mean $445 billion less in defense discretionary spending during the same period.

(SOURCE: Elmendorf’s written testimony, page 17)


How will automatic cuts impact non-defense discretionary spending compared to proportional cuts?

Automatic cuts to non-defense discretionary spending would result in $794 billion less funding between 2012 through 2021 while proportional cuts would result in a projected $418 billion reduction during that period.

(SOURCE: Elmendorf’s written testimony, page 22)

 

What is discretionary spending?

Discretionary spending makes up approximately 40% of total federal spending and is determined through yearly appropriations acts by Congress. The 2011 discretionary budget totaled $1.277 trillion.

Discretionary spending funds both defense and non-defense programs. In 2011, discretionary spending for defense amounted to about $712 billion, which took up 56% of the total discretionary budget. The remaining $566 billion, about 44% of total discretionary budget, was allocated to non-defense programs.

(SOURCE: Elmendorf’s written testimony, pages 6 – 9)

 

Where did the $712 billion defense discretionary funding go in 2011? 

(SOURCE: Elmendorf’s written testimony)

 

Where did the $566 billion non-defense discretionary funding go in 2011?

  • $92 billion (16%) went to education, training, employment, and social services; “$40 billion of that funded grants to state and local governments for elementary, secondary, and vocational education, and another $28 billion supported programs for higher education,” according to the CBO report.
  • $85 billion (15%) went to transportation, with half of that funding going to highway programs.
  • $63 billion (11%) went to fund income security programs, which includes housing and nutritional assistance for the poor.
  • $57 billion (10%) went to veterans’ benefits and services, which includes health care.
  • $55 billion (10%) went to public health and health-related research, with more than half going to the National Institutes of Health.
  • $52 billion (9%) went to international affairs.
  • $50 billion (9%) went to administration of justice.
  • $112 billion (20%) were divided among natural resources and environment ($33 billion); general science, space, and technology ($30 billion); general government ($17 billion); community and regional development ($15 billion); agriculture ($6 billion); Medicare ($6 billion); Social Security ($6 billion); energy ($4 billion); and subtracting $6 billion in funding for commerce and housing credit programs.

(SOURCE: Elmendorf’s written testimony, page 10)

 

Discretionary spending in relations to GDP

Discretionary spending amounted to 9% of the U.S. Gross Domestic Product (GDP) – representing the total value of final goods and services produced in the United States – in 2011. (To put it another way, this year the United States used up 9% of its total “earnings” on discretionary spending.) Historically, discretionary spending fluctuated from a high of 10% of the GDP during the 1970s and 1980s to a low of 6.2% of the GDP in 1999. The dip in the late 1990s can be attributed to the overall reduction in defense spending during that period. Discretionary spending then climbed back up after 9/11 and the wars in Iraq and Afghanistan, rising from 7% of GDP in 2002 to 7.9% of GDP in 2008. The American Recovery and Reinvestment Act of 2009 (aka “stimulus package”) added $281 billion to discretionary spending, increasing the GDP share to 8.8% in 2009 and 9.3% in 2010.

Comparison of the share of GDP between defense and non-defense discretionary spending indicate that defense spending plays a stronger role in driving the total discretionary spending historically.

(SOURCE: Elmendorf’s written testimony, pages 11 – 13)

 

Historical trends in defense discretionary spending:

1971 7.3% of GDP
1978 4.7% of GDP
1986 6.2% of GDP
1999 – 2001 3.0% of GDP
2002 3.3% of GDP
2005 4.0% of GDP
2010 4.7% of GDP
2011 4.7% of GDP (approximately)

(SOURCE: Elmendorf’s written testimony, page 12)

 

Historical trends in non-defense discretionary spending:

1971 5.2% of GDP
1990 – 2007 3.2% of GDP
2008 3.8% of GDP (Great Recession of 2007 – 2009)
2010 4.5% of GDP (slow economic recovery)
2011 4.3% of GDP (slow economic recovery)

(SOURCE: Elmendorf’s written testimony, page 13)

 

Discretionary spending caps under 2011 Budget Control Act (aka “Debt Limit Compromise”) 

The Budget Control Act of 2011 did two things to discretionary spending: cut $1 trillion across-the-board; and set caps on discretionary spending for 2012 through 2021. For 2012, the discretionary spending cap is set at $1.043 trillion, and the spending cap for 2013 is set at $1.047 trillion. After 2013, the annual increases to discretionary spending cannot go above 2%. That means the maximum discretionary spending for 2021 will be $1.234 trillion. The CBO estimates that discretionary spending limits will save $778 billion during the 10 years between 2012 and 2021; the overall savings could be greater since that estimate does not include savings from paying less debt interest resulting from the reduced spending.

(SOURCE: Elmendorf’s written testimony, page 13 – 14)
 

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