Committee for a Responsible Federal Budget

MY VIEW: Barry Anderson

Feb 25, 2011 | Budgets & Projections

As the impacts of the economic recession continue to fade, serious debate on the direction of fiscal policy is finally beginning with very different views on the timing and size of near-term budget cuts leading the way.  The President and his supporters are generally arguing to postpone cuts--or at least minimize them--until the economy picks up more steam.  Congressional Republicans argue that we already have far too much debt and that spending should be cut now with even more cuts in the years ahead.  Some have even suggested that the precarious nature of State and local government finances argues for new Federal assistance for them. Whatever the merits of these positions, shouldn’t we at least be informed of how much we have already spent to mitigate the impacts of the recession and most importantly how much remains to be spent?

To address these and other questions concerning potential fiscal policies, an accurate estimate of the size and timing of all of the Government’s efforts to mitigate the impacts of the recession should be available. There are four different kinds of efforts: stimulus bills passed explicitly as a result the recession; so-called automatic stabilizers, programs that without the need for new legislation automatically increase spending or cut taxes for those impacted by the recession; increases in discretionary spending that occur, at least in part, in response to the recession; and, financial stabilization efforts, actions taken by the Federal Government in support of the housing and financial markets. However, because of the complexity, timing, and form of the various Government actions, frequently only estimates of the size of the big 2009 and 2010 stimulus bills have been cited.

A recent estimate, using data from the Congressional Budget Office (CBO), put the size of the Government responses to the recession, other than the financial stabilization programs, to be about $3.4 trillion over the 2008-2012 period. (See "How Big were the Government Responses to the Recession?", published by the Hoover Institution’s Working Group on Economic Policy, by clicking here) Of this total, $1.35 trillion, or 40%, was for spending programs; the remainder for tax cuts. Importantly, more than half ($1.75 trillion or 52%) of these responses have not yet taken place but will impact the economy in fiscal years 2011 and 2012.

In addition to these sums, the Government committed more than $10 trillion to assist the housing and financial sectors, although the Government’s actual spending was much less than its commitments, and its net spending after loan repayments and the sales of equity shares that it had acquired will be even less. However, the wide variety of financial stabilization efforts can’t be added to the other spending and tax cut efforts as commitments (especially net commitments over time) are measured in a different manner than spending or tax cuts, and the size of some commitments were unlimited or unknown. Nevertheless, it is appropriate to describe the size of the Federal Government’s responses to the economic recession as including both the more than $3 trillion in spending and tax cuts and the commitments for more than $10 trillion in various financial stabilization programs.

Although all of these efforts could be classified as attempts to help mitigate the impacts of the recession, it would not be accurate to describe all of them as providing an economic stimulus. Indeed, the underlying rationale for many of the programs, even for some programs included in the stimulus bills, may have been to address other policy purposes, including: an opportunity to achieve broad social policy objectives unrelated to the recession; or an opportunity to achieve narrower policy objectives such as delivering benefits to specific classes of recipients or to specific geographic areas.  Although the CBO data does not generally identify underlying program rationale, the fact that at least some of the $1.75 trillion yet to be spent was not intended to provide an economic stimulus should also be taken into account in the debate over the size and timing of budget cuts. 

Barry Anderson is the former head of the Budgeting and Public Expenditures Division in the Organization for Economic Cooperation and Development (OECD) in Paris. Prior to joining OECD, Mr. Anderson was a budget advisor at the International Monetary Fund. Before joining the IMF, Mr. Anderson served in various positions dealing with federal budgeting in the United States Federal Government, most recently as the deputy director and then the acting director of the Congressional Budget Office. He has also been a member of the Federal Accounting Standards Advisory Board, and has taught courses on the U.S. budget process for GeorgeWashingtonUniversity and the Office of Personnel Management.

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.