The federal government is awash in deficits and debt, and the main culprit is the growth of entitlement spending. That’s indisputable. But that doesn’t mean spending on annual appropriations — so-called “discretionary spending” — should evade scrutiny.
It was inevitable that the spending caps put in place in 2011 would be raised, since they were initially set at levels that were unrealistically low. But the latest bipartisan deal on the budget has pumped so much money into discretionary appropriations that many programs that should be reformed to reduce costs will likely escape unscathed.
It is important, when looking at the history of appropriations, to assess what has happened to defense and nondefense accounts separately. Discretionary spending on defense has indeed fallen substantially over the past half century, especially since the end of the cold war. In 1986, before the Soviet Union slid into its final collapse, federal spending on defense was equivalent to 6 percent of GDP. In 2016, spending on the military had fallen to just 3.2 percent of GDP. From 1967 to 1991, the average amount spent on defense was 6.2 percent of GDP. The savings from winning the cold war — the peace dividend — wasn’t returned to taxpayers. Instead, it was used to partially offset the added spending on entitlement programs. Entitlement outlays rose from 9.2 percent of GDP in 1986 to 13.2 percent in 2016.
Spending on domestic appropriations has not fallen at the same rate as defense spending over the past four decades. While there have been periods of increases and some decreases, there is no long-term trend toward substantially less spending. In both 1989 and 2016, spending on appropriations for domestic agencies and programs was equivalent to 3.3 percent of GDP. Between 1982 and 2016, appropriated spending for this part of budget was never higher than 4.2 percent of GDP (excluding 2010, the year of substantial stimulus funding) and never lower than 3.1 percent of GDP. The average level of domestic discretionary spending over the past 25 years has been 3.7 percent of GDP — close to today’s level.
In 2011, as part of the Budget Control Act of 2011, President Obama and Congress placed stringent caps on appropriated spending for both defense and nondefense accounts. These caps got lowered even more (through a sequester mechanism) when a special joint committee in Congress appointed to come up with a deficit reduction plan failed to reach a consensus. The original caps for nondefense appropriated spending were set at $507 billion for 2012 and $531 billion in 2019. That translates into a mere 0.7 percent average annual growth rate.
Since the budget law was enacted, Congress has raised the caps through bipartisan deals passed in 2012, 2013, 2015, and now this year. The cumulative effect of these cap increases has been to push up spending authority for domestic appropriations by $222 billion over the period 2012 to 2019. With the latest deal in place, the cap in 2019 is now set at $597 billion, which means spending growth for domestic programs and agencies funded in the appropriations process will increase at an average annual rate of 2.4 percent from 2012 to 2019.
And that’s counting only the expenditures that are limited by the spending caps. Over the years, Congress also has regularly supported funding for emergency assistance that is exempt from the limitations on discretionary spending that have otherwise applied. In the latest budget deal, for instance, Congress approved $84 billion in emergency domestic appropriations, which does not count against the spending caps. Real spending on domestic appropriations, measured in constant 2016 dollars, increased from $434 billion in 2000 to $600 billion in 2016 for an average annual increase of 2 percent in real terms. From 1990 to 2016, spending on domestic discretionary appropriations increased at an average annual rate of 2.2 percent in constant dollars — that is, above and beyond the increases that occurred because of normal consumer inflation.
There are many popular programs and agencies that depend on annual appropriations. Many in Congress would like to increase funding for medical research at the National Institutes of Health, for federal educational assistance provided to the states, and for better border control. Moreover, while some in Congress support imposing lower caps on domestic appropriations, they offer up very few specific ideas about what they would cut out of the budget. With few exceptions, there are enough Republican and Democratic votes in Congress to protect from termination just about every significant agency and program funded by domestic appropriations.
A more fruitful approach is to reform government operations. The federal government employs more than 1.3 million people in civilian agencies, and many millions more through the burgeoning network of contractors that now do much of the government’s work. Further, the government spends hundreds of billions of dollars annually on acquisitions, in particular for information technology. The most promising avenue for large savings in domestic agencies and programs is through systematic improvement of their productivity, which would allow for workforce reduction and other savings. The consulting firm Accenture estimates that the government would save almost $1 trillion by 2025 if agency productivity improved by just 1 percent annually in the coming years.
The Office of Management and Budget has promised to release a plan for government reform in March. This is the best opportunity for the current administration to advance changes in how the government operates. There shouldn’t be any great expectation of large-scale savings in domestic appropriations from these initiatives because there is pent up demand for higher spending in many programs too. Still, reforming government operations remains the most promising option for bringing more cost discipline to domestic appropriations. Even if the savings from more efficient government were used to limit future increases in spending, rather than to implement reductions, that would be a victory for taxpayers.
James C. Capretta is a RealClearPolicy Contributor and holds the Milton Friedman chair at the American Enterprise Institute.
