Q&A – Understanding the BBB & Congressional Cost Savings - Driven By Braman Motorcars
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Today’s Entry: I hope the Trump big, beautiful bill is passed and soon - in this bill there is reportedly a spending cut of $1 ½ trillion - BUT I UNDERSTAND THIS IS OVER TEN YEARS? IF SO - AND WITH THE US DEBT LIMIT JUST INCREASED ANOTHER $5 trillion -
There is danger one day of a real default - spending cuts MUST BE TODAY AND MUCH MORE - Trump wisely wants to grow the economy and the tax income base for the government - but if the debt keeps rising - there may be a default soon sadly.
Pray for Trump and his administration!
Bottom Line: Yes, to the prayers – I pray for the president every day and do believe it’s a best practice. Your note reminds me that it would likely be a good idea to pray for congress to do the right thing for us as well. So yeah, the federal budget process is complex to say the least, and the way legislation is “scored” or determined to impact our federal deficit is a bit convoluted too. But, with that said, I can explain this in an understandable way that’s considerably less convoluted than the budget estimating process. Let’s start with how this happens and why it happens the way it does.
The federal government’s budgeting process is mandated under the Congressional Budget Act of 1974. The Act not only established the process by which budgeting must take place, but it also established an office that’s at the root of the budgeting process – the Congressional Budget Office. That’s the office which is tasked with estimating the financial impact of all legislation under consideration. I’ll come back to that aspect of the budgeting process in a moment but first here’s a breakout of the five-step process of federal budgeting and mandated under law:
- President’s Budget Proposal: The process begins with the President submitting a budget proposal to Congress
- Congressional Budget Resolution: the House and Senate budget committees review the President’s proposal and develop a budget resolution.
- Appropriations Process: The House and Senate Appropriations Committees, through their 12 subcommittees, draft appropriations bills to allocate discretionary spending
- Reconciliation: This is an optional process – but is the only process that can be passed with simple majorities in both chambers of congress and is the process that’s currently adopted in this year’s budgeting process. Reconciliation mandates that projected impacts to the federal deficit are “incidental” or reduce the deficit
- Final Budget Approval and Enactment: Final budget package is passed in both chambers of congress and sent to the president to be signed into law.
Ok, so now about that ten-year projected spending thing. When the Congressional Budget Office was established with the task of estimating the financial impact of legislation, they had to set standards for doing so. Under law the CBO’s directive is to assess the long-term fiscal sustainability of legislation. The ten-year standard of judgement was adopted to prevent potential shenanigans from taking place, for example, passing legislation that might include be political popular immediately but that could include negative/unsustainable “balloon” effects for future congresses.
The ten-year standard was viewed as a balance between short-term accuracy and long-term trends because, of course, no specific economic estimates ten years out are realistic. For this reason, anytime you hear about the financial impact of federal legislation it’s always the estimated ten-year impact – not what is expected to happen within the next year – unless you specifically are presented with a different timeline. Like over the next year it will do this...etc.
So yes, to your point, the reductions in government spending are spread out over a decade. And even with the House’s current BBB version, which calls for the largest spending cuts, we’d still be allowing the deficit to rise by up to an estimated $2.8 trillion over the next ten years – the senate’s version is much higher with deficit allowance of up to $5.8 trillion. Now the upshot is this...
Is taking on another $2.8+ trillion in debt over the next ten years a good thing? Clearly not. At the same time, consider this, here are the budget deficits for the past five years:
- $3.1 trillion, $2.8 trillion, $1.4 trillion, $1.7 trillion, $1.8 trillion
If the annual deficit shrinks to an average of $280 billion to $580 billion per year – that's huge progress over where we’ve been. The last year the US had an annual deficit as low as $580 billion was 2015. The last year it was as low as $280 billion was 2007. If these changes are made and fiscal restraint is maintained near these levels in the future, it would be possible to grow our way out of deficit territory in time.