Stop Baseline Budgeting

Most people do not realize why it is so hard to reduce federal spending.  After all, we elected the House of Representatives last November to do just that. So why has it not been done?  What the newly elected Congressmen are discovering is that they are up against Baseline Budgeting.

If you are a business or a consumer, you probably have some sort of annual budget to control what you spend each year. You look at your income, and what you spent last year, and decide what you can afford to spend in the coming year. I know that is what Helena and I do.  That is what state governments have to do. But in Washington, it is different because of Baseline Budgeting.

Baseline budgeting is based on the presumption that every item in the budget will automatically increase between three and 10% depending on what the item is, every year, regardless what happened in the previous year.  As Rush Limbaugh explained recently:

This is why, for example, at the end of the year the agriculture department starts advertising for food stamp applicants because they want their budget to increase. So they don’t look at the reality, and say, “You know what, we don’t need this much money in this department. We have more money than we need. We don’t have as many people needing food stamps as we have food stamps.” They don’t look at it and then cut back and tell the government, “You know what, you can cut us here.” They will go out and give away food stamps in order to make sure they get that three to 10% increase. But that three to 10% increase every year becomes the starting point for every budget negotiation.

So, for example, when Obama passes the stimulus bill, another trillion dollars effectively is added to the baseline. No consideration is given to whether or not the money was spent wisely, wasted effectively or whatever. It was just spent. And because it was spent, there must be an increase in that line item every year.”

The CBO baseline numbers for the years 2012 through 2021 are already published. The baseline budget for the Federal Government for 2021 is $5.7 trillion. That is an increase over 2011 of $2 trillion. If we were to increase our spending any less than $2 trillion, it would be considered a cut!

Baseline budgeting began in the Congressional Budget Act of 1974. That act required the Office of Management and Budget (OMB) to prepare projections of federal spending for the upcoming fiscal year based on a continuation of the existing level of governmental services. It required the Congressional Budget Office to prepare five-year projections of budget authority, outlays, revenues, and the surplus or deficit. Later that was increased to ten year projections. In 1987 Congress amended the definition of the “baseline” so that discretionary appropriations would be adjusted to keep pace with inflation.

Right now with baseline budgeting, every department automatically is given a budget with a significant percentage increase over the current year. If they spend less than the increase it is considered a cut. Press releases are issued saying that farmers, the poor, veterans, seniors or some other group is going to suffer due to this cut — when nothing has actually been cut.  The fact is, so far, despite the debt limit decisions, there have not been any real cuts in spending, only a slowing in the rate of increase.

It is clear from the debt ceiling debate that there is a serious intention on the part of the Republicans, the Tea Party folks, the independents, and many concerned Democrats to reduce federal spending.  That will be almost impossible to do unless Baseline Budgeting is no longer the law of the land.  Removing this process is vital to taming federal spending and debt.

About Arthur Middleton Hughes

Arthur is currently Vice President of The Database Marketing Institute based in Fort Lauderdale, FL. Arthur is the author of 11 books, the latest of which is Strategic Database Marketing 4th Edition (McGraw-Hill 2012). A BA graduate of Princeton with an MPA in Economics and Public Affairs, Arthur taught economics at he University of Maryland for 32 years. He is an Austrian Economist.
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