WASHINGTON (MNI) – The following is a summary provided by the U.S.
Congressional Budget Office of Director Doug Elmendorff’s testimony
before the Joint Select Committee on Deficit Reduction Wednesday:

Discretionary outlaysthe part of federal spending that lawmakers
generally control through annual appropriation actstotaled about $1.35
trillion in 2011, or close to 40 percent of federal outlays. Slightly
more than half of that spending was for defense. The remainder went for
a wide variety of government programs and activities, with the largest
amounts spent for education, training, employment, and social services;
transportation; income security (mostly housing and nutrition
assistance); veterans’ benefits (primarily for health care);
health-related research and public health; international affairs; and
the administration of justice.

Discretionary outlays declined from about 10 percent of gross
domestic product (GDP) during much of the 1970s and 1980s to 6.2 percent
in 1999, mostly because defense spending, as a share of GDP, declined
over that period. Since then, discretionary outlays have risen relative
to the size of the economy, totaling about 9 percent of GDP in 2010 and
2011, in part because of military operations in Afghanistan and Iraq and
in part because of the discretionary funding provided by the American
Recovery and Reinvestment Act of 2009 (ARRA, Public Law 111-5). The 2010
and 2011 figures were the highest in about 20 years.

However, lawmakers have already taken significant steps to
constrain discretionary spending. Budget authoritythe authority to
incur financial obligationsprovided for defense activities in 2011 was
$3 billion (or less than 1 percent) below the amount provided the year
before; budget authority for discretionary nondefense programs (plus the
obligation limitations that govern spending for certain discretionary
transportation programs whose budget authority is not classified as
discretionary) was $39 billion (or 7 percent) below the amount provided
in 2010. As a result, total discretionary funding (that is, budget
authority plus obligation limitations) in 2011 was the lowest, as a
share of GDP, since 2002. Nevertheless, discretionary outlays in 2011
were close to the amounts spent in 2010, the Congressional Budget Office
(CBO) estimates, because of spending from funds appropriated in previous
years.

In addition, the Budget Control Act of 2011 (P.L. 112-25)
instituted statutory caps on discretionary appropriations for each of
the fiscal years 2012 through 2021. (By contrast, in most recent years
the total amount of annual appropriationsexcept for those designated as
emergency requirementswas governed by annual funding allocations agreed
to by the House of Representatives and the Senate but not enacted into
law.) The new caps do not constrain spending for the war in Afghanistan
or similar activities or for designated emergencies; however, if
implemented as written in the act, the caps would keep other
appropriations for 2012 and 2013 below the amounts provided for 2011 and
would limit the growth of those appropriations to about 2 percent a year
from 2014 to 2021. Compared with allowing nonwar discretionary
appropriations to grow at the rate of inflation, the capped amount of
discretionary budget authority would be about 4 percent lower in 2012
and 9 percent lower in 2021; as a result, budget deficits would be
reduced by $778 billion between 2012 and 2021, CBO estimates (not
counting the savings in interest payments resulting from lower outlays).

The future path of discretionary spending may be affected by the
actions of the Joint Select Committee on Deficit Reduction. Under
provisions of the Budget Control Act, legislation originating from this
Committee could directly alter the path of such spending, for example,
by changing the caps. Alternatively, if legislation originating from
this Committee and estimated to produce at least $1.2 trillion in
deficit reduction (including an allowance for interest savings) is not
enacted by January 15, 2012, automatic procedures to cut spending will
take effect in January 2013. CBO expects that 71 percent of the net
savings from the automatic procedures would come from reductions in
discretionary appropriations. If those procedures were triggered,
appropriations for defense, excluding funding for overseas contingency
operations (war-related funding), would be $110 billionor 16
percentlower by 2021 than they would be if they kept up with inflation;
funding for nondefense activities would be $99 billionor 15
percentlower.

Moreover, for some programs, a comparison with inflation-adjusted
funding understates the magnitude of reductions relative to the cost of
maintaining current policies or plans. For example, implementing the
Administration’s multiyear defense plans would require nonwar defense
spending to grow faster than the rate of inflation, and the demands for
veterans’ health care and Pell grants for higher education have also
been growing more quickly than inflation. In contrast, the funding
required for war-related activitiesin Afghanistan and other
countrieswill be smaller than the amounts provided in recent years if
the number of deployed troops is smaller and the pace of operations is
diminished.

Regardless of the constraints placed on discretionary spending
through the Budget Control Act or other actions taken by this Congress,
subsequent Congresses will make the final decisions about future
discretionary appropriations. Those decisions might or might not satisfy
the constraints put in place by this Congress. Nevertheless, CBO assumes
in its baseline projections that discretionary funding subject to the
caps in the coming years will be equal to the amounts currently
specified in law for those caps. As a result, legislation that reduced
the funds available for a particular discretionary activity or achieved
savings in undertaking a particular activity would only reduce projected
total appropriations if the legislation also lowered the caps; without a
reduction in the caps, funding for other discretionary activities would
probably fill the gap created by the specific reduction or savings.

** Market News International Washington Bureau: 202-371-2121 **

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