The Fiscal State of the Union | Taxpayers for Common Sense

Weekly Wastebasket Volume: XX No. III

Article II of Section 3 of the U.S. Constitution directs that the President “… shall from time to time give to Congress information of the State of the Union and recommend to their Consideration such measures as he shall judge necessary and expedient.”  President George Washington gave the first State of the Union speech in 1790. And whether delivered in writing or in person (as has been the case since early in the 20th Century) it’s an opportunity for the Chief Executive to expound on their principles and policies and argue for their approach to governance over the next year.

One thing you can almost be certain of is that at some point the President will indicate that the state of the union is strong. Then there will be various stories about certain people sitting in the gallery above the House floor that can help underscore some of the President’s policy solutions.

But what is the real state of the union? Is it whatever President Obama says? Is it what Sen. Joni Ernst (R-IA), the freshman lawmaker tapped to give the response, says? Here’s some context to keep in mind when you are watching.

Looking at the budget: While the aggregate federal debt exceeds $18 trillion, the annual budget deficit fell to $486 billion in fiscal year (FY) 2014, down from $680 billion in fiscal year 2013, and well below its peak of $1.41 trillion in fiscal year 2009. As a percentage of GDP, it was 2.8 percent in FY14, down from 4.1 percent in FY13 and the FY09 peak of 9.8 percent. That’s not to say it’s good: in the years after the dearly departed surplus ended in 2001, the deficit ranged from a low of 1.1 percent of GDP in FY07 right before the economic downturn, to a high of 3.5 percent in FY04. But clearly – in a budget sense – we’re on the right track.

But it is an open question whether we’ll stay on that track. While the mechanism of the budget caps agreed to by Congress and the President was flawed, it has provided meaningful fiscal discipline.  And despite the fact that discretionary spending is set to rise a little bit (not enough to offset inflation, but some), there is an effort afoot to discard the caps.  One reason we’ve been supportive of the budget caps despite the flaws in the system, is there are still so many wasteful or unnecessary spending provisions and tax breaks that can be eliminated to ease the caps. Jettisoning budget discipline as the economy improves) and hiring picks up would be the wrong decision.

But in considering our nation’s “state” there are big things that need to be addressed in the near and long term. Looking beyond the fiscal year 2014 Homeland Security spending bill that expires at the end of next month (while no doubt it will be extended or finished, it is mired in the immigration debate), the transportation bill that authorizes spending highway trust fund revenues on infrastructure projects expires in the spring. For years, lawmakers have been using money from general tax revenues and fake “pay-fors” to resolve the fact that their spending eyes are much bigger than their stomach for revenue.  Across the political spectrum, politicians and people see a need to invest in infrastructure. We need a serious effort to figure out how to pay for those investments.

Baby boomers are retiring. Vietnam veterans are getting up there in years. These are already putting strains on our entitlement and veterans assistance programs. The VA budget is growing faster than any other area of the budget (and it’s not just the Iraq and Afghanistan veterans, it’s also the previous aging veteran generation). While health care cost increases have slowed, that is still an enormous pressure, and Social Security will feel the pinch soon as well.

Next month a commission is supposed to recommend reforms to military compensation programs. This has become a third rail in politics. While TRICARE (active and retired) health care premiums have barely budged in more than a decade, costs have soared making individual responsibility for the coverage far out of step with the private sector. Note that we are not talking about reducing or eliminating the program, only ensuring that the beneficiaries keep faith with taxpayers that are picking up a greater and greater share of the health care tab as prices rise. Also, the 20-year or nothing retirement system has left too many men and women who risk their lives for years high and dry when it comes to retirement savings (only 13 percent of enlisted members reach the 20-year retirement mark).

The cost of not facing the country’s challenges is significant. The Congressional Budget Office estimates that, at its current pace, the net interest (the debt service payments the U.S owes on publicly held debt) will be $746 billion by 2023. That dwarfs even the Pentagon’s budget. While it is really clear that despite headwinds and bumps in the road ahead, the economy is improving, there is much more to be done to not only ensure that the state of the union is strong, but also that it continues to be strong.

via The Fiscal State of the Union | Taxpayers for Common Sense.