As a result, the nation continues to see its overall debt grow at an alarming rate, to the point where interest expense payments on it are the fastest-growing area of spending. Despite this, the President and Congress remained as focused as ever on enacting still more tax cuts, almost all of which strongly favor the wealthy, provide only marginal broader economic benefits, and dig the country into an ever-deeper deficit hole.
There were a few bright spots, however: Congress continued to ignore the Program Assessment Rating Tool and enacted a bill to make federal spending more accessible and transparent to the public. Two dangerous budget process proposals were defeated, and OMB Watch launched a new searchable website containing easily accessible information on federal spending. What's more, there is hope for more advances and victories for responsible and equitable fiscal policy in 2007. But before that, we review all that was in 2006 federal fiscal policy.
Budget/Appropriations
A Budget Full of Cuts and Congressional Inaction
In February, the President proposed a FY2007 federal budget of $2.77 trillion, replete with funding reductions for important programs. The budget estimated a deficit of $354 billion by setting a discretionary spending cap of $873 billion and making deep cuts in student loan programs, the Community Development Block Grant, veterans' health funding, and other health care cuts. Months of congressional negotiations followed, but only two appropriations bills passed, and the government is now operating under a long-term continuing resolution.
Congress Increased Debt Ceiling Again With Hardly a Mention
An unexpected surge in tax revenues, reflecting better-than-expected short-term corporate profitability, held the official FY2006 budget deficit to $248 billion. But that deficit figure doesn't tell the entire story because Social Security and Medicare trust funds, which are in temporary surplus, are being used to pay other bills. Count those liabilities, as Congress should, and the debt went up by almost $550 billion in 2006.
Congress took action to increase the country's debt limit for the fourth time in the last five years to almost $9 trillion. The Senate passed the increase 52-48, while the House skipped a debate (and vote) entirely by increasing the limit through a special rule that sidestepped a recorded vote.
Budget Process
FY2006 Reconciliation Bill Finally Pushed Through Congress
In its budget resolution in 2005, Congress called for a bill that would allow for special fast-track protections for $34 billion in cuts to mandatory programs and more than twice that amount in additional tax cuts, primarily for the wealthy. In the end, it took well over a year for Congress to pass this bill that, contrary to the original purpose of the reconciliation process, actually increased the deficit. Students saving for college, low-income Medicaid beneficiaries, and Americans working abroad were a few of the groups of people worse off under the law.
PAYGO Fails By the Narrowest Margin
Congress again considered restoring true Pay-As-You-Go (PAYGO) rules that would force any increases in mandatory spending or tax cuts to be deficit neutral through the full budget window. The Senate voted on reinstatement of true PAYGO rules during the FY2007 budget resolution debate, and it failed in a 50-50 vote. However, given the change in control of Congress next year, and statements from the Democratic leadership, prospects for PAYGO are now considerably brighter in 2007.
Dangerous Process Changes Fail to be Enacted
Two dangerous budget process proposals underwent serious consideration throughout the year, but in the end, were defeated in Congress. President's Bush proposal to reenact the line-item veto and conservative attempts to create sunset commissions were both framed as fiscally responsible reforms by their supporters, but would have turned out to be anything but. The defeat of these proposals preserved an important level of checks and balances between the executive and legislative branches of government on budgetary issues.
Continuing Resolution Locks in Funding Shortfalls
The unique configuration of the continuing resolution will hold funding for almost half of FY2007 at low levels that are likely to have dire consequences for programs. The Social Security Administration has mentioned the possibility of furloughing every employee. Without adjustments, funding will not keep pace with demand for low-income housing vouchers. School breakfast and lunch programs would face a $1 billion shortfall, cutting off 1.2 million participants, and the Veterans Health Administration would have to absorb the $3 billion increase to maintain hold-harmless funding levels elsewhere.
Dishonest Budgeting and Deceptive Analysis
The Bush administration's FY2007 budget promoted dishonest and manipulative budget practices that have decreased the transparency of the federal budget and distorted the debate about important long-term policies. Such practices include skewing budget analysis in order to reinforce and support political goals, omitting certain costs of proposed policies and actual war costs from budget projections, and assuming the extension of the president's tax cuts. In doing so, the White House has misled Congress and the American people about the fiscal health of our country and our capacity to meet current and future financial obligations.
Wealth and Income Inequality
Congress Fails to Increase Minimum Wage For Ninth Straight Year
Despite numerous efforts in the Senate, Congress closed out its ninth consecutive year without passing an increase to the federal minimum wage. Many states, tired of waiting for leadership from the federal government, have instituted their own minimum wage increases, including six states that passed ballot initiatives in the midterm elections.
Economy Improves, Fails to Benefit Most Americans
The gap between the rich and the middle class widened again this year. Key economic indicators showed that income for high earners vastly outpaced everyone else. Expanding wages showed up in unexpected bumps in federal tax receipts that were driven by high-earners, corporate profits, and a banner year on Wall Street. But average workers' wages were held stagnant as the median wage failed to keep up with productivity gains. Average pay for corporate chief executive officers is now 369 times that of average workers (up from 36 times in 1976).
Federal Tax Policy
Efforts to Repeal, Slash Estate Tax Fail in the Senate
For the fourth time in five years, the House of Representatives passed a bill to permanently repeal the estate tax. The Senate, however, held fast against repeal as well as a host of "compromise" measure to slash the estate tax by over half a trillion dollars over ten years, rejecting both stand-alone repeal and the compromise.
Package of "Extenders" Finally Passes Congress
The popular set of tax breaks that expired at the beginning of 2006, known as the Extenders — featuring a varied package of middle class and business tax credits — proved too politically appetizing to pass on a stand-alone basis. Senate Majority Leader Bill Frist (R-TN) pulled the Extenders off of the tax reconciliation and pension bills, then affixed them to the poison pill of the estate tax. Eventually, the extenders package passed the full Senate during the lame-duck session and will become law before the end of the year.
Accountability and Transparency in Federal Spending
Federal Funding Accountability and Transparency Act (S. 2590)
In the most significant spending disclosure efforts in several years, OMB Watch worked with Sens. Tom Coburn (R-OK) and Barack Obama (D-IL) to pass the Federal Funding Accountability and Transparency Act. The Act mandates increased government accountability and public access to federal spending data, through a free, public, searchable website of all federal spending, including government contracts and grants that will be available to the public by January 1, 2008.
FedSpending.org
One of the major OMB Watch initiatives of 2006 was the launch of a new website - FedSpending.org. A massive undertaking, the site combines data from the Federal Procurement Data System on federal contracts and the Federal Assistance Award Data System on federal assistance such as grants, loans, insurance, and direct subsidies like Social Security. FedSpending.org enables the public to exercise its right to know how the federal government spends our money so citizens are able to hold elected officials accountable for the national priorities Congress sets.
Earmark Reform
"Earmarks" — lines of funding legislation in appropriations bills members of Congress designate for specific projects in their districts — became a dirty word in Washington in early 2006, evoking visions of a $250 million "bridge to nowhere," questionable projects bearing the name of a congressional sponsor, Jack Abramoff, casinos, and a cash-for-favors culture. A sham to some, a harbinger of progress to others, the GOP-led House adopted an internal rule that required sponsors of earmarks to be identified by name in the given spending measure. The rule stayed on the House books until the adjournment of the 109th Congress, but was largely ignored, disappointing many reformers.
Government Performance and Management
PART Fails to Provide Unbiased Program Assessments
The Program Assessment Rating Tool (PART) continued to fail as a tool to provide an unbiased, useful mechanism to grade programs across the federal government. Instead, the program was seen by many as a thin veneer of accountability and good government, thrown up to deflect attention and criticism from controversial, politically biased judgments. OMB Watch continued our work monitoring the impact of PART and educating Congress and the public about its implementation, and Congress continued to exercise good judgment by largely ignoring the results of the PART.
Problems with Management and Oversight At Federal Agencies
2006 was filled with reports of contractors that engaged in illegal dealings with government officials, questionable management and policy decisions within government agencies, and a general lack of accountability throughout the public and private sectors. The release of FedSpending.org this fall has helped to bring increased attention to the lack of oversight of government contracting and management decisions, but much more is still needed to help enact policies to improve government performance and effectiveness while promoting and protecting the common good.