A package of appropriations bills signed into law by President Donald Trump will fund all federal government operations through September 30, 2020.
H.R. 1158, signed one day before the statutory spending authority of the federal government was scheduled to lapse, exceeds spending caps enacted by the Budget Control Act of 2011 by $92.6 billion.
Trump also approved H.R. 1865, which removes a 2.3 percent excise tax on medical devices and a 40 percent excise tax on employer-sponsored health insurance plans with exceptional benefits, increases spending on most domestic government agencies, and boosts federal employees’ salaries.
H.R. 1865 increases domestic spending authority by more than $171 billion beyond levels set in 2019 and directs $100 billion in taxpayer money to bail out private-sector benefit plans for members of organized labor.
The two bills’ total price tag is $1.4 trillion for the rest of the 2020 fiscal year. Unlike spending on government operations, permanent programs such as Social Security and Medicare do not require appropriations or authorization on a continuing basis.
Spending increases are a bipartisan problem, says Merrill Matthews, a resident scholar with the Institute for Policy Innovation and a policy advisor to The Heartland Institute, which publishes Budget & Tax News.
“The only difference between Republicans and Democrats over massive government spending increases is some Republicans claim to feel guilty about it and say they will try to do better next time, but ‘next time’ never comes,” Matthews said.
The two major political parties have cooperated in growing the federal government, says Ryan McMaken, a senior editor with The Mises Institute and a former economist for the Colorado Division of Housing.
“Since at least the 1980s, it has been clear that the GOP has little interest in cutting or controlling spending when it is in power,” McMaken said. “When the GOP had total control of Washington during the George W. Bush days, it greatly increased spending. Moreover, during the Obama years, the GOP never used its control of Congress to seriously attempt any cuts in spending. Now, with Trump, who has never shown any interest in cutting spending at all, we shouldn’t be surprised to find the Democratic majority in the House and the GOP-controlled Senate both along for the ride.”
Spending vs. the People
Growing government budgets shrink the pocketbooks of everyday people, McMaken says.
“Spending is always a problem for a variety of reasons,” McMaken said. “Many people view government spending as no big deal because it puts resources in the economy, but that’s not true at all. For one, those resources were already in the economy before they were extracted in taxes. Then the government takes its cut and spends the rest, but that’s hardly a win-win. From an economic standpoint, spending is a problem because it distorts the private economy and raises prices on those resources that the government is spending on.”
Spending increases add to the annual federal budget deficit, which increases the government debt, all of which depresses the economy and will lead to calls for tax hikes in the future, Matthews says.
“The problem with deficit spending is it sucks money out of the private sector, where it is typically spent and invested in more efficient ways,” Matthews said. “In addition, it creates an opening for Democrats to claim they must raise taxes in order to address the deficit. Republicans like to boast they cut taxes, and they occasionally get that opportunity. They almost never seize the opportunity to cut spending.”
Congress’s removal of the “Cadillac” tax on generous employer-sponsored health insurance and the medical-device excise tax is a mixed blessing, Matthews says.
“While cutting some Obamacare taxes was a good thing, it only exacerbates the deficit and federal debt, problems they want to ignore,” Matthews said. “But since voters haven’t held them accountable for their failure to fulfill their promises to cut spending, most Republicans see little reason to change their ways.”
Cutting taxes yields real benefits only if spending is also reined in, McMaken says.
“Certainly, reductions in taxes that don’t lead to more deficit spending are good things, but when tax cuts are just replaced by deficit spending, that’s just a tax increase for future taxpayers, and it also means a greater burden on present taxpayers in the form of continued payments on the debt,” McMaken said. “There is no free lunch here.”
‘We Can Hope!’
Politicians’ promises to restrain federal spending are unlikely to pan out, Matthews says.
“There are rumors that President Trump will take stronger steps to control government spending if he wins reelection,” Matthews said. “We can hope! Even though Trump won’t be running for reelection after 2020, Republicans in the House and Senate will be running, and many of them will beg him to compromise on any spending-cut notions he might have, to improve their chances of reelection.”
Unless lawmakers balance the equation of tax cuts and spending, the consequences are certain, McMaken says.
“The military, the elderly, and the impoverished will all see declines in benefits and budgets, as the federal government increases its debt payments over time,” McMaken said. “[When] interest rates rise even a little, many will feel the pinch. Also, many businesses will continue to pay more for goods and services as federal agencies bid up prices, as government spending increases. Consumers who get their incomes from the private sector will be hit in the pocketbook.”
Jesse Hathaway ([email protected]) is a policy advisor with The Heartland Institute.