6 Crucial Facts You Need to Know About US Spending

Plus, disaster relief will have to wait a bit longer By Yuval Rosenberg and Michael Rainey 6 Crucial Facts You Need to Know About US Spending The Congressional Budget Office provided additional details on federal spending this week to members of the Senate Committee on the Budget, in response to questions submitted by committee members. The QFRs, or Questions for the Record, follow up on a [hearing earlier this year]( that focused on federal discretionary spending in recent years. At that hearing, Assistant Director for Budget Analysis Theresa Gullo said that discretionary spending has fallen since the Budget Control Act took effect in 2011, dropping nearly 17% from 2011 to 2018. At the same time, discretionary spending has exceeded the levels set by the BCA by about $1.4 trillion, or 17%. Here are some additional data points on federal spending [provided by the CBO]( in response to specific questions from senators: 1. Excluding defense, discretionary spending has been falling relative to the size of the economy, and it is expected to continue falling. “Nondefense discretionary spending has fallen relative to the size of the economy over the past 50 years. In 1969, such spending totaled 3.5 percent of gross domestic product (GDP). CBO projects that in 2019 the total will amount to 3.1 percent of GDP and will equal its lowest level as a share of the economy over that period. In 2020, under CBO’s baseline assumptions (in which the nondefense discretionary cap for 2020 is not increased), such spending would equal 2.9 percent of GDP. In CBO’s baseline projections, which incorporate the assumption that discretionary appropriations grow with inflation when not capped, nondefense discretionary spending continues to decline—to 2.5 percent of GDP in 2029.” 2. Most of the increases in the spending caps since 2011 have been defense-related. “CBO estimates that since the enactment of the Budget Control Act of 2011 (BCA), which established caps on discretionary spending through 2021, $683 billion (or 69 percent) of the total adjustments to those caps has been provided for defense activities: $652 billion for overseas contingency operations, $13 billion for emergency requirements, and $18 billion for disaster relief.” 3. Congress offset its increases in spending in previous budget deals but did not do so in the most recent deal covering fiscal 2018 and 2019. “The Bipartisan Budget Act of 2013 and the Bipartisan Budget Act of 2015 raised the caps for 2014, 2015, 2016, and 2017. At the time that the 2013 law was under consideration, CBO estimated that other provisions in the act would reduce deficits over the 2014–2023 period by $85 billion—more than offsetting the $63 billion cumulative increase in the 2014 and 2015 discretionary caps. Similarly, CBO estimated that provisions in the 2015 act would reduce deficits by about $80 billion—fully offsetting the $80 billion cumulative increase in the caps that the 2015 act made for 2016 and 2017. “By contrast, the Bipartisan Budget Act of 2018 only partially offset the cap increases it authorized for 2018 and 2019. CBO estimated that the mandatory spending and revenue provisions would reduce deficits by $38 billion over the 2018–2027 period—$258 billion less than the increase in discretionary spending that would result from raising the caps.” 4. Spending on disaster relief has risen sharply. “Focusing on the country’s single largest source of federal disaster assistance, the Disaster Relief Fund (DRF, which is administered by FEMA, the Federal Emergency Management Agency), CBO observes that in constant dollars, federal disaster spending has increased significantly over the past three decades, particularly since Hurricane Katrina in 2005. Total federal spending from the DRF totaled about $27 billion in the 1990s and increased dramatically in the past two decades (to $135 billion and $108 billion, respectively).” 5. Mandatory spending is growing much more rapidly than discretionary spending. “Mandatory spending, which consists primarily of payments for benefit programs, such as Social Security, Medicare, and Medicaid, will account for 60 percent of total federal spending in 2019 and will amount to $2.7 trillion, or 12.7 percent of GDP. Mandatory outlays are projected to increase by 1.9 percentage points—to 14.6 percent of GDP—by 2029. That growth is primarily the result of the aging of the population and rising costs per beneficiary in the major health care programs. The only other time since 1962 that mandatory outlays exceeded 14 percent of GDP was during the recession in 2009, when they totaled 14.5 percent. “All told, in 2019 mandatory spending (excluding interest) will be about twice discretionary spending. By 2029, in CBO’s baseline projections, mandatory spending is about three times discretionary spending.” 6. Even if discretionary spending were frozen, the debt would continue to grow. “If discretionary spending … was frozen at 2019 nominal amounts, it would shrink from 6.4 percent of GDP in 2019 to 2.1 percent of GDP in 2048—declining from about a third of all noninterest spending to 11 percent by 2048. “Nevertheless, including the positive economic effects of deficit reduction, debt as a percentage of GDP under that latter scenario would continue to increase throughout the projection period and would peak at about 95 percent of GDP in the mid-2030s before declining to about 90 percent of GDP in 2048—still higher than the current 78 percent. By contrast, in CBO’s extended baseline projections, debt rises steadily to 152 percent of GDP in 2048.” Third House Republican Blocks $19.1 Billion Disaster Aid Bill The $19.1 billion disaster aid bill will have to wait until next week after a third GOP congressman on Thursday objected to passing the legislation by unanimous consent. During a pro forma session of the House, Rep. John Rose of Tennessee became the third House Republican in a week to hold up final passage of the relief package, which has the support of President Trump and other Republicans as well as Democrats. Rep. Chip Roy of Texas prevented to a voice vote last Friday and Rep. Thomas Massie of Kentucky objected on Tuesday. "Our nation is $22 trillion in debt, primed to pass nearly $20 billion in new spending while the majority of Congress is not even in Washington," Rose said according to [The Hill]( describing the effort to pass the legislation by unanimous consent "another act of irresponsible big government." The package, which was approved by the Senate a week ago before lawmakers left for their recess, is expected to pass the House early next week after members return. The House did pass a [two-week extension]( of the National Flood Insurance Program, which had been set to expire on Saturday. “The NFIP is a safety net for millions of Americans, and we could not afford to let it lapse,” Sen. John Kennedy (R-LA), who sponsored the flood insurance extension bill, said in a statement. “We need to pass the disaster supplemental package as soon as possible to ensure the NFIP’s viability as we enter hurricane season.” Rose did not block the extension, reportedly [saying]( that he considered it differently because that program was already in effect. Poll of the Day: Why 2020 Will Be Another Health Care Election Health care costs are the top financial problem for American families, according to a Gallup poll released Thursday. When asked an open-ended question — “What is the most important financial problem facing your family today?” — 17% of respondents cited health care costs, followed by 11% who said lack of money or low wages and 8% who pointed to college expenses. One in five Americans told the pollsters they do not have a "most important financial problem," the second-highest rate for that response in Gallup’s 14 years of asking the question. Gallup notes, though, that health care is especially likely to be named as a financial concern by older Americans, with 25% of adults between the ages of 50 and 64 and 23% of those 65 or older raising the issue. “Even in generally good economic times, Americans still face significant personal financial challenges,” Gallup’s Jeffrey M. Jones noted. “Foremost among these are healthcare costs, which have been a consistent concern over time but currently stand above all other concerns. As such, healthcare will likely continue to be a major focus in national elections, including the 2020 presidential election. Older Americans, who are more likely to need healthcare and who are more likely to vote than younger Americans, may pay special attention to what the candidates' plans are for addressing healthcare costs.” Chart of the Day Adam J. Fein of the [Drug Channels Institute]( highlights the market power of just a few pharmacy benefit managers, the middlemen who administer prescription-drug plans for insurers (h/t [Axios](. CVS Health, Express Scripts (owned by Cigna) and OptumRx (owned by UnitedHealth Group) handled more than 75% of all prescription claims in 2018, and the top 6 PBMs handled more than 95% of claims. “This concentration helps plan sponsors and payers, who can maximize their negotiating leverage by combining their prescription volumes within a small number of PBMs,” Fein writes. Even so, Fein says that “It’s a tough time to be a PBM.” Why? “Compensation models are shifting, due to increased scrutiny by payers, regulators, and politicians. Plan sponsors are more sophisticated and seek greater pass-through of rebates, admin fees, and other manufacturer-provided revenues. Network spreads are under pressure, while specialty pharmacy dispensing accounts for a growing share of profits. Plus, the entire drug channel system could move toward [a world without rebates]( Would you pay $200 to [build your own lightsaber]( Sounds like a bargain, if it works like the ones in the movies. Send your tips and feedback to yrosenberg@thefiscaltimes.com. Or connect with us on Twitter: [@yuvalrosenberg]( [@mdrainey]( and [@TheFiscalTimes](. And please tell your friends they can [sign up here]( to get their own copy of this newsletter. 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