Baseline Budgeting - The Nemesis of Deficit Reduction


By Ron Kramer

On Tuesday, July 26, House Speaker John Boehner found out that his debt proposal would cut spending far less than he originally touted. The Congressional Budget Office (“CBO”) scored the plan and said that the GOP measure would cut the deficit by only $850 billion over 10 years, far short of the $1.2 trillion originally promised by Boehner. In addition, the CBO said the plan, which would increase the debt ceiling by $900 billion immediately, would generate only $1 billion (not trillion) in deficit reduction over the coming year. I don’t know who should be more embarrassed, John Boehner for preparing the plan, or Barrack Obama for rejecting it!

One of the culprits for Boehner’s plan missing its intended mark is the use of “Baseline budgeting” in Washington. Baseline budgeting is an incremental budgeting process based on the assumption that last year’s budget (“the baseline”) is automatically approved. In contrast, a “zero-based” budgeting process requires every line item of the budget to be approved, not just the changes to last years’ budget. Every program is required to justify its allotted funds.

Baseline budgeting is a way for Washington politicians to claim they are cutting spending, when all the while, spending is actually increasing. According to the Government Accountability Office, a baseline is:

“An estimate of spending, revenue, the deficit or surplus, and
the public debt expected during a fiscal year under current laws
and current policy. The baseline is a benchmark for measuring
the budgetary effects of proposed changes in revenues and
spending. It assumes that receipts and mandatory spending
will continue or expire in the future as required by law and
that the future funding for discretionary programs will equal
the most recently enacted appropriation, adjusted for inflation.” 

When projecting spending for discretionary programs, the CBO assumes that the appropriations most recently enacted by the Congress will grow at the anticipated rate of inflation. Thus, baseline budgeting assures that current budgetary policies or current services are continued without change and include automatic adjustments for inflation and anticipated increases in program participation. Therefore, baseline budgeting builds automatic future spending increases into Congress’s budgetary forecasts.

Baseline budgeting increases the size of government by increased spending offset by increased taxes and/or an increase in government borrowing. For example, If the Why? Administration’s 2011 budget was $200 million, and inflation is projected at 5% for fiscal 2012, the baseline budget for the Why? Administration would be projected to be $210 million for fiscal 2012. If Congress agrees to fund the Why? Administration at $205 million instead of the $210 million level, politicians will tell you that the Why? Administration budget was cut by $5 million for fiscal 2012. They will insist that they reduced spending by $5 million, when in actuality, spending grew by $5 million over the previous year.

Speaker Boehner’s plan appears to have fallen into the trap of this ridiculous budget logic. In the example above, if Boehner’s plan called for a $1 million cut in the Why? Administration budget for fiscal 2012, total government spending (and debt) still increases by $4 million for fiscal 2012 and will continue to increase every year thereafter.

The fallacy of Boehner’s plan and the deficit effects of baseline budgeting is recognized by the Tea Party backed members of the House and Senate. On July 25, Senator Rand Paul (R-KY) released the following statement of opposition to the debt deal being proposed by the House of Representatives’ leadership:

“The proposed deals being discussed today by House Republican and
Senate Democrat Leaders do not make cuts to our debt. They do not
solve our debt problems. They do not balance the budget, ever.

“Proponents of the most recent debt ‘deal’ in the House are saying it
will cut $1 trillion over 10 years now, with promises of $2 trillion more
cuts from a ‘commission;’ Senate Democrats are proposing $2.7 trillion
in largely smoke and mirrors. These plans ‘cut’ from a baseline that,
under current law, will add $10 trillion to new debt over 10 years. So
in reality these ‘deals’ add at least $7 trillion to the national debt with
no end in sight.

“These are not serious proposals, and they will not solve our fiscal
problems. The plan proposed today by the House leaders does not
meet the core standards of the Cut, Cap and Balance pledge. The Tea
Party is willing to negotiate with the President over the specific
spending cuts and spending caps, but any proposal must include a
balanced budget amendment to ensure we solve our debt problem
once and for all.

“The debate needs to be about real spending cuts – not simply
reductions in proposed increases. The ‘deal’ talks of cuts, but
these ‘cuts’ are from a baseline that plans to spend over $45
trillion over the next 10 years. It is important that the public
understand that the ‘deal’ involves allowing spending and debt
to increase every year over the next 10 years. I cannot and will
not support any deal that does not have as its end goal a balanced
budget. Promises and commissions will not satisfy that goal.”

In order for us to have any faith in the validity of the spending cuts in the budget proposals, the Congress must eliminate the use of baseline budgeting in favor of freezing and actually reducing government spending. Zero based budgeting would force Congress to justify spending increases and not hide behind the automatic increases in the budget baseline. Reductions of actual expenditures rather than reduction of increases will serve to reduce the deficit and eliminate the need for future increases in the debt ceiling.

Thus, the debt debate continues. Speaker Boehner has redone his plan and the House will vote on it Thursday, July 28.

© 2011 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person any tax-related matter.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2019 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.