Budget for 2007: This week, the House passed the budget for fiscal year 2007. As a member of the Budget Committee this is an issue I have been working on for several months.
By passing this budget, we have turned the corner in the effort to control spending, and put ourselves back on to the road to fiscal responsibility. It returns the government’s growth rate to a reasonable level: below the rate at which revenues are increasing and below the growth in population plus inflation.
In the years following the recent tax cuts, we have seen a dramatic increase in government revenues as our economy has expanded. By ensuring we keep these policies in place while controlling spending simultaneously, we will be able to reduce the deficit over time.
Additionally, the process reforms included in the budget, as well as other reforms expected to come up this year, will help control spending by changing the way Washington works.
This year’s budget is a good one, not a perfect one. My fellow colleagues in the Republican Study Committee (RSC), of which I am a member, offered an alternative proposal which would have gone further to control discretionary spending, reform entitlements, and improve the budget process. Although I would have liked to see the RSC’s budget approved, the House passed budget begins to move us in the direction of fiscal responsibility.
Here are a few facts about this year’s budget, and the way the federal budget process works:
The Budget Resolution: This is what we passed this week. It lays out the overall spending limit which Congress will use to fund different things. What it doesn’t do is direct money to specific programs. That is done later in the year with a series of 10 appropriations bills.
$873 Billion: The amount of money spent on everything other than entitlement programs. In Washington’s terminology, this is called discretionary spending, and it is up only 3.6% from last year. Every year, Congress has to approve each expenditure from this category to pay for things like national defense, highways, or social programs.
$1.8 Trillion: The total level of automatic spending for 2007. This money, which goes to entitlement programs like Social Security, Medicare, and Medicaid, is spent automatically every year without a single vote of Congress. The technical term for this category is mandatory spending.
(I will explore the difference between mandatory and discretionary spending in future updates.)
Deficit: This budget forecasts it at $346 billion. Even though this is down significantly from the $567 billion deficit in 2004, I would have liked it much smaller or $0.
Deficit Outlook: Revenues have increased by 15% and 11% over the last two years as the economy has grown. As long as these revenues keep growing at a rate faster than the spending does, the deficit will go away over time. The budget forecasts revenue growth at a conservative 7%, but if it stays around current rate the deficit may be much less than $346 billion this year.
Economy: Getting revenues to keep increasing depends on keeping the economy strong. Inflation and unemployment are low and economic growth is high.
Here is a quick snap shot of the economy:
0.6% inflation using CPI
+4.8% growth in real GDP for 1st quarter
4.7% unemployment rate (lower than average of decades of ‘60s,’70s, ‘80s, and ‘90s)
2 million new jobs in last 12 months
5.2 million new jobs since August 2003.