Budget Watchdog AF considers President Biden’s $7.3 Trillion Fiscal Year 2025 Budget Request. A budget that proposes a 4.5% cut in discretionary spending from the previous fiscal year and a reduction in budget deficits by nearly $3 trillion over the next decade. But how rosy are the economic growth projections upon which this budget request is built?  And what gimmicks are baked in there to create illusions in the out years? TCS President Steve Ellis is joined by TCS Director of Policy and Research Josh Sewell and Policy Analyst Gabe Murphy.

Transcript

Announcer:

Welcome to Budget Watchdog All Federal, the podcast dedicated to making sense of the budget spending and tax issues facing the nation. Cut through the partisan rhetoric and talking points for the facts about what’s being talked about, bandied about and pushed to Washington, brought to you by taxpayers for common sense. And now the host of Budget Watchdog AF TCS President Steve Ellis.

Steve Ellis:

Welcome to All American Taxpayers Seeking Common Sense. You’ve made it to the right place for nearly 30 years. TCS that’s taxpayers for common sense, has served as an independent non-partisan budget watchdog group based in Washington DC We believe in fiscal policy for America that is based on facts. We believe in transparency and accountability because no matter where you are in the political spectrum, no one wants to see their tax dollars wasted. Having said all that, dear listeners, today, we’re in a position to wonder whether policymakers on either end of Pennsylvania Avenue actually see a clear picture of our nation’s fiscal health. Is this economic reality or illusion? Let’s consider President Biden’s $7.3 trillion fiscal year 2025 budget request. The budget proposes a 4.5% cut in discretionary spending from the previous fiscal year and a reduction in budget deficits by nearly $3 trillion over the next decade. But just how rosy are the economic growth projections upon which this budget request is built and what gimmicks are baked in here to create illusions in the out years? Joining me now to answer these questions and detail the specific tough choices that need to be made in Congress are TCS Director of Policy and Research. Josh Sewell and policy analyst Gabe Murphy. Welcome back to the podcast gentlemen. Hey

Josh Sewell:

Steve, glad to be here. Thanks

Steve Ellis:

For having me. Alright, let’s rock and roll. Josh, can you get us started here please? Budget Watchdog Faithful. Know that the FY 24 budget resolution to go with the President’s FY 24 budget request never got passed. So what’s happening with this? Was it the overall budget cap for fiscal year 2025 set last summer as part of the Fiscal Responsibility Act?

Josh Sewell:

Yeah, so things are a little out of order.

So right now, as a reminder, you have budget requests for budget resolutions. The resolution is what Congress passes, what actually matters the most as far as setting the money that’s going to be spent and that’s what governs Congress. So right now we do have the top line numbers for fiscal year 2024 and 2025 agreed to back in June of last year. Yet here we are, at least as of this taping, still fighting about 2024 spending halfway through fiscal year 2024. So things are a little, we’ll just say a little out of order.

Steve Ellis:

So just a little digression here, Josh. So what is the status of F fo Y 20 24, 6 months into the fiscal year?

Josh Sewell:

Right, so half the bills, six of the 12 annual spending bills were adopted earlier this month and that covers about 30% of the annual spending in the discretionary side of the budget. The other six bills, including the big one, defense and Homeland Security, a couple of big ones, they are, well I didn’t check in the last 20 minutes, but any minute now they should be coming out. We are, I think 36 hours away from a shutdown, maybe a little more when we’re taping this. And so supposedly there’s an agreement, they’re writing the final text for these bills and we should be done with doing the bills for fiscal year 2024 in the next couple of days. I’ll believe it when I see it. We keep waiting. Yeah.

Steve Ellis:

Well, and I guess the house will move on this tomorrow so far less than 72 hours since these bills have emerged and then the Senate will make its way and maybe by Monday it sounds, which does seem to me like since the 22nd is when the CR runs out that there will be a weekend shutdown. Is that what the tea leaves are reading?

Josh Sewell:

Yeah, it does look that way. So there will be a partial government shutdown again, because six of the bills funding, a lot of the agencies are already adopted. So even if they don’t get this done super quick and there is a shutdown over the weekend, you may not see a lot of effects for many folks because National Park Service, one of the big things when shutdowns occur is they tend to shut down the parks because you can’t run it if you can’t pay the folks who are employees that was in the other bill that was already passed. So they won’t be putting up barriers around the national monument, or excuse me, the Washington Monument and carting people off from coming to the National parks. So it will be a shutdown it looks like, but whether you notice it now some folks who work for the government will notice it, but it’s the weekend. So the big 7 trillion ship will keep going even though it’s technically shut down

Steve Ellis:

And your projection from six months ago that there was a 99.9% chance of a shutdown will actually finally become true. Alright, podcast listeners, bunch of watchdog faithful, I promise no bait and switch. We’re going to turn right back to the fiscal 2025 budget request. So sticking with you Josh, what caught our eye? What are a few things, some nuggets that caught our eye in this budget request?

Josh Sewell:

Well, the budget does roll on, and so even though we are two months past, when you normally start this budget process on February 1st or so, the first week of February is when the request is supposed to come out. Well, we finally have it, and I did say it’s about a $7 trillion in spending is what we anticipate in 2025. Much of that is mandatory, but on the discretionary side is where the president really gets to say what are his priorities and what’s in there? And you just got to start any discussion about budgets is that budget requests from the president, they’re aspirational. They’re not necessarily realistic. And so it’s the president getting to put his mark on what he wants and Congress is the one who’s going to have to come back and actually do it. And so you can see some really interesting things in a budget. There’s definitely some very rosy economic assumptions. This may come as no surprise, but I’ve never seen a budget that projects or predicts a recession and this one doesn’t either. I don’t know if you’ve ever seen one that said, yeah, we could anticipate economic growth going down at some point.

Steve Ellis:

That would be quite a downer.

Josh Sewell:

And so it’s important when you’re looking at these to say no budget ever predicted the great recession, no budget ever predicted COVID-19 and the response to that. And so you got to take ’em with a grain of salt,

Steve Ellis:

Right? I mean, they could hedge their bets a little bit more rather than having the rosy economic projections that they all seem to have in this sort of magic pixie dust that this budget is going to unleash the America’s great economic potential.

Josh Sewell:

And I think this isn’t a knock on President Biden, every single president, every single administration does a budget in a similar way. But I think the one thing that does annoy me perhaps the most, there’s a lot of things that annoy me as you know, but may annoy me the most, is when a budget assumes things that we absolutely know won’t happen.

Steve Ellis:

Right? Right. Well, they can say whatever they want. Okay, Gabe, let me bring you here on this. You notice some positive changes and maybe they won’t come to pass, but you notice some defense cuts actually.

Gabe Murphy:

Yeah, absolutely. And I was pleasantly surprised to see that in there, although we did get a little preview of it a little before the budget came out. But the main news for me at least is that the F 35 got a cut in this budget request. The F 35 is the most expensive weapon system ever built, and this year’s budget requests cuts 15 of F 30 fives from what was planned in the FY 24 request for this year. So that’s going to save taxpayers over half a billion dollars and probably a lot more in terms of long-term sustainment costs.

Steve Ellis:

So Gabe, using your crystal ball, what do you think may have prompted this cut?

Gabe Murphy:

Well, I don’t think I need a crystal ball for that one. I mean, this is one of the most well-deserved cuts I’ve ever seen. It’s like I said, the most expensive weapon system ever built, but more importantly, it’s mission capable rate. That’s the percentage of time that it can fly and perform at least one of its missions. It’s just 55% that’s abysmal. And there are several factors behind that. A big one is the fact that it was concurrently developed and produced, meaning they basically started building these planes before they finished designing them. And that’s led to a lot of maintenance complications and costs and increasing the time that it takes to get these planes up and running. And that means that they’re not always available to fly. So by that metric, it really hasn’t been a very effective program so far. And it is been plagued with a variety of problems. But one of the most stunning illustrations of that was when one of them went missing over the skies of South Carolina. This was late last year and the pilot ejected and the plane was on autopilot, so it just kept on flying. And I guess they actually put out a request to folks like, Hey, have you seen this missing plane of ours? And I think after that they probably figured why not lose a few more of ’em in the budget?

Steve Ellis:

Yeah, that’s a hell of a lawn ornament in somebody’s yard. So Gabe, any other cuts that you noticed in the Pentagon budget? I mean it’s massive, but we can look for something.

Gabe Murphy:

Yeah, there were a couple. So Space Force took a small cut, about 2%, but important context there is that over the prior three fiscal years it doubled in size. So that’s something that isn’t totally unexpected with a relatively new military service branch. But some of the early estimates for Space Force suggested it would cost like oh, between five and 10 billion. This year’s request is almost 30 billion. So we’ve seen that balloon and I would be shocked if this is the plateau I would expect in future years that aren’t limited by the fiscal responsibility Act for it to keep going up.

Steve Ellis:

To be clear that because the Space Force, as you point out, is relatively young, that was a projection back in 2019 when it was first created in the Trump administration to try to poo poo anybody saying standing up a new military service, even if it’s housed within the Air Force like the Marine Corps is housed within the Navy, it’s going to cost a lot of money. Yeah,

Gabe Murphy:

I think it’s good to see that there’s some restraint this year, at least on that budget. Another place that took a cut was the Navy’s ship building account as far as attack submarines specifically, they’re requesting one less than they had previously planned. Now part of that may be because of the FRA, but part of it I think is because the manufacturers weren’t actually producing two submarines a year as they had been requesting and plants. So part of that savings from this cut is now going to go towards supporting the submarine industrial base, which seems like a reasonable exchange if you ask me.

Steve Ellis:

Alright, thanks Gabe. Josh, shifting back to you, one of the key proposals in the President’s FY 25 budget request is to implement a 25% minimum tax on the wealthiest 0.01% of Americans. Those with wealth exceeding a hundred million dollars. What would this address, what would be worth and what’s your prognosis?

Josh Sewell:

Well, this is one of a number of proposals that the president makes to reduce our deficits. So we’re running $1.6 trillion, 1.3 trillion depending on the year annual deficits. And the main reason is because we spend more than we take in revenue. And so this is an opportunity or suggestion by the president to raise a few hundred billion over 10 years to start to chip away at that annual massive deficit that we have. Again, this is one of those things where whether you like it or not, it’s not going to happen. We have Republicans controlling the house. We have a very narrow democratic majority in the Senate, and I can tell you right now with 99.9% certainty again that this is not going to make it into legislative vehicle this year because it’s just not how the Republicans are going to go. So this is where we talk about making assumptions that are not going to happen and that’s where budgets get kind of irritating. There are a few other tax issues where the president’s assuming things are going to happen in the tax space that it’s just not realistic to think that we’re going to increase in some major way the tax burden right now, we’re not going to undo the Trump tax cuts, which is what the budget also calls for some of those higher earners and corporations.

Steve Ellis:

Josh similarly, our analysts noticed that the president is proposing reeling in tax breaks for the oil and gas industry, and this is his fourth budget that he’s done, but it’s projected to generate 110 billion in revenue over the next 10 years by eliminating these tax breaks for these wealthy corporations that some of which have been on the books for more than a century. And so there are a whole bunch of areas where they’re pushing on this and we support it. We certainly have also called for this for well before there was a Biden administration. These are things where it’s going to be tough sledding in the Congress.

Josh Sewell:

Yeah, and like you said, it’s a good idea. I don’t necessarily think it’ll happen right now, but at least the budget shows the potential savings we could get from doing this.

Steve Ellis:

Right. So Josh, since you are Mr. Agriculture and though we’ve heard rumblings that a farm bill may be in the offing next month, it still seems like they can’t get that over the finish line, but there is some budget related items in the discretionary budget here related to USDA and conservation spending reaching basically it looks like historic levels at least in the request. So what’s going on here? Yeah,

Josh Sewell:

This is a continuance of what President Biden has done since he got into office in this space, which is to, as part of their focus on climate change and mitigating the effects of climate change, they’ve looked at increasing conservation program funding in the farm bill and they do some of that outside of the farm bill. But this is the president continuing to say that agriculture as an industry depends on exactly how you look at it. Between 10 and 15, maybe 20%, depends on how you calculate it. Of our greenhouse gases come from agriculture. And so you’re not going to be able to solve the issue of climate change without providing some incentives to get them to clean up their emissions. And so the president is saying, Hey, we want to continue this. We did a huge 27 billion injection into the farm bill programs through the IRA. And so the president’s budget says we need to keep those funds focused on climate change within agriculture and put in a little bit more.

Steve Ellis:

So Gabe, you talked about some of the parts of the budget, the Pentagon budget getting a cut like the F 35, but others got a boost. Tell us some about that.

Gabe Murphy:

Sure, Steve. Well, national security spending overall actually got a boost this year despite the FRA and so now it’s up to 895 billion or 921 billion when you actually include the mandatory spending. When you add the potential for more emergency supplementals, which is not unlikely, I think in the next year, although they still haven’t passed the most recent request, it’s noteworthy that we’re getting very close to spending more than a trillion dollars a year on national security. And that’s just as it’s traditionally accounted for. Some people prefer to include DHS and veterans’ expenses in that number, and they’re certainly both related, but by that measure it is been over a trillion for quite some time. That said more specifically in terms of other things that got a boost, we have nuclear weapon spending through the National Nuclear Security Administration or NNSA, which is a division of the Department of Energy.

They got a nearly 4% boost in funding for weapons activities relating to nuclear warheads. And part of that effort is about upgrading warheads for the new land-based ICBM, the sentinel they call it. And that’s something we shouldn’t be building in the first place. Land-based ICBMs may once have served a useful purpose, but at this point we have 14 Ohio class submarines that carry like 90 on average nuclear missiles on them, and they’re often equipped with multiple warheads. So just in terms of sheer nuclear explosive yield that we have in the rest of our arsenal, there’s really no need for these land-based ICBMs and they’re also the least survivable leg of the nuclear triad. So that said, they’re also on top of that costing taxpayers and arm and a leg. I mean the initial cost projections have ballooned so much that they actually triggered a breach of what’s called the NUN McCurdy Act. And that’s basically something that forces the Pentagon to go back and reevaluate its program when the cost of a program goes up by a certain amount. So I think the spending boost that we’re seeing in here is problematic and Congress should really scrutinize some of these decisions.

Steve Ellis:

Well, and it’s not just the subs, as you said, it’s a triad. And so you also have the bomber and actually they’re trying to modernize all three legs of the triad replacing the Ohio Class Sub with the Columbia Class Sub and replacing the bombers with the B 21 Raider. And then obviously what you mentioned, the Sentinel, which is it’s a huge cost overruns. And also, like you said, the least survivable leg of the triad. Josh, circling back to you, one of the big things that was in the Fiscal Responsibility Act was this savings, or not really savings, maybe initially savings of cutting 20 billion from the increased funding for the IRS that was in the IRA. And so in the Biden administration’s budget here, they agreed to cut the 20 billion in the Fiscal Responsibility Act. But what are they doing now? What are they saying now In the budget request?

Josh Sewell:

Yeah, in the budget request, they are saying we should restore the full funding that we had earlier to the IRS, which I don’t disagree with that, but not going to happen because the Republicans are actually saying we should cut even more from the IRS and why this matters is not just because we think it’s a good idea to adequately fund an IRS in order to serve taxpayers and also to really reduce that tax gap just to ensure that people who need to be paying are paying their fair share, not more, certainly not more than they need to pay. But also this is another one of those areas where if you assume that funding is restored, then you can assume the savings that’s going to come from that increased enforcement and that increased service. And it’s a lot of money. So it’s 400 in the budget, they project 498 billion in increased revenue from restoring and maintaining that level of spending at the IRS. And that’s a lot of money over 10 years. And so again, it’s like budgets. You got to make assumptions, but you got to be realistic. And so it does show that if we made these investments, this is what you could potentially gain from it, but it doesn’t mean we are going to get it.

Steve Ellis:

Yeah, and I guess you could also argue that it’s a good offense as well to be basically saying, we’re not going to, even though we agreed to this cut, we’re not going to take it lying down and we’re going to flag again that it’s a dumb cut that is actually going to increase the deficit rather than actually save money and have a deficient agency, the IRS, which is operating 60-year-old computer systems programmed in cobol, which I’m sure some of our budget watch Dog Faithful have no idea what that is, and that’s totally fine. But understand that these are incredibly important systems that we’re all giving our social security information, we’re all giving all of our social security numbers, we’re giving all of our financial information to it. And the idea that you’re not actually making it the most secure systems, the most up-to-date systems is just ludicrous. Alright, I’m moving this soapbox over. Okay. So Gabe, bringing you back in, we’re talking about a really big Pentagon budget, but not everything squeezes into that treasure chest of money that they’re asking for. So what are some of these off budget items that seems to be in this kind of gray quasi budget?

Gabe Murphy:

Yeah, that’s right, Steve. I mean, every year when the Pentagon decides its budget, they make some hard choices about priorities and how to spend money. And one of the ways that Congress likes to get around that is by requiring each branch of the military and each combatant command to submit lists that are known as unfunded priority lists or ups. And it’s kind of a misnomer because by definition almost, if you have something that didn’t make the cut for the budget, it’s not much of a priority. But that said, I mean this money keeps flowing in to the budget through Congress. And this year, for example, the United States, Indo-Pacific Command is asking for 11 billion. That was not included in the budget request, and that’s just one of many combatant commands, and it’s also up from 3.5 billion and it’s FY 24 UPL. So these requests are on the rise and they’re really problematic.

They undermine civilian control of the military because they basically do an end round around the Secretary of Defense who sort of has control over this budget, and then they also fuel wasteful spending. I mean, that’s just one example of this. We saw a request from the Air Force last year to accelerate funding for the E seven, a new sort of command and control hub for the sky basically, that was trying to speed up the timeline of production on this, but Boeing officials have said that the most they could speed for even with enough money is about six months out of a four year timeline. And Congress only added about a third of what the Air Force requested for us, but that was still $200 million. So there’s some question as to whether that money is going to lead to any meaningful speed up at all of production. Stepping back from that example though, I mean there are things in these ups that are important, but either they’re not priorities or they are priorities and they should have been included in the base budget in the first place where they have to be weighed against other needs and adequately justified. That’s just not what’s happening with these lists. Thankfully, some members of Congress have been trying to push for a repeal of this statutory requirement for ups, and that’s something we wholeheartedly support, but it has yet to come to fruition.

Steve Ellis:

Thank you, Gabe. And I can remember when they used to call ’em unfunded requirement lists, and then that was said that by the secretary at the time that, well, if there were requirements, they would be in this massive budget, so therefore they’re not requirements. And so then they became unfunded priorities, but still problematic nonetheless, as you point out. So Josh, you’ve been looking at budgets now for well over a decade, more like 15 years plus. What are some things that made you roll your eyes?

Josh Sewell:

The rosy assumptions we talked about are certainly up there, but there’s a common thing that occurs in one part of the budget for the Army Corps of Engineers, the Civil Works division. This is the part that builds flow protection projects and environmental restoration and flood control throughout the United States. The president’s budget assumes a cut. It would be about $1.7 billion less than what was spent last year is what he requests. But that’s not going to happen. You’re not going to cut the Corps of Engineers. Every single budget I’ve looked at, the president requests an amount of money that somewhere between 15 and 50% less than what the Corps got the year before in just normal spending, not even counting emergency spending. And the Congress says, thanks, no thanks, and puts what the President wanted, plus a ton more every single year. It’s just another way for a president to get a little bit of savings that you can move somewhere else in your budget.

Steve Ellis:

And to be clear, Josh, and also the court does navigation projects like Port Deepenings and locks and dams, but this two-step that goes on, I mean it’s democratic presidents and Republican presidents as democratic Congress’s response and Republican Congress’s response. I mean, this is something that is just part and parcel of the budget system, right?

Josh Sewell:

Yeah, exactly. And we have a chart on our website taxpayer.net that you can look over the last, I think it’s 10 years and the delta between what the president requests compared to what was actually gone is getting smaller in the last two years. But it’s still an unrealistic assumption. And of course, I couldn’t go a podcast without talking about the farm bill. And in this president’s budget, just like all of President Biden’s budgets, he has absolutely zero request to cut ag subsidies, which is not what happens in every other budget. I’ve looked at President Trump, president Obama, and even President Bush, if you go back that far. They always requested some amount of cuts to farm bill spending, especially in crop insurance, but even in Title I programs, those cuts didn’t happen when the farm bill came, but they at least laid out a plan and said, Hey, this is something where we don’t need to spend money. President Biden hasn’t even pretended to want those cuts. He’s just completely been silent and I expending cuts, and in fact, he’s asking for more money in some places. So that’s another place where I rolled my eyes,

Steve Ellis:

Budget Watchdog af Faithful Josh referred to it, the budget, our budget analysis, our rolling budget analysis is at our website@taxpayer.net, and there you’re going to find a lot more information about a bunch of areas that we haven’t even touched on here. It’s a big federal budget, so you’ve got things dealing with biofuel tax credits, you’ve got issues dealing with carbon capture and sequestration, getting support, and other areas of national security and budget spending and mining law reforms, all sorts of different things that you can find there to your heart’s content. Gabe Murphy and Josh Sewell, thanks for representing the TCS team on the pod today. Thanks, Steve. Happy to do it. Well, there you have it podcast listeners, it’s high time lawmakers. Develop a budget that is rooted in economic reality and not illusion. This is the frequency market on your dial, subscribe and share and know this taxpayers for common sense has your back America. We read the bills, monitor the earmarks, and highlight those wasteful programs that poorly spend our money and shift long-term risk to taxpayers. We’ll be back with a new episode soon. I hope you’ll meet us right here to learn more.