Does the U.S. have an opportunity-oriented federal budget?

Posted August 18

With various social, economic and political problems swirling around us, details of long-term federal budgets are probably not where many people are focused. In corporate budgeting, many times scenarios look like the following: as a company grows, revenue increases at a faster rate than expenditures. The result is greater profit. However, the U.S. federal government budget scenario we face today has a built-in growth in spending that almost guarantees that expenditures are larger than revenue, yielding growth of the cumulative deficit.

In January 2009, every federal dollar to be raised that year had been spent on programs enacted by past Congresses, leaving lawmakers without flexibility to face new challenges. Each Congress since has been just as stuck. Mandatory spending programs, including Social Security, Medicare and Medicaid benefits, overwhelm the budget. Unprecedented statutory decisions made by politicians over the years have also resulted in tax levels that do not pay for the mandated programs.

Eugene Steuerle, of the Urban Institute, calls this historical shift a “decline in fiscal freedom.” He also points to the erosion in ability of current voters and policymakers to influence how tax dollars are spent. He cites related economic implications and issues of long-term budget sustainability, less investment and outmoded tax and social welfare structures.

Because of declining fiscal freedom, Steuerle sees a situation where low-income “…programs aimed directly at promoting opportunity — that is, programs that encourage and enable households to invest in human and social capital, increase their earnings and build wealth over time — have taken a back seat to other objectives.” Republicans and Democrats alike see a connection between the “lack of budgetary focus on opportunity and greater inequality in private earnings and wealth.” In particular, they see that programs such as tax subsidies for private housing (such as the interest deduction) and retirement benefits (such as IRAs), are often not taken advantage of by low-income and disadvantaged groups. But they take up an inordinate amount of the tax advantages and benefits available to Americans.

Steuerle rightly feels that we have a responsibility to bequeath the right of fiscal liberty to the next generations. Greater fiscal freedom will arrive, though, only if we have an informed and educated citizenry. As stated in Steuerle’s report, an agenda of true opportunity will be distinguished by “its emphasis on growth over time in earnings, wealth and human and social capital while including the disadvantaged. It is not a simple economic growth agenda. Nor is it a simple welfare agenda aimed at equalizing current consumption or income.”

Creating an opportunity budget first means reversing the current trend in order to promote inclusive education, job subsidies and wealth-building strategies. Says Steuerle, “It means relatively … providing more supports for investment when young, not just higher levels of consumption when older.” Another practical measure is to convert opportunity programs into “opportunity for all” programs. Steuerle makes it clear that annual tax subsidies for housing and retirement can be simultaneously “more inclusive and more successful at building up homeownership and retirement saving wealth” as the laws governing these realms can be reinterpreted to be inclusive.

In addition and finally, reforming income maintenance and public goods programs to emphasize opportunity can also yield large payoffs. For some reason, we seem to have forgotten that the best anti-poverty program is a good job. As a national election looms, it would be nice for all of us to remember that this is important.

John Hoffmire is director of the Impact Bond Fund at Saïd Business School at Oxford University and directs the Center on Business and Poverty at the Wisconsin School of Business at UW-Madison. Kristy Yoo did the research for this article.

John Hoffmire teaches at Sa√Źd Business School at the University of Oxford.


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