Executive Policymaking. Andrew Rudalevige
was reinforced, with OMB focusing less on the specifics of program budgets and emphasizing budget aggregates, particularly under President Bush.46 Presidents Clinton and Bush both made cuts in OMB staff, despite its responsibility for the National Performance Review under Clinton and the Program Assessment Rating Tool (PART) under Bush.
At the end of the Bush administration, failures in financial regulation, reckless borrowing and lending by financial institutions, and the subprime loan crisis led to the beginning of the Great Recession in 2008–2009. The Bush administration responded with a range of programs, including the Troubled Assets Relief Program (TARP, for which the Treasury was eventually reimbursed). When Barack Obama came to the presidency in 2009, he convinced Congress to pass the American Recovery and Reinvestment Act (ARRA), a huge stimulus program of tax cuts and spending increases, amounting to $787 billion. The combination of the stimulus package and decreased tax revenue resulted in record-high peacetime deficits of more than $1 trillion from 2009 to 2012 (7 to 10 percent of GDP).47
TABLE 2-3. The “Unraveling” of Budget Balance
Budget Deficits and Debt as % GDP
| Year | Deficit as % GDP | Debt as % GDP |
|---|---|---|
| 2002 | 1.5 | 32.6 |
| 2003 | 3.3 | 34.5 |
| 2004 | 3.4 | 35.5 |
| 2005 | 2.5 | 35.6 |
| 2006 | 1.8 | 35.3 |
| 2007 | 1.1 | 35.2 |
Source: Congressional Budget Office, The Budget and Economic Outlook: 2018–2028 (April 2018), Appendix E-1, p. 145.
Huge deficits increased the national debt from 35.2 percent of GDP in 2007 to 70.4 percent in 2012. The United States was lucky that interest rates on U.S. borrowing did not increase significantly, because fiscal uncertainty in the rest of the world led investors to see the United States as a safe haven despite its economic and budgetary problems. The Great Recession reduced federal revenues in FY2009 and FY2010 to 14.6 percent of GDP, as opposed to expenditures of 24.4 percent of GDP.48
To address the huge deficits created by the decrease in revenue and stimulus spending to recover from the Great Recession, in 2010 President Obama appointed the National Commission on Fiscal Responsibility and Reform (Simpson-Bowles) to propose a bipartisan compromise deficit reduction package.49 The committee wrote a report, but too few committee members supported the final proposal of the cochairs, and it was rejected by Congress.
After Simpson-Bowles failed, President Obama made a proposal to House Speaker John Boehner for a $4 trillion deficit-reducing “Grand Bargain,” which included cuts in Social Security and Medicare in exchange for tax increases. Obama would probably have been able to win support from congressional Democrats, but the Freedom Caucus of Republican conservatives in the House would not agree to the tax increases, and Boehner abandoned negotiations (table 2-4).
After the failure of Simpson-Bowles and the attempted Grand Bargain, Congress passed the Budget Control Act of 2011 (BCA), which raised the debt ceiling (after a downgrade of U.S. bonds by Standard and Poor from AAA to AA+) and created the Joint Select Committee on Deficit Reduction (Super Committee) to propose a deficit reduction plan.
TABLE 2-4. Record Deficits after the Great Recession
Budget Deficits and Debt as % GDP
| Year | Deficit as % GDP | Debt as % GDP |
|---|---|---|
| 2008 | 3.1 | 39.3 |
| 2009 | 9.8 | 52.3 |
| 2010 | 8.7 | 60.9 |
| 2011 | 8.5 | 65.9 |
| 2012 | 6.8 | 70.4 |
Source: Congressional Budget Office, The Budget and Economic Outlook: 2018–2028 (April 2018), Appendix E-1, p. 145.
As an incentive for the bipartisan committee to compromise, the law set up an unacceptable outcome if they failed to come to an agreement. The law provided that OMB had to reduce (sequester) funds annually across the board from discretionary domestic and defense spending. This approach to trimming budgets was considered so extreme in size and so irrational—for example, not choosing priorities—that it would force both sides to make compromises. When the two parties failed to agree, OMB ordered the budget cuts, causing disruptions in executive branch programs and agencies. The threat of sequester, which was designed to be a poison pill, became a reality that pleased no one. In subsequent years, from 2014 to 2019, the impact of sequestration was lessened, though not eliminated, by a series of compromises, totaling $439 billion, that lifted discretionary spending ceilings, somewhat reducing the disruption to programs caused by sequestration.50
The disruption to defense spending was considerably reduced by the exclusion of funds for Overseas Contingency Operations (OCO) from the caps on discretionary spending. The use of this type of supplemental appropriations for defense funding had been a common practice, amounting to about 2 percent of defense appropriations annually. But after 9/11, funding for the wars in Iraq and Afghanistan was paid through OCO appropriations, which amounted to 20 percent of Department of Defense (DOD) funding from 2001 to 2018, peaking at 28 percent of DOD budgets in 2007 and 2008. Because OCO funds were exempted from discretionary spending caps, funding for more routine operations could be protected by including them in OCO supplementals, and between 2006 and 2019 more than $50 billion in routine operations annually were included in OCO legislation.51 From 2001 to 2020, total appropriations for OCO funding approached $2 trillion.52
Initial Trump Budgets
After the Budget Control Act of 2011, deficits declined until 2015, after which they began to climb again. During his campaign for the presidency, Donald Trump proclaimed, “We will balance the budget without making cuts in Social Security and Medicare.”53 But his actions belied his words, and even with a strong economy and low unemployment, he advocated a large, pro-cyclical tax cut.
The Republican Tax Cuts and Jobs Act (TCJA) of 2017 (PL 115-97) provided a short-run stimulus but led to significantly reduced projected federal revenues over the longer term.54 When the huge projected deficits over ten years flowing from the tax cut were pointed out to Trump, he responded, “Yeah, but I won’t be here.”55 Despite optimistic assumptions about economic growth and congressional decisions, President Trump’s FY2020 budget request projected continued deficits of more than $1 trillion (table