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Framework for Change: Creating a Diversity Strategic Plan within an Academic Library

Renna Tuten Redda, Alydia Simsb and Tara Weekesb

aAssistant Librarian, Clemson University Libraries, Clemson, SC, USA; bLibrary Manager, Clemson University Libraries, Clemson, SC, USA

ABSTRACT In December 2017, Clemson University’s administration via the Assistant Vice President for Strategic Diversity Leadership charged each college and the University Libraries with creating and imple- menting a diversity strategic plan to align with the ClemsonForward institutional strategic plan and assessment system. Clemson University Libraries answered this charge by creating a Libraries Diversity Plan Working Group (LDPWG), which applied a provided institutional framework to conduct an inventory of current diversity, equity, and inclusion (DEI) initiatives and obtain input, feedback, and support from all the Libraries’ faculty and staff as well as the organ- ization and institution administration to create an ambitious diversity strategic plan. The LDPWG worked for sixteen months to create an updated organization mission statement, a sustainable diversity statement, and an accountable roadmap, furthering Clemson University Libraries’ DEI initiatives and impact regarding six strategic priority areas: climate and infrastructure, recruitment and retention, education and training, research and scholarship, leadership support and development, and strategic partnerships.

KEYWORDS Strategic planning; academic libraries; diversity

Introduction

Context

Clemson University is a public land-grant university established in 1889 located in the upstate region of South Carolina. The University is comprised of seven colleges: the College of Agriculture, Forestry and Life Science, the College of Architecture, Arts and Humanities, the College of Behavioral, Social and Health Sciences, the College of Business, the College of Education, the College of Engineering, Computing and Applied Sciences, and the College of Science. The university also has robust cooperative exten- sion programs, a statewide Public Service and Agriculture network, and a 17,500-acre Experimental Forest. According to the Clemson University Factbook (Clemson University, 2019), Clemson

University serves over 18,971 undergraduate students and over 2,969 graduate students. About 19,136 of the total student population self-identify as white, and 3,636 of the

CONTACT Renna Tuten Redd [email protected] Assistant Librarian, Clemson University Libraries, 116 Sigma Drive, Clemson, SC 29634, USA. � 2020 The Author(s). Published with license by Taylor & Francis Group, LLC

JOURNAL OF LIBRARY ADMINISTRATION 2020, VOL. 60, NO. 3, 263–281 https://doi.org/10.1080/01930826.2019.1698920

total student population identify as nonwhite races (see Figure 1). A total of 5,392 employees are employed by the university. Less than 10 identify as American Indian or Alaskan native, 264 identify as Asian, 511 identify as Black or African-American, 245 identify as Hispanic, less than 10 identify as Native Hawaiian or Pacific Islander, less than 10 identify as Nonresident alien, less than 10 identify as two or more races, 116 are unknown, and 4,288 identify as white (see Figure 2). The Clemson University Libraries consist of one main library (Robert Muldrow

Cooper Library), two branch libraries, a Special Collections and Archives, and an offsite facility that houses high-density storage and technical services offices. Cooper Library is by far the largest of the facilities with six floors of collections, study space, classrooms, and office spaces. In 2017, there were approximately 82 faculty and staff library employ- ees with 52 employees self-identifying as white, 13 as nonwhite, and 17 choosing not to disclose (Clemson University, 2019; see Figure 3).

Climate

Winning the 2016 NCAA National College Football Championship earned Clemson University national recognition for outstanding athletics and subsequently raised its national profile as an institution of higher education. The university has been recog- nized as having high rankings for overall and financial value for in- and out-of-state students, active research, and internships, and a number one ranking among students who love their college (Clemson University, 2019). Clemson’s campus was built on the site of the Fort Hill plantation, once of home of former United States Vice President and slavery advocate, John C. Calhoun (1782–1850), at the bequest of his son-in-law, Thomas Greene Clemson. Acknowledging these foundations as part of the University’s history has been a complicated conversation for many years. The campus has gone from having no recognition to some recognition of the people who were enslaved (and

19136, 84%

3636, 16%

Racial Iden�ty Among Students at Clemson University

White

Non-white

Figure 1. Racial identity among students at Clemson University.

264 R. T. REDD ET AL.

those who later worked by means of prison labor) to forge the economic underpinnings that created the university; however, there is still significant work to be done. On April 11, 2016, amid both these accolades and debates, bananas were found hang-

ing from a marker acknowledging the African-American slaves who worked the land at Fort Hill. In the days after the incident, the campus climate was tense. While it is important to note that the initial response from University administration was to speak out against the initial incident by stating that “this type of conduct is hurtful, disres- pectful, unacceptable and will not be tolerated,” (Clements, 2016) many from the cam- pus community were unhappy with the administrative response thereafter. The students

<9 264

511 245 <9 <9 <9 116

4288

0 500

1000 1500 2000 2500 3000 3500 4000 4500 5000

Racial Iden�ty Among Employees at Clemson University

Figure 2. Racial identity among employees at Clemson University.

52, 63% 13, 16%

17, 21%

Racial Iden�ty Among Employees at Clemson University Libraries

White

Non-white

Did not disclose

Figure 3. Racial identity among employees at Clemson University Libraries.

FRAMEWORK FOR CHANGE 265

responsible for the initial act admitted their involvement on April 12 (Jacks, 2016), and by April 14, the university issued a statement about their continued commitment toward a more diverse and inclusive campus community (Clements, 2016). The respon- sible party claimed that the incident was not racially motivated and the university administration exonerated them, which resulted in protests that included a nine-day sit- in in Sikes Hall (the building that houses the President’s offices) (Vasilogambros, 2016) and the birth of a Twitter hashtag #beingblackatclemson (2016). As one of the nation’s leading public universities, it became important to University Administration to demon- strate that the Clemson family cared for all of its community. As a result, the University dedicated itself to creating “a more diverse and inclusive climate by doubling the number of underrepresented minority faculty, setting goals to increase minority enrollment and requiring all employees to participate in diversity training” (Cary, 2016). In December 2017, the Clemson University Office of Inclusion and Equity held a

meeting that included all college representatives to the Clemson University President’s Council on Diversity and Inclusion. Lee Gill, Chief Inclusion and Equity Officer and Special Assistant to the President for Inclusive Excellence, announced a new initiative for each of Clemson University’s colleges to create a diversity plan. The initiative, Strategic Planning for Inclusive Excellence, would be based on six strategic pillars defined in 2015 by Max Allen, Vice-President and Chief of staff, and Dr. Janelle Chasira, a Fellow of the American Council of Education.

� Education and Training: Education and training experiences to build cultural competencies across the organization.

� Climate and Infrastructure: Creating academic and work environments that effectively support the success of all faculty, staff, and students.

� Recruitment and Retention: Active and aggressive recruitment and retention of a diverse faculty, staff, and student body.

� Research and Scholarship: Building and enhancing opportunities for research and scholarship in diversity fields.

� Strategic Partnerships: Building and supporting strategic partnerships that respect diversity, include diverse groups, and support the advancement of diversity and inclusion for both.

� Leadership Support and Development: Top–down support for diversity & inclu- sion and the creation of a pipeline of culturally competent academic leaders.

Literature review

Diversity, equity, and inclusion (DEI) is founding principles of the library and informa- tion science (LIS) profession. The original 1939 adoption of the American Library Association (ALA) Bill of Rights began with the statement, “Today indications in many parts of the world point to growing intolerance, suppression of free speech, and censor- ship affecting the rights of minorities and individuals” (Robbins, 1997). This statement is relevant to the current culture and DEI-related research and efforts are still prevalent when reviewing LIS scholarly literature from the last five years. The literature reviewed for this project focused on best practices of building a diversity strategic plan.

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Cruz (2019) recently published a review of “the current academic literature relating to diversity initiatives in academic libraries,” (p. 220), which revealed findings similar to the authors’ research regarding numerous resources pertaining to LIS DEI-related defi- nitions, standards, competencies, and initiatives for areas of library work including user services, programing, recruitment, climate assessment, among others. Like Cruz, how- ever, few scholarly resources were found addressing DEI strategic planning within aca- demic libraries. Some of the most relevant resources regarding DEI strategic planning in academic

libraries were found within LIS professional association documents. McManus (2017) wrote of the ALA’s recent integration of equity, diversity, and inclusion within the organization’s strategic plan, and upon review of that document, the authors noted spe- cific goals and strategies to create “a more equitable, diverse, and inclusive society” (American Library Association, 2017a, p. 6). Cruz (2019) also discussed the Association of College and Research Libraries’ (2018) Plan for Excellence update that incorporated DEI goals and objectives into their organizational strategic plan. Edwards (2015) stated there are more advantages to developing a stand-alone DEI

strategic plan instead of “simply incorporating diversity into a general strategic plan” (p. 1). This assessment was found to align with the Clemson University Libraries’ institu- tional charge and so directed the search toward more DEI-related resources. Cruz (2019) referenced American Library Association (2007) as one of the earliest roadmaps for DEI strategic planning in libraries and lists six essential elements to include in a library’s diversity plan: a definition of diversity, an assessment of need, a mission or vision, goals or priorities, delegation of responsibilities, and a statement of accountabil- ity. Cruz (2019) and Edwards (2015, 2016) also pointed to the Association of Research Libraries’ (ARL) Spec Kit 319: Diversity Plans and Programs, which contains actual examples of academic library DEI strategic plans, as well as related statements, commit- tee charges, programing, and recruitment activities (Maxey-Harris & Anaya, 2010). A more recent ARL Spec Kit 356: Diversity and Inclusion was located that provided more academic library DEI strategic plans and activity examples, which heavily influenced the work of the LDPWG committee (Maxey-Harris & Anaya, 2017). The work of the group was most informed by the discovery of Edwards’ (2015, 2016)

articles regarding the recent DEI strategic planning efforts of the University of Montana Mansfield Library in 2011 and 2012. Edwards (2015) recounted the process of develop- ing their academic library DEI strategic plan and discussed the importance of forming a DEI strategic planning committee with broad representation and clearly established expectations. They also offered recommendations to conduct an environmental scan including current library DEI initiatives for assessment purposes; to integrate existing institutional DEI plans and statements; and to ensure administrative and stakeholder feedback and support throughout the strategic planning process. Edwards (2016) also discussed their committee’s success with beginning strategic planning with action item ideas and then organizing those accountable ideas into achievable goals. Aligning with Edwards’ (2015) recommendation to seek and incorporate

institutional resources, the search was broadened to include DEI strategic planning in higher education institutions. Wilson (2015b, 2016), Leon and Williams (2016), and LePeau, Hurtado, and Williams (2019) echoed the emphasis on administrative and

FRAMEWORK FOR CHANGE 267

institution-wide support. Leon and Williams (2016) also affirmed the importance of representative DEI strategic planning committee membership, and they reference Williams’ (2013) recommendation of a committee with 10 to 15 members. Clemson University’s Assistant Vice President for Strategic Diversity Leadership also recom- mended Williams, Berger, McClendon, and Shederick (2005) and Williams (2007) as resources for all colleges creating their diversity strategic plans. Damon A. Williams is considered an authority in the field of higher education DEI

strategic planning and is cited by many other references. Williams’ works often address elements for effective DEI strategic plans, and Wilson (2015a) offered similar advice to include timelines for implementation, accountability measures, and designated resources to support the work. Cruz (2019) echoed these recommended elements within an aca- demic library DEI strategic plan stating that “a well thought out diversity plan with goals, action items, and assessment measures can help libraries define their vision of diversity and lay out steps to achieve it.” (p. 220). In addition to general strategic plan elements, Leon and Williams (2016) recom-

mended “framing the work of the committee to address particular diversity issues on campus” (p. 397). Building on this concept, Semeraro and Boyd (2017) offered a frame- work example that higher education DEI strategic plans could use to address categories including “Education and Research, Operations, Diversity and Affordability, Human Resources, Investment, Public Engagement, and Innovation” (p. 1311). McManus (2017) and Cruz (2019) also offered similar focus area frameworks for academic library DEI strategic plans. McManus referenced the June 2016 ALA Task Force on Equity, Diversity, and Inclusion Final Report which recommended efforts regarding programing, membership and participation, recruitment and retention, education, and administrative priorities and planning. Cruz’s literature review also resulted in a framework of five areas that include collections, staffing, services, programing, and culture. Review of recent scholarly and LIS association literature provided many helpful

resources and recommendations regarding the process and elements to include in Clemson University Libraries’ diversity strategic planning initiative. Research was also encouraging in demonstrating that the support and framework provided by Clemson University’s Assistant Vice President for Strategic Diversity Leadership would ensure a comprehensive and effective plan to further the Libraries’ DEI efforts and impact.

Process

Group formation

Charged by the institution to produce a diversity strategic plan, a call was placed in January 2018 by the interim Dean of the Libraries for volunteers to participate in a new Libraries Diversity Plan Working Group (LDPWG). Thirteen individuals expressed an interest in participating, but it was decided to cap the group at twelve and ensure it was comprised of both faculty and staff from various departments, employee classifications, and self-identities within Clemson University Libraries. Once LDPWG members were informed that they had been selected to serve, several members met with the Assistant Vice President for Strategic Diversity Leadership to gain more understanding about the campus-wide initiative, charge, and framework. Later in the month, the LDPWG held

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its first meeting where members introduced themselves and shared why they wanted to be part of the group’s efforts. The LDPWG then selected co-chairs to help guide the work of the group and discussed their charge, timeline, and framework of six strategic priority areas.

Communication

In discussing ways to move forward with such a large task, the group determined that an internal listserv, a shared Google Drive folder, and a presence on Clemson University Libraries’ internal staff intranet, StaffWeb, would be effective tools to facili- tate communication within the LDPWG and later with the Libraries at large. The LDPWG used the StaffWeb page to record and share a timeline of their meetings and other activities as well as notable DEI-related resources. The LDPWG also sent periodic e-mails and StaffWeb announcements to all the Libraries’ employees to ensure continu- ous communication and remind them of the StaffWeb page for more information.

Peer research

During the first meeting, the LDPWG also decided that knowing what other academic libraries were doing in the area of DEI would be extremely valuable. In preparation for their next meeting, members were tasked with familiarizing themselves with ARL SPEC Kit 356: Diversity and Inclusion. The twelve members divided into smaller groups and selected three to four libraries in the publication to review positive and negative aspects of their library diversity statements and Web sites. Each member was also tasked to read at least one academic library’s diversity strategic plan within SPEC Kit 356, with Penn State, Texas A&M, and Indiana University at Bloomington plans recommended by the co-chairs and other LDPWG members.

Diversity statement

The LDPWG held its second meeting to share reviews of the information presented in SPEC Kit 356. Members discussed elements of other libraries’ diversity statements and Web sites that they thought were useful and sparked discussion and deeper thought (See Figure 4). Notes of keywords and phrases from the discussion were recorded using poster-sized Post-It Notes. Using these notes, the group started to craft a dedicated Clemson University Libraries diversity statement. Some of the keywords and phrases noted by the members of the LDPWG were

as follows:

� Diversity and inclusion enables us to better serve/best serve � Individualized and unique experiences � Unique history, environment, and culture � Historically aware and compassionate � Broaden understanding � Exchange of ideas and perspectives

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� Fostering a diverse and inclusive environment � An environment of respect and inclusion � Equitable access to information � Building partnerships

Website lists ac�vi�es specific to their Library

Diversity Commi�ee and includes annual reports,

which aid in accountability

University of

California San Diego

Website references the American Library

Associa�on Bill of Rights, which links the library profession to the cause of equity and inlcusion

University of

Wisconsin - Madison

Website linked intellectual freedom with the academic

library's commitment to inlcusion

University of Florida

Values website breaks out Diversity and

Inclusion into separate sec�ons that emphasize workplace respect and maximizing poten�al.

Florida State

University

Website highlights support of professional development for library

employees and emphasizes that this work

in ongoing.

University of Kansas

Figure 4. Institutional inspiration.

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� Welcoming diverse ideas to attain common goals � Inclusion is essential to continued success � Diverse local learning communities � “Foster an internal environment with equal partnership among all employees,

based on the principles and practices of courtesy, professionalism, and mutual respect.” (University of Florida George A. Smathers Library, 2014)

� Courageous intellectual exploration � Maximize the potential of all � Respect and include � Integrity, respect, decency, dignity, and responsibility � Inclusion is a practice � Empower employees to help all patrons

The group also discussed some of the key concepts to include the following:

� The work of diversity and inclusion is essential to continued success in our field and for Clemson University.

� The three core values of Clemson (Clemson University, 2017) should be added: integrity, honesty, and respect.

� The statement applies to employees, collections, spaces, services, and experiences. � This is ongoing work; an iterative process that calls for constant review and

refining of policies and procedures.

The drafting of the statement also brought up the following questions:

� What is our definition of diversity? Do we include things like citizenship status, socio-economic background, skill set, experiences? How granular do we get?

� Is there a university-level glossary of terms that we can all refer to? � What is the Clemson University statement on diversity and inclusion? Where

is it? � What does our library service philosophy say? Does it reflect the same values? � How do collections fall in to the work of diversity and inclusion? For some, the

areas that are most ripe for work are spaces and personnel.

Finally, the group created the following statement:

Clemson University Libraries seeks to best serve our community through creating a welcoming environment in which diverse ideas and perspectives come together to achieve common goals. We are committed to the practice of inclusion as it is essential to the continued success not only of Clemson University but of the library and information science profession. We embrace Clemson’s core values of integrity, honesty, and respect, and add to those the ideals of compassion, dignity, and historical awareness so that Clemson Libraries’ staff, collections, spaces, and services inform the interest, information, and enlightenment of all whom we serve.

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Inventory of activities

After reviewing other libraries’ work and crafting a diversity statement, the LDPWG agreed that they needed to know what activities and initiatives Clemson University Libraries had recently undertook in order to determine what to include in the diversity strategic plan. Utilizing the six strategic priority areas provided in the Clemson University diversity strategic plan framework, members of the LDPWG elected to focus on two each. Each subgroup worked to create an inventory of activities and initiatives that the Libraries had sponsored, co-sponsored, or participated in within the past three to five years pertaining to climate and infrastructure, recruitment and retention, educa- tion and training, research and scholarship, leadership support and development, and strategic partnerships (See Table 1). The inventory was recorded in a Google Sheets document online so that everyone in the LDPWG could contribute information. While some activities were easy to identify, such as hosting the International Student

Welcome Reception or providing a workshop on unconscious bias for the Libraries’ employees, others were not so simple and questions arose. Should things the Libraries have participated in that are actually “owned” by another entity on campus be recorded, such as providing a library orientation to participants of programs designed to help underrepresented groups in STEM disciplines? Also, it became evident early on that the Libraries did a lot of ad hoc programing with different offices and groups on campus but did not have a single person who was responsible for coordinating who to work with and how.

Creating goals, objectives, and action items

Once the LDPWG had an understanding of what kind of activities and initiatives the Libraries had recently participated in, the group decided that the next step should be to create a list of potential activities to expand upon what had already been done as well as explore new opportunities. The LDPWG invited colleagues within the Libraries who serve on some of the Clemson University President’s Commissions (the Commission on the Status of Women, the Commission on Black Faculty and Staff, the LGBTQ Commission, and the Commission on Latino Affairs) to participate in this exercise at their next meeting.

Table 1. Strategic priority examples of activities. Strategic priority area Examples

Education and Training � Workshop for library employees on unconscious bias

� “Reclaiming Our Ancestry” genealogy workshop hosted as part of Black History Month

Climate and Infrastructure � Creating gender-neutral bathrooms Recruitment and Retention � Advertising open student positions to student

organizations of underrepresented groups � Membership in the ACRL Diversity Alliance

Research and Scholarship � “Document the African-American Experience” at Clemson digital collection

Strategic Partnerships No recorded activities in this area Leadership Support No recorded activities in this area

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During that meeting, the co-chairs set up the room with large Post-It Note posters labeled with each of the six strategic priority areas on the walls and gave all participants small pads of Post-It Notes to write DEI activity and initiative ideas. After the group had exhausted and written their ideas, each member stuck their ideas on the posters labeled with the strategic priority area they thought the activity might support. Participants also had stickers to mark and endorse others’ ideas. Once the group fin- ished posting, the co-chairs discussed each idea. The group identified similar ideas and consensus areas, reassigned poorly categorized ideas to a more related strategic priority area poster, and recorded ideas that arose from this process. After the meeting, the posters and notes were photographed and transcribed for future steps in the strategic planning process. Soon after, Clemson University’s Assistant Vice President for Strategic Diversity

Leadership created and shared a spreadsheet to record the diversity strategic plans of each college and the Libraries. Grouped by the framework strategic priority areas, each section required at least one goal associated with that strategic priority area coupled with related objectives and action steps as well as an estimated time frame for the com- pletion of each objective. Also included were fields identifying potential internal and external partners, existing baseline data, and proposed metrics to assess the success of each objective. Utilizing this strategic plan spreadsheet, the LDPWG co-chairs met to refine and syn-

thesize the ideas generated from that previous meeting into the provided format. The co-chairs, other LDPWG members, and President’s Commissions representatives of the Libraries then met several times to craft goals, measurable objectives, and appropriate objective time frames as well identify existing baseline data and potential partners and assessment metrics. The co-chairs also met periodically with the Assistant Vice President for Strategic Diversity Leadership as well those working on college diversity strategic plans to obtain recommendation and feedback as the LDPWG continued their work.

Input and feedback

As the LDPWG continued to form a draft diversity strategic plan, the framework was presented to all employees of the Libraries with request for additional activity and ini- tiative ideas. With the support of the new Dean of Clemson University Libraries, the co-chairs created a presentation that highlighted how the development of a diversity strategic plan within the Libraries was not just an isolated effort but a campus-wide ini- tiative that involved each of Clemson University’s colleges and would also expand to include divisions, such as Student Affairs, Athletics, and Information Technology. The presentation also shared the six strategic priority areas and examples of activities that might fall under each. The members of the audience were then invited to write down any ideas they had on pads of Post-It Notes located on each table and stick those ideas on sections of the room walls labeled with the strategic priority area they thought their idea might fall under, mimicking the initial LDPWG brainstorming session. The co- chairs presented a tour of the LDPWG StaffWeb page to highlight communication of

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the group’s activities and DEI resource list as well as demonstrate an online and anonymous option for people to provide their ideas and feedback. Following the meeting and a period of time to allow for online input, the co-chairs

incorporated the activity and initiative ideas and other feedback from the Libraries’ employees into the draft diversity strategic plan. The draft was then presented to the Clemson University Libraries’ Dean and Leadership Team for additional input and feed- back, and that resulting draft was then published on the LDPWG StaffWeb page with accompanying solicitation e-mails and announcements for final input and feedback from all Clemson University Libraries’ employees. The response to the draft diversity strategic plan was very complimentary and produced a few more constructive comments to consider and incorporate into the plan.

Results

All of these activities ultimately resulted in a Clemson University Libraries’ diversity strategic plan that was approved by the Dean and submitted for review and approval from the Assistant Vice President for Strategic Diversity Initiatives and Clemson University Provost. Given that each college as well as the Clemson University Libraries was tasked with creating a diversity strategic plan, the Assistant Vice President for Strategic Diversity Initiatives worked within the Campus Labs institutional assessment software system to create a template of goals, objectives, action items, baseline data, metrics, timelines, partners, and results that aligned with the previously shared spread- sheet. Within this diversity strategic plan template, goals could be linked between col- leges and also between different strategic initiatives, including the ClemsonForward strategic plan. Using all of the information and feedback gathered from the LDPWG activities that took place during the 2018 calendar year, the co-chairs completed the LDPWG charge by entering the Clemson University Libraries’ diversity strategic plan into the Campus Labs system and template for the 2019 calendar year. The following are examples of Libraries’ goals, objectives, time frames, action steps,

baseline data, metrics, and related ClemsonForward goal for each of the six strategic pri- ority areas.

Climate and infrastructure

Goal: Provide more inclusive facilities for Clemson Libraries patrons and employees Objective 1: Implement at least one change per year to provide more inclusive facili-

ties for Clemson Libraries patrons and employees Start Date: January 1, 2019 End Date: December 31, 2026 Action Steps: Assess and improve: accessibility of pathways and emergency exits;

inclusiveness of d�ecor (art work, portraits, room names, etc.); privacy of video phone; gender-neutral and family-inclusive restrooms; furniture for various body sizes and adaptability. Baseline Data: Limited to ad hoc improvements Metrics: One change implemented per year

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ClemsonForward Related Goal: Living Environment – Nurture a climate of diversity, inclusion, and respect.

Education and training

Goal: Increase intercultural competence of Clemson Libraries employees Objective 1: Provide Clemson Libraries employees at least two intercultural compe-

tence workshops each year to apply to workplace relations and public services Start Date: January 1, 2019 End Date: December 31, 2026 Action Steps: 1) Jan 2019 – Dec 2020: Collaborate with campus organizations to iden-

tify, offer, and possibly adapt existing training, 2) Jan 2021 – Dec 2026: Utilize the Intercultural Development Inventory results to develop, provide, and market at least two intercultural competence and inclusion training workshops each year to apply to workplace relations and public services with periodic assessment to determine and implement improvements to curriculum and methodologies. Baseline Data: Ad hoc workshops being offered Metrics: Two annual workshops provided and marketed; pre- and post-training

assessments ClemsonForward Related Goal: Living Environment – Nurture a climate of diversity,

inclusion, and respect.

Leadership support and development

Goal: Increase communication, encouragement, and funding to support a culture of diversity and inclusion Objective 1: Establish, maintain, and communicate financial and work time support

for all employees to participate in diversity and inclusion-related training, events, con- ference presentations, and publications Start Date: April 1, 2019 End Date: December 31, 2026 Action Steps: 1) Establish and maintain financial support for all employees to partici-

pate in diversity and inclusion-related trainings, events, conference presentations, and publications. 2) Establish and maintain a policy and communication method to inform employees of financial and work time support to participate in diversity and inclusion- related trainings, events, conference presentations, and publications. Baseline Data: Ad hoc work time support Metrics: Establishment of organization policy and funding ClemsonForward Related Goal: Living Environment – Nurture a climate of diversity,

inclusion, and respect.

Recruitment and retention

Goal: Increase diverse representation within the Clemson Libraries workforce

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Objective 1: Assess current diverse representation of workforce and related recruit- ment requirements and efforts Start Date: January 1, 2020 End Date: June 30, 2020 Action Steps: 1) Compare current demographic data of the Clemson Libraries work-

force with the current ALA Member Demographics Study data, gathered biennially, to establish gap and goals. 2) Assess existing systems of recruitment requirements and search committee trainings. Baseline Data: 2018 Clemson University workforce demographic data found in the

Clemson University Interactive Fact Book and the 2017 ALA Demographic Study Metrics: Most recent demographic data ClemsonForward Related Goal: Living Environment – Increase diversity all

across campus.

Research and scholarship

Goal: Increase Clemson Libraries resources to support research related to diversity and inclusion Objective 1: Increase Clemson Libraries’ current collections pertaining to diversity

and inclusion by at least 40 titles each year Start Date: July 1, 2019 End Date: December 31, 2026 Action Steps: 1) Conduct a collection analysis to determine representation and publi-

cation age gaps of resources pertaining to diversity and inclusion. 2) Create a collection development policy and secure funding to increase collection resources that pertain to diversity and inclusion and that represent diverse authors, illustrators, subjects, and per- spectives. Create, provide, and require diversity selection training for personnel working in collection development. 3) Implement collection development policy and annually assess collection development training for diversity and inclusion and improve as needed. 4) Add 40 titles annually. Baseline Data: Ad hoc ordering but no formalized assessment, funding, policy,

or procedures Metrics: Number of titles added each year ClemsonForward Related Goal: Research – Refocus research mission and increase

funding; raise research expectations and reward research excellence.

Strategic partnerships

Goal: Establish a Student Advisory Board with diverse representation of the stu- dent body Objective 1: Establish and maintain a Student Advisory Board with students from

diverse populations Start Date: January 1, 2020 End Date: December 31, 2026

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Action Steps: 1) Establish a Library Student Advisory Board and bylaws that encour- age diverse student representation. 2) Communicate with Clemson University student organizations devoted to diverse populations and issues to encourage student participa- tion in Clemson Libraries’ advisory organization and activities. Baseline Data: Nonexistent Metrics: Establishment of Student Advisory Board with bylaws and outreach efforts

to encourage diverse representation; demographics of board ClemsonForward Related Goal: Living Environment – Nurture a climate of diversity,

inclusion, and respect.

Discussion

Developing Clemson University Libraries’ diversity strategic plan required substantial time, effort, and involvement. The Libraries now have clear goals, action items, and accountability to continue progressing the organization and Clemson University toward being more diverse, inclusive, and equitable, but there were many obstacles to navigate and overcome. Agreeing on methods and language to communicate the Libraries’ value of DEI, obtaining an initial assessment, working within a required framework, and ensuring inclusion as well as administrative support throughout the process all pre- sented challenges, but these impediments were ultimately beneficial to creating a sus- tainable strategic plan.

Value of language

As the LDPWG began the work, there was much discussion about how to communicate the value of DEI. The Working Group decided to create a dedicated diversity statement to direct the work as well as all Clemson University Libraries, and this decision was later affirmed by request of the Dean to publicly communicate a diversity statement. The Assistant Vice President for Strategic Diversity Initiatives also highly recommended updating the Clemson University Libraries’ overall mission statement to include shared value of DEI, which was again supported by the LDPWG and Dean. Once the method(s) were determined, the next challenge was agreeing on language

while crafting both statements. The LDPWG sought feedback from the Office of Inclusion and Equity regarding the use of a list of possible identities within draft state- ments (i.e., gender, sexuality, race, religion, socioeconomic status) and received the rec- ommendation to use the phrase “backgrounds, cultures, and identities” instead of an exhaustive and ever-changing list. The LDPWG also sought feedback from all Clemson University Libraries employees to finalize the proposed mission statement update, which resulted in very helpful feedback such as the removal of “regardless” before that phrase and other semantic improvements. The proposed mission statement was heavily edited in response to the employee feedback as well as that of the Dean, and it ultimately resulted in a slight but powerful modification to include the words “inclusive” and “all” to communicate the Libraries’ value of those concept and constituents.

FRAMEWORK FOR CHANGE 277

Inclusion in the process

Having an inclusive process to involve as much employee input as possible presented challenges but undoubtedly with great benefit. The LDPWG sought feedback from all Clemson University Libraries employees throughout the diversity strategic plan process, which required more time and effort but allowed incorporation of additional ideas and ensured employee support of a plan they helped to develop. The LDPWG also experienced issues with the inclusion and involvement of a large

number of people. The LDPWG started with twelve members representative of diverse units, positions, classifications, and various identities. While this group size provided multiple perspectives during discussions, it also often hindered reaching consensus for meetings and during discussions. The Working Group later expanded to include the Libraries’ President’s Commission members which contributed valuable input while making it more difficult to coordinate meetings and agreements. The LDWGP expan- sion as well as that of the original charge timeline triggered a co-chair decision to ask members to reevaluate their work commitments and their ability to contribute to bi- weekly meetings for the remaining 6þ months of work. This resulted in several LDPWG members declining to continue membership with the Working Group and with improvements to the LDPWG work processes after a reduction in number.

Initial inventory and assessment data

A particular area of work that required the input of all Clemson University Libraries’ employees was in gathering an initial inventory of previous and in-progress DEI initia- tives as well as baseline assessment data. The LDPWG found that the organization was involved in many DEI-related activities, but these efforts had never been communicated and compiled into a comprehensive record. Likewise, identifying and assembling a list of existing relevant assessment data required inquiries of employees throughout the Libraries as well as the Office of Inclusion and Equity and other Clemson University entities. Clemson Libraries has recently hired an Assessment Librarian, whose work will make gathering DEI-related information of this sort easier in the future.

Fitting in the framework

The LDPWG is extremely grateful that Clemson University’s Assistant Vice President for Strategic Diversity Initiatives provided a framework for the diversity strategic plan, although visualizing and articulating the Libraries’ work into the requirements of that framework was difficult at times. The framework’s six strategic priority areas were instrumental in ensuring and organizing a comprehensive plan, but there were also add- itional specific recommended activities within those strategic priority areas that were created with academic college applications primarily in mind, such as diverse course offerings and curriculum experiences or direct recruitment of underrepresented students to the University. The LDPWG often had to seek input, adaptation, and approval of diversity strategic plan items and assessments that better aligned with work as LIS professionals.

278 R. T. REDD ET AL.

Importance of administrative support

A final and crucial challenge faced by the LDPWG was obtaining administrative sup- port. Clemson University Libraries’ diversity strategic planning process was initiated and supported by University administration and the Assistant Vice President for Strategic Diversity Initiatives. University financial support of diversity strategic plans has been promised, but actual committed budgets are vague in what can be applied to fulfill plan action items and objectives. Likewise, plan approval and monetary support from the Libraries’ administration

have been difficult to obtain due to turnover of the Dean position during this process. This vacancy did allow the LDPWG to influence the search process to hire an adminis- trator who demonstrates a commitment to DEI, but the strategic planning work, diver- sity plan timelines, and budgeted organization funds have been delayed as a result.

Conclusion

Overall, Clemson University Libraries’ diversity strategic planning has resulted in numerous, tangible products and goals that will guide the organization’s commitment to DEI going forward. The Libraries’ administration and the Assistant Vice President for Strategic Diversity Leadership have praised the LDPWG’s efforts and acknowledged the plan’s ambitiousness; both have also committed to ensuring there is proper and sus- tainable funding. The final solicitation of feedback from all Clemson University Libraries employees confirms the success of the process, as one respondent wrote: “All in all, beautifully and thoughtfully constructed plan! So proud of y’all and proud to be a part of a library system that is committing itself to diversity.” Response from LDWPG state and national scholarship activities has also been positive and served as affirmation. The 18 months of work has resulted in a robust strategic plan to improve Clemson University Libraries’ DEI initiatives and impact, and a standing Diversity Committee has been established to implement and oversee the plan with organization and institu- tion support and accountability.

Acknowledgments

The authors of this paper would like to thank the Diversity Plan Working Group: Rodger Bishop, Lisa Bodenheimer, Brenda Burk, Robin Chambers, Jan Comfort, Lita Davis, Lili Klar, Nashieli Marcano, Josh Morgan, Ed Rock, Suzanne Rook-Schilf, and Derek Wilmott. We would also like to thank Altheia Richardson for her guidance and Cierra Townson and Jenessa McElfresh for their input.

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The Federal Budget: Overview and Issues for

FY2019 and Beyond

Grant A. Driessen

Analyst in Public Finance

May 21, 2018

Congressional Research Service

7-5700

www.crs.gov

R45202

The Federal Budget: Overview and Issues for FY2019 and Beyond

Congressional Research Service

Summary The federal budget is a central component of the congressional “power of the purse.” Each fiscal

year, Congress and the President engage in a number of activities that influence short- and long-

run revenue and expenditure trends. This report offers context for the current budget debate and

tracks legislative events related to the federal budget.

After a decline in budget deficits over the past several years, the deficit is projected to increase

significantly in FY2019. Enactment of the 2017 tax revision (P.L. 115-97) and the Bipartisan

Budget Act of 2018 (BBA 2018; P.L. 115-123) are projected to decrease revenues and increase

outlays relative to past years, thus increasing deficits. The Budget Control Act of 2011 (BCA; P.L.

112-25) implemented several measures intended to reduce deficits from FY2012 through

FY2021, and deficits declined from FY2012 through FY2015. In its April 2018 forecast, the

Congressional Budget Office (CBO) baseline projects that the FY2019 deficit will equal $981

billion (4.6% of GDP), its highest value since the economy was recovering from the Great

Recession in FY2012.

The 2017 tax revision and BCA will continue to affect budget outcomes in FY2019 and beyond.

Congress may debate amending the BCA as it has in the past through the American Taxpayer

Relief Act of 2012 (ATRA; P.L. 112-240), Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-

67), Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74), and BBA 2018. The annual

appropriations process, the statutory debt limit, and further tax modifications may also draw

congressional attention in FY2019. Additionally, Congress may choose to debate structural

changes to the federal budget, including reforms to mandatory and discretionary spending

programs proposed by the House Committee on Ways and Means and the Trump Administration.

The Trump Administration released its FY2019 budget on February 12, 2018. Proposed policy

changes in the budget include increases in discretionary defense spending and relatively large

decreases in mandatory spending other than Social Security and Medicare and in nondefense

discretionary programs.

Following passage of full-year FY2018 appropriations, Congress has turned its attention to the

FY2019 budget. The Budget Committees in the House and Senate each develop budget

legislation as they receive information and testimony from a number of sources, including the

Administration, the Congressional Budget Office, and congressional committees with jurisdiction

over spending and revenues.

Trends resulting from current federal fiscal policies are generally thought by economists to be

unsustainable in the long term. Projections suggest that achieving a sustainable long-term

trajectory for the federal budget would require deficit reduction. Reductions in deficits could be

accomplished through revenue increases, spending reductions, or some combination of the two.

The Federal Budget: Overview and Issues for FY2019 and Beyond

Congressional Research Service

Contents

Overview ......................................................................................................................................... 1

Budget Cycle ............................................................................................................................. 1 Budget Baseline Projections ..................................................................................................... 2 Spending and Revenue Trends .................................................................................................. 4

Federal Spending ................................................................................................................ 5 Size of Federal Spending Components Relative to Each Other .......................................... 7 Federal Revenue ................................................................................................................. 8

Deficits, Debt, and Interest ...................................................................................................... 10 Budget Deficits ................................................................................................................. 10 Federal Debt and Debt Limit ............................................................................................ 10 Net Interest ......................................................................................................................... 11

Recent Budget Policy Legislation and Events ................................................................................ 11

P.L. 115-97, the 2017 Tax Revision ........................................................................................ 12 The Bipartisan Budget Act of 2018 (BBA 2018) .................................................................... 13 Appropriations and Debt Limit Legislation ............................................................................ 14

Budget for FY2019 ........................................................................................................................ 14

Trump Administration’s FY2019 Budget ................................................................................ 15 Deficit Projections in the President’s FY2019 Budget ............................................................ 16 FY2019 Congressional Budget Activity ................................................................................. 19

Considerations for Congress.......................................................................................................... 19

Ongoing Budget Issues ........................................................................................................... 20 Long-Term Considerations ...................................................................................................... 20

Figures

Figure 1. Total Outlays and Revenues, FY1947-FY2017 ............................................................... 5

Figure 2. Outlays by Major Category, FY1962-FY2028 ................................................................. 6

Figure 3. Revenues by Major Category, FY1962-FY2028.............................................................. 9

Figure 4. Budget Deficit Projections, FY2018-FY2028 ................................................................ 17

Figure 5. Discretionary Cap Changes in the FY2019 Proposed President’s Budget ..................... 19

Tables

Table 1. Selected CBO Baseline Budget Projections ...................................................................... 3

Table 2. Estimated Budget Effects of 2017 Tax Revision, Selected Years .................................... 12

Table 3. Discretionary Caps on Budget Authority Established by the BCA as Amended ............. 13

Table 4. Budgetary Effects of President’s FY2019 Budget Proposals, FY2019-FY2028 ............. 15

Appendixes

Appendix. Budget Documents ....................................................................................................... 23

The Federal Budget: Overview and Issues for FY2019 and Beyond

Congressional Research Service

Contacts

Author Contact Information .......................................................................................................... 24

The Federal Budget: Overview and Issues for FY2019 and Beyond

Congressional Research Service 1

ederal budget decisions express the priorities of Congress and reinforce its influence on

federal policies. Making budgetary decisions for the federal government is a complex

process and requires the balance of competing goals. The Great Recession adversely

affected federal budget outcomes through revenue declines and spending increases from FY2008

through FY2013. The federal budget recorded a deficit of 9.8% of gross domestic product (GDP)

in FY2009, the largest value since World War II. 1 Subsequent improvement of the economy and

implementation of policies designed to lower spending have improved the short-term budget

outlook, though federal deficits remain at relatively high levels. In FY2017, the federal budget

recorded a deficit of 3.5% of GDP, which was higher than the average deficit since FY1947

(2.7% of GDP).

Over the next several years, projections of a continued decline in discretionary spending are more

than offset by increases in mandatory spending, increases in net interest payments, and reductions

in revenues, leading to a rise in federal deficits. Increases in the long-term cost of federal

retirement and health care programs and debt servicing costs each contribute to upward pressure

on federal spending levels. Operating these programs in their current form may pass on

substantial economic burdens to future generations. Revenues are projected to decline as a

percentage of GDP over the next several years before increasing later in the 10-year budget

window as provisions enacted by the 2017 tax revision (P.L. 115-97) are scheduled to expire.

Congress and the President may consider proposals for deficit reduction if fiscal issues remain a

key item on the legislative agenda.

This report summarizes issues surrounding the federal budget, examines policy changes relevant

to the budget framework for FY2019, and discusses recent major policy proposals included in the

President’s FY2019 budget. It concludes by addressing major short- and long-term fiscal

challenges facing the federal government.

Overview Each fiscal year Congress and the President engage in a number of practices that influence short-

and long-run revenue and expenditure trends. This section describes the budget cycle and

explains how budget baselines are constructed. Budget baselines are used to measure how

legislative changes affect the budget outlook and are integral to evaluating these policy choices.

Budget Cycle2

Action on a given year’s federal budget, from initial formation by the Office of Management and

Budget (OMB) until final audit, typically spans four calendar years. 3 The executive agencies

begin the budget process by compiling detailed budget requests, overseen by OMB. Agencies

work on their budget requests in the calendar year before the budget submission, often during the

spring and summer (about a year and a half before the fiscal year begins). The President usually

submits the budget to Congress around the first Monday in February, or about eight months

1 Except where otherwise noted, all deficit and debt figures are expressed as a percentage of GDP, in order to account

for inflation and business cycle effects. 2 This section provides an outline for the formulation and execution of a budget and appropriations cycle for a fiscal

year. However, this timetable is not enforced by statute and often varies by year. 3 CRS Report 98-325, The Federal Fiscal Year, by Bill Heniff Jr.

F

The Federal Budget: Overview and Issues for FY2019 and Beyond

Congressional Research Service 2

before the beginning of the fiscal year, although submissions are often later in the first year of an

Administration. 4

Congress typically begins formal consideration of a budget resolution once the President submits

the budget request. The budget resolution is a plan, agreed to by the House and Senate, which

establishes the framework for subsequent budgetary legislation. Because the budget resolution is

a concurrent resolution, it is not sent to the President for approval. 5 If the House of

Representatives and Senate cannot agree on a budget resolution, a substitute measure known as a

“deeming resolution” may be implemented by each chamber, which may give force to certain

budget enforcement measures. 6

House and Senate Appropriations Committees and their subcommittees usually begin reporting

discretionary spending bills after the budget resolution is agreed upon. Appropriations

Committees review agency funding requests and propose levels of budget authority (BA). 7

Appropriations acts passed by Congress set the amount of BA available for specific programs and

activities. Authorizing committees, which control mandatory spending, and committees with

jurisdiction over revenues also play important roles in budget decisionmaking. 8

During the fiscal year, Congress and OMB oversee the execution of the budget. 9 Once the fiscal

year ends on the following September 30, the Department of the Treasury and the Government

Accountability Office (GAO) begin year-end audits.

Budget Baseline Projections

Budget baseline projections are used to project the future influence of current laws and measure

the effect of future legislation on spending and revenues. They are not meant to predict future

budget outcomes. Baseline projections are included in both the President’s budget and the

congressional budget resolution. It is important to understand the assumptions and components

included in budget baselines. In some cases, slight changes in the underlying models or

assumptions can lead to large effects on projected deficits, receipts, or expenditures.

The Congressional Budget Office (CBO) computes current-law baseline projections using

assumptions set out in budget enforcement legislation. 10

On the revenue side of the budget, the

2017 tax revision (P.L. 115-97; see additional discussion below) enacted several changes to

individual and corporate income tax rates and to other tax policy provisions that are set to expire

before the end of the 10-year budget baseline window. On the spending side, baseline

4 The contents of the presidential budget submission are governed by 31 U.S.C. §1105. For reasons why the budget

may be delayed, see CRS Report RS20179, The Role of the President in Budget Development, by Clinton T. Brass. 5 For more information, see CRS Report RL30297, Congressional Budget Resolutions: Historical Information, by Bill

Heniff Jr. 6 For information on deeming resolutions, see CRS Report R44296, Deeming Resolutions: Budget Enforcement in the

Absence of a Budget Resolution, by Megan S. Lynch. 7 Budget authority represents the amounts appropriated for a program, or the funds that may legally be spent. Outlays

represent the disbursed federal funds. There is generally a lag between when budget authority is appropriated and

outlays occur, sometimes across fiscal years. 8 For more information on the appropriations and authorization process, see CRS Report R42388, The Congressional

Appropriations Process: An Introduction, coordinated by James V. Saturno. 9 The fiscal year runs from October through September: FY2019 begins on October 1, 2018, and ends on September 30,

2019. 10

Many of the rules governing the baseline contained in Section 257 of the Balanced Budget and Emergency Deficit

Control Act, as amended, were extended or modified as part of the Budget Control Act of 2011 (P.L. 112-25).

The Federal Budget: Overview and Issues for FY2019 and Beyond

Congressional Research Service 3

discretionary spending levels are largely constrained by the caps and automatic spending

reductions enacted as part of the Budget Control Act of 2011 (BCA; P.L. 112-25) and further

modified on several occasions, most recently with the Bipartisan Budget Act of 2018 (BBA 2018;

P.L. 115-123). 11

Since the CBO baseline assumes that current law continues as scheduled, it incorporates policy

provisions in current law that have historically been revised before taking effect. Specifically, the

CBO baseline assumes that discretionary budget authority from FY2019 through FY2021 will be

restricted by the caps as created by the BCA as amended, and that certain tax policy changes

enacted in the 2017 tax revision and in other laws will expire as scheduled under current law. 12

This leads to baseline projections of lower spending and higher revenue levels relative to a

baseline that would reflect policy changes some would consider likely given past actions

(sometimes referred to as a “current policy” baseline).

In addition to these elements of current law, macroeconomic assumptions, including those related

to GDP growth, inflation, and interest rates, will also affect the baseline estimates and projections.

Minor changes in the economic or technical assumptions that are used to project the baseline also

could result in significant changes in future deficit levels.

A summary of budget outcomes in the latest CBO baseline is provided in Table 1. CBO’s current

baseline projections, released in April 2018, show rising budget deficits over the next several

years. 13

This represents a reversal from the significant declines in inflation-adjusted deficits

experienced in the past few fiscal years. Those declines were primarily due to continued increases

in employment (which increased revenues collected from income and payroll taxes) and

reductions in discretionary spending. While the baseline projections include continued declines in

discretionary outlays, those reductions are more than offset by increases in mandatory spending.

Mandatory spending increases are largely due to the rising cost of Social Security and Medicare

programs, and declines in federal revenues.

Table 1. Selected CBO Baseline Budget Projections

(% of GDP)

FY2017 (actual) FY2019 FY2023 FY2028

Budget Deficit 3.5 4.6 5.2 5.1

Debt Held by the Public 76.5 79.3 87.9 96.2

Source: Congressional Budget Office, The Budget and Economic Outlook: 2018 to 2028, April 2018, Summary

Table 2.

Baseline projections also include increases in debt held by the public (or debt held by all entities

other than the federal government) throughout the 10-year budget window. Debt held by the

public finances budget deficits and federal loan activity, and is a function of three things: (1) the

11

The BCA allows for discretionary spending to be adjusted for war funding, disaster, emergency, and program

integrity spending. 12

The 2017 tax revision included a number of reductions to individual income tax rates and tax expenditures that are

scheduled to expire under current law, as discussed later in this report. The Protecting Americans from Tax Hikes Act

of 2015 (PATH Act), passed as part of the Consolidated Appropriations Act, 2016 (P.L. 114-113; see additional

discussion below), modified most of the previously expired tax provisions that had been extended several times by past

Congresses. The PATH Act made many of those provisions permanent, while others were extended through the 2016

or 2019 tax year. Provisions that were not made permanent are assumed to expire as scheduled under the CBO baseline. 13

Unless otherwise noted, budget data in this report are taken from tables in CBO, The Budget and Economic Outlook:

2018 to 2028, April 2018.

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Congressional Research Service 4

size of existing debt, (2) economic growth, and (3) interest rates. 14

Debt held by the public was

76.5% of GDP at the end of FY2017, and is projected to be 96.2% of GDP at the end of FY2028.

CBO also provides projections based on alternative policy assumptions, which illustrate levels of

spending and revenue if current policies continue rather than expire as scheduled under current

law. If discretionary spending increased with inflation after FY2018 instead of proceeding in

accordance with the limits instituted by the BCA and tax reductions in the 2017 tax revision are

extended, CBO projects an increase in the budget deficit of almost $2,400 billion relative to the

current-law baseline, exclusive of debt servicing costs, over the FY2019 to FY2028 period.

Beyond the 10-year forecast window, federal deficits are expected to grow unless major policy

changes are made. This is a result of increases in outlays largely attributable to rising health care

and retirement costs combined with little to no change in projected revenue levels over that

timeframe.

Spending and Revenue Trends

Over the last seven decades, federal spending has accounted for an average of 19.3% of the

economy (as measured by GDP), while federal revenues averaged roughly 17.2% of GDP.

Spending has exceeded revenues in each fiscal year since FY2002, resulting in annual budget

deficits. Between FY2009 and FY2012, spending and revenue deviated significantly from

historical averages, primarily as a result of the economic downturn and policies enacted in

response to financial turmoil. In FY2017, the U.S. government spent $3,982billion and collected

$3,316 billion in revenue. The resulting deficit of $665 billion, or 3.5% of GDP, was higher than

the average deficit from FY1947 through FY2017 of 2.1% of GDP. The trends in revenues and

outlays between FY1947 and FY2017 are shown in Figure 1.

14

For more information on the interaction of deficits and debt, see CRS Report R44383, Deficits and Debt: Economic

Effects and Other Issues, by Grant A. Driessen.

The Federal Budget: Overview and Issues for FY2019 and Beyond

Congressional Research Service 5

Figure 1. Total Outlays and Revenues, FY1947-FY2017

(as a % of GDP)

Source: Congressional Budget Office and Office of Management and Budget. CRS calculations.

Federal Spending

Federal outlays are often divided into three categories: discretionary spending, mandatory

spending, and net interest. Discretionary spending is controlled by the annual appropriations acts.

Mandatory spending encompasses spending on entitlement programs and spending controlled by

laws other than annual appropriations acts. 15

Entitlement programs such as Social Security,

Medicare, and Medicaid make up the bulk of mandatory spending. Congress sets eligibility

requirements and benefits for entitlement programs, rather than appropriating a fixed sum each

year. Therefore, if the eligibility requirements are met for a specific mandatory program, outlays

are made without further congressional action. Net interest comprises the government’s interest

payments on the debt held by the public, offset by small amounts of interest income the

government receives from certain loans and investments. 16

15

For more information on trends in discretionary and mandatory spending, see CRS Report RL34424, The Budget

Control Act and Trends in Discretionary Spending, by D. Andrew Austin, and CRS Report RL33074, Mandatory

Spending Since 1962, by D. Andrew Austin and Jeffrey M. Stupak. 16

Net interest is discussed in further detail in the section “Deficits, Debt, and Interest.”

The Federal Budget: Overview and Issues for FY2019 and Beyond

Congressional Research Service 6

Federal Spending Relative to the Size of the Economy (GDP)

In FY2000, total outlays equaled 17.6% of GDP, the lowest recorded level since FY1966. In

FY2009, outlays peaked at 24.4% of GDP. Outlays then fell steadily for the next few years,

equaling 20.3% of GDP in FY2014, before rising to 20.8% of GDP in FY2017. Under the CBO

baseline, total outlays are projected to continue rising and will reach 23.6% of GDP in FY2028.

Figure 2 provides historical data and CBO projections of federal spending between FY1962 and

FY2028. 17

Figure 2. Outlays by Major Category, FY1962-FY2028

(as a % of GDP)

Source: Office of Management and Budget, Historical Table 1.2, February 2018, and Congressional Budget Office,

The Budget and Economic Outlook: 2018 to 2028, April 2018.

Notes: FY1962-FY2017 figures represent actual data while FY2018-FY2028 figures are current law baseline

projections.

In FY1962, discretionary spending was consistently the largest source of federal outlays, peaking

at 13.1% of GDP in FY1968. In the ensuing decades discretionary spending as a share of the

economy underwent a gradual decline, and totaled 6.1% of GDP in FY2000. Discretionary

spending increased in most years between FY2000 and FY2010, largely due to increases in

security spending and federal interventions designed to stimulate the economy, and peaked in

17

Although both types of spending had previously existed, historical data distinguishing between discretionary and

mandatory spending in the federal budget were first collected in FY1962.

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Congressional Research Service 7

FY2010 at 9.1% of GDP. 18

Discretionary spending fell from FY2010 through FY2017, due to

both the wind down of stimulus programs and the implementation of restrictions established by

the BCA. In FY2017, discretionary spending totaled 6.4% of GDP. CBO’s most recent forecast

projects short-term increases in discretionary spending, largely due to enactment of the Bipartisan

Budget Act of 2018 (BBA 2018; P.L. 115-123). BBA 2018 allowed for large increases in

discretionary spending in FY2018 and FY2019. Baseline forecasts subsequently include

projections of lowered discretionary spending levels in FY2020 (the first year with spending caps

unaffected by BBA 2018) and beyond. By FY2021, discretionary spending is projected to fall to

5.9% of GDP, which would be its lowest level ever; discretionary spending is projected to total

5.4% of GDP by FY2028. The projected decline in discretionary spending in the baseline over the

next decade is largely due to the reductions under current law contained in the BCA. 19

Figure 2 also shows mandatory spending as a share of GDP. Mandatory spending was a much

smaller source of outlays than discretionary spending in earlier years, totaling just 4.7% of GDP

in FY1962. Over time the share of mandatory spending has consistently grown, initially due to

the increase in subscription in large mandatory programs such as Social Security and Medicare

and then due to demographic and economic shifts that further increased the sizes of those

programs. 20

Mandatory spending totaled 13.2% of GDP in FY2016, up from 9.4% of GDP in

FY2000. Mandatory spending peaked in FY2009 at 14.5% of GDP. Mandatory spending levels

during the FY2009-FY2012 period were elevated mainly because of increases in outlays for

income security programs as a result of the recession. The continuing economic recovery has

resulted in lower mandatory spending on certain programs. Mandatory spending is projected to

increase beginning in FY2019 due to growth in certain entitlement programs. Under current law,

CBO projects that mandatory spending will total 15.2% of GDP in FY2028, greater than the

FY2009 level.

Size of Federal Spending Components Relative to Each Other

It is also possible to evaluate trends in the share of total spending devoted to each component. In

FY2017, mandatory spending amounted to 63% of total outlays, discretionary spending reached

30% of total outlays, and net interest comprised 7% of total outlays. The largest mandatory

programs, Social Security, Medicare, and the federal share of Medicaid, constituted 48% of all

federal spending in FY2017. CBO’s baseline projections include a rise in net interest and a

decline in discretionary spending as a share of total federal expenditures. In FY2028, the baseline

projects that mandatory spending will total 64% of outlays, discretionary spending will total 23%

of outlays, and net interest will total 13% of outlays.

Discretionary spending currently represents less than one-third of total federal outlays. Some

budget experts contend that to achieve a long-term decline in federal spending, reductions in

18

The definition of security spending has varied over time. The Obama Administration defined security spending as

funding for the Department of Defense – Military, the Department of Energy’s National Nuclear Security

Administration, International Affairs (budget function 150), the Department of Homeland Security, and the Department

of Veterans Affairs. Security spending has defense and nondefense components. 19

The caps on discretionary spending contained in the BCA expire after FY2021. Beginning in FY2022, the baseline

assumes that discretionary spending will grow at the rate of inflation, which is generally less than the projected growth

of nominal GDP. Therefore, discretionary spending continues to fall, as a percentage of GDP, throughout the budget

window. 20

The increase in subscription of Social Security and Medicare was due to those programs becoming actuarially mature

(i.e., the eligible population aging into coverage).

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Congressional Research Service 8

mandatory spending are needed. 21

Budget and social policy experts have also stated that cuts in

mandatory spending may cause substantial disruption to many households, because mandatory

spending comprises important parts of the social safety net. 22

Future projections of increasing

deficits and resulting high debt levels may warrant further action to address fiscal health over the

long term. 23

Federal Revenue

In FY2017, federal revenue collections totaled 17.3% of GDP, roughly equal to the historical

average since FY1947 (17.2% of GDP). Real federal revenues have increased in recent years, due

primarily to an improving economy. Between FY2009 and FY2013, revenue collection was

depressed as the result of the economic downturn and certain tax relief provisions. In FY2009 and

FY2010, revenue collections totaled 14.6% of GDP.

The 2017 tax revision (P.L. 115-97), enacted in December 2017, significantly altered federal

receipt projections. Changes to the federal code implemented by P.L. 115-97 include a temporary

reduction in individual income tax rates, a permanent reduction in the corporate income tax rate,

permanent modification of the international tax system, and a number of mostly temporary

modifications to income tax expenditures. Revenues are projected to decline from 17.8% of GDP

in FY2016 to 16.5% of GDP in FY2019. Revenues are projected to gradually increase to total

18.5% of GDP in FY2028 under the CBO baseline. Increases towards the end of the baseline

forecast are explained in part by the scheduled expiration of temporary provisions in the 2017 tax

revision.

21

Net interest payments are a function of the existing stock of publicly held debt, which is the product of past federal

budget outcomes, and prevailing interest rates, which are determined by economic conditions. Congress’s ability to

influence the level of short-term net interest payments is limited. 22

For more information, see CRS Report R41970, Addressing the Long-Run Budget Deficit: A Comparison of

Approaches, by Jane G. Gravelle, and CRS Insight IN10623, The Federal Budget Deficit and the Business Cycle, by

Grant A. Driessen and Marc Labonte. 23

In various reports, the Congressional Budget Office, the Government Accountability Office, and the Trump

Administration agree that the federal government’s budget is on an unsustainable path. For more information, see the

section of this report titled “Long-Term Considerations.”

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Figure 3. Revenues by Major Category, FY1962-FY2028

(as a % of GDP)

Source: Office of Management and Budget, Historical Table 1.2, February 2018, and Congressional Budget Office,

The Budget and Economic Outlook: 2018 to 2028, April 2018.

Notes: FY1962-FY2017 figures represent actual data while FY2018-FY2028 figures are current law baseline

projections.

Figure 3 shows revenue collections between FY1962 and FY2028, as projected in the CBO

baseline. Individual income taxes have long been the largest source of federal revenues, followed

by social insurance (payroll) and corporate income taxes. 24

In FY2017, individual income tax

revenues totaled 8.3% of GDP. While individual income taxes as a share of the economy have

remained relatively constant since the end of World War II, the share of federal revenues devoted

to social insurance programs has increased from 2.9% of GDP in FY1962 to 6.1% of GDP in

FY2017. That increase is largely attributable to growth in taxes that fund large entitlement

programs. Shares devoted to corporate income and other outlays have declined, from 3.5% and

2.8% of GDP, respectively, in FY1962 to 1.5% of GDP and 1.4% of GDP, respectively, in

FY2017. The CBO baseline projects that in FY2028 real individual tax revenues will be higher

than current levels, other receipts will be lower than present levels, and corporate and payroll

taxes will be roughly equivalent to FY2018 collections, though those projections would likely

change if expirations of provisions in the 2017 tax revision do not proceed as scheduled.

24

For more information, see CRS Report RL32808, Overview of the Federal Tax System, by Molly F. Sherlock and

Donald J. Marples.

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Deficits, Debt, and Interest

The annual difference between revenue (i.e., taxes and fees) that the government collects and

outlays (i.e., spending) results in either a budget deficit or surplus. 25

Annual budget deficits or

surpluses determine, over time, the level of publicly held federal debt and affect the level of

interest payments to finance the debt.

Budget Deficits

Between FY2009 and FY2012, annual deficits as a percentage of GDP were higher than deficits

in any four-year period since FY1945. 26

The unified budget deficit in FY2017 was $665 billion,

or 3.5% of GDP. The unified deficit, according to some budget experts, gives an incomplete view

of the government’s fiscal conditions because it includes off-budget surpluses. 27

Excluding off-

budget items (i.e., Social Security benefits paid net of Social Security payroll taxes collected and

the U.S. Postal Service’s net balance), the on-budget FY2017 federal deficit was $715 billion.

Budget Deficit for FY2018

The April 2018 CBO baseline projected the FY2018 budget deficit to be $804 billion, or 4.0% of

GDP. The rise in the estimated budget deficit for FY2018 relative to FY2017 is the result of

decreases in real revenues more than offsetting a small decrease in real outlays. FY2018 outlays

are projected to increase to 20.8% of GDP from 20.6% of GDP in FY2017; revenues are

projected to fall to 16.6% of GDP in FY2018, down from 17.3% of GDP in FY2017.

Federal Debt and Debt Limit

Gross federal debt is composed of debt held by the public and intragovernmental debt.

Intragovernmental debt is the amount owed by the federal government to other federal agencies,

to be paid by the Department of the Treasury, which mostly consists of money contained in trust

funds. Debt held by the public is the total amount the federal government has borrowed from the

public and remains outstanding. This measure is generally considered to be the most relevant in

macroeconomic terms because it is the debt sold in credit markets. Changes in debt held by the

public generally track the movements of the annual unified deficits and surpluses. 28

Historically, Congress has set a ceiling on federal debt through a legislatively established limit.

The debt limit also imposes a type of fiscal accountability that compels Congress (in the form of a

vote authorizing a debt limit increase) and the President (by signing the legislation) to take visible

action to allow further federal borrowing when nearing the statutory limit.

The debt limit by itself has no direct effect on the borrowing needs of the government. 29

The debt

limit, however, can hinder the Treasury’s ability to manage the federal government’s finances

25

Unlike many state and local governments, the federal government has no binding statutory balanced-budget

requirement or a separate budget for capital spending. 26

The budget deficit peaked at 9.8% of GDP in FY2009. 27

From an overall budget perspective, these surpluses are used to offset other federal spending, thereby decreasing the

current budget deficit while increasing the amount of Treasury securities held in the Social Security Trust Funds. Off-

budget surpluses have historically been large. However, declining surpluses in the Social Security program will lead to

off-budget deficits beginning in FY2019 according to the CBO baseline. 28

For more information on the components of federal debt, see CRS Report R44383, Deficits and Debt: Economic

Effects and Other Issues, by Grant A. Driessen. 29

The need to raise (or lower) the limit during a session of Congress is driven by previous decisions regarding revenues

(continued...)

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when the amount of federal debt approaches this ceiling. In those instances, the Treasury has had

to take extraordinary measures to meet federal obligations, leading to inconvenience and

uncertainty in Treasury operations at times. 30

A binding debt limit would prevent the Treasury from selling additional debt and could prevent

timely payment on federal obligations, resulting in default. Possible consequences of a binding

debt limit include (1) a reduced ability of Treasury to borrow funds on advantageous terms,

resulting in further debt increases; (2) possible turmoil in global economies and financial markets;

and (3) acquisition of penalties or fines from the failure to make timely payments. More broadly,

a binding debt limit may also affect the perceived credit risk of federal government borrowing.

Consequently, the federal government’s borrowing capacity could decline. 31

Net Interest

In FY2017, the United States spent $263 billion, or 1.4% of GDP, on net interest payments on the

debt. What the government pays in interest depends on market interest rates as well as the size

and composition of the federal debt. Currently, low interest rates have held net interest payments

as a percentage of GDP below the historical average despite increases in borrowing to finance the

debt. Some economists, however, have expressed concern that federal interest costs could rise if

interest rates continue to increase, resulting in future strain on the budget. Interest rates are

projected to rise in the CBO baseline, resulting in net interest payments of $915 billion (3.1% of

GDP) in FY2028, a figure that well exceeds the historical average of 1.7% of GDP since

FY1940. 32

Recent Budget Policy Legislation and Events33 The 115

th Congress has adopted legislation with short- and long-term effects on the federal

budget. The 2017 tax revision included major changes to the federal tax code, including changes

to individual and corporate income taxes, international taxes, and a variety of tax expenditures

(deductions, exclusions, and credits available to taxpayers). BBA 2018 enacted a two-year

revision to the discretionary spending caps imposed by the BCA and also suspended the statutory

debt limit until March 2019. Congress has also enacted several pieces of legislation with

ramifications for the appropriations process and statutory debt limit.

(...continued)

and spending stemming from legislation enacted earlier in the session or in prior years. The consideration of debt limit

legislation often is viewed as an opportunity to reexamine fiscal and budgetary policy. 30

For more information, see CRS Report R41633, Reaching the Debt Limit: Background and Potential Effects on

Government Operations, by D. Andrew Austin et al., and U.S. Government Accountability Office, Delays Create Debt

Management Challenges and Increase Uncertainty in the Treasury Market, GAO-11-203, February 2011. 31

For historical information about notable federal borrowing events, see CRS Report R44704, Has the U.S.

Government Ever “Defaulted”?, by D. Andrew Austin. 32

For more information on the relationship between federal borrowing and net interest payments, see CRS Report

R44383, Deficits and Debt: Economic Effects and Other Issues, by Grant A. Driessen. 33

This section is not meant to address all recently enacted changes in budget policy, but rather to highlight some of the

major legislative actions and events. For more information on budget-related legislation in 2017, see CRS Report

R44799, Budget Actions in 2017, by Grant A. Driessen and Megan S. Lynch.

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P.L. 115-97, the 2017 Tax Revision

The 2017 tax revision, signed into law on December 22, 2017, made extensive changes to the

federal tax system. A comprehensive list of the modifications made in the 2017 Tax Revision is

available in CRS Report R45092, The 2017 Tax Revision (P.L. 115-97): Comparison to 2017 Tax

Law, coordinated by Molly F. Sherlock and Donald J. Marples. Changes made in the 2017 tax

revision include the following:

 temporary modifications (scheduled to expire at the end of tax year 2025) to individual income tax brackets, with a reduction in the top rate from 39.6% to

37%, an increase in the income threshold for the top bracket, and a temporary

increase in the individual alternative minimum tax (AMT) exemption;

 a permanent modification in corporate income tax rates from a graduated rate structure with a top rate of 35% to a flat rate of 21%, and a permanent repeal of

the corporate AMT;

 numerous modifications, mostly temporary, to the tax expenditures available to individual and corporate income tax filers, which include changes made to the

standard deduction, the mortgage interest deduction, and the deduction for state

and local taxes paid;

 a temporary (scheduled to expire at the end of tax year 2025) increase in the federal estate and gift tax exclusion; and

 a permanent shift in the taxation of foreign income from a modified version of a worldwide basis (where all income from U.S. firms earned in other countries is

subject to U.S. taxation) to a modified version of a territorial profits basis (where

profits are taxed on the basis of the country where they are earned).

Summary data from the final cost estimate conducted by the Joint Committee on Taxation (JCT)

for the 2017 tax revision are provided in Table 2. The law was estimated to increase deficits by a

total of $1,456 billion from FY2018-FY2027, with deficit increases from FY2018-FY2026 and a

small deficit decrease in FY2027 as many of the temporary provisions included in the act expire.

That estimate excluded macroeconomic feedback effects: JCT estimated that such effects would

reduce deficits by a total of $385 billion over the FY2018-FY2027 period. 34

Table 2. Estimated Budget Effects of 2017 Tax Revision, Selected Years

(in billions of dollars)

Tax Category FY2019 FY2023 FY2027 FY2018-FY2027

Individual -188.8 -144.0 83.0 -1,126.6

Business -133.8 -16.4 -49.4 -653.8

International 42.6 22.5 -0.8 324.4

Total -280.0 -137.9 32.9 -1,456.0

Source: Joint Committee on Taxation, JCX-67-17, Estimated Budget Effects of the Conference Agreement for H.R.

1, https://www.jct.gov/publications.html?func=startdown&id=5053.

Notes: Column and row totals may not sum due to rounding. Estimate is not inclusive of macroeconomic

feedback; see text for further discussion of those effects.

34

JCT, JCX-69-17, Macroeconomic Analysis of the Conference Agreement for H.R.1, the “Tax Cuts and Jobs Act”,

https://www.jct.gov/publications.html?func=startdown&id=5055.

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CBO included an estimated effect of the 2017 tax revision on the federal budget in its April 2018

baseline release, which incorporated an additional year (FY2028) and included the effects on debt

servicing costs and of implementation details learned since the date of enactment. That estimate

projected that exclusive of macroeconomic feedback, the 2017 tax revision increased total deficits

by $2,314 billion from FY2018-FY2028; including macroeconomic feedback, which reduced

deficits by $461 billion, the act was estimated to increase deficits by $1,854 billion over the same

period.

The Bipartisan Budget Act of 2018 (BBA 2018)

BBA 2018, enacted into law on February 9, 2018, is the latest modification to the deficit

reduction measures imposed by the BCA. The BCA was enacted on August 2, 2011, and

contained a variety of measures intended to reduce future deficits by at least $2,100 billion over

the FY2012-FY2021 period. Most of the direct reduction in deficits imposed by the BCA was to

be generated by caps on discretionary budget authority, with the remainder produced by a

sequester on some types of mandatory spending. 35

Before enactment of BBA 2018, the deficit reduction measures established by the BCA were

amended by the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240), the Bipartisan

Budget Act of 2013 (BBA 2013; P.L. 113-67), and the Bipartisan Budget Act of 2015 (BBA 2015;

P.L. 114-74). The specific changes made by each amending law differ, but all three laws provided

for short-term increases in discretionary spending by raising the discretionary budget authority

caps established by the BCA in certain years while reducing mandatory spending by extension of

the sequester on mandatory programs. Unlike BBA 2013 and BBA 2015, the direct and indirect

budgetary effects to the BCA made in BBA 2018 were not offset (according to standard

legislative cost estimation procedures) by other changes included in the law.

Table 3 shows how the discretionary caps from FY2014 through FY2021 have changed since

enactment of the BCA. BBA 2018 raised the discretionary caps in FY2018 and FY2019 by a

combined $296 billion, a much greater increase than provided for in previous amendments to the

BCA. FY2018 and FY2019 discretionary budget authority as provided for in BBA 2018 is

projected to be a combined $114 billion higher than the initial caps established by the BCA,

though the caps in FY2020 and FY2021 remain virtually unchanged since 2012.

Table 3. Discretionary Caps on Budget Authority Established by the BCA as

Amended

(in billions of dollars)

FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021

Original limits established by the BCA

Defense 556 566 577 590 603 616 630 644

Nondefense 510 520 530 541 553 566 578 590

Revised limits following Automatic Enforcement Measures

Defense 501 511 522 535 548 561 575 589

Nondefense 472 483 493 505 517 531 545 557

35

For more information on the BCA as amended, see CRS Report R44874, The Budget Control Act: Frequently Asked

Questions, by Grant A. Driessen and Megan S. Lynch.

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FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021

Current limits following legislative changes and revised projections

Defense 520 521 548 551 629 647 576 591

Nondefense 492 492 518 519 579 597 542 555

Source: CRS Report R44874.

Notes: See CRS Report R44874 for more detail on the automatic enforcement measures established by the

BCA. Legislative changes were enacted in ATRA, BBA 2013, BBA 2015, and BBA 2018. The BCA requires CBO

and OMB to periodically revise future discretionary limits to ensure that the deficit reduction targets established

by the BCA as amended are reached.

Appropriations and Debt Limit Legislation

Each year Congress enacts a set of laws providing for discretionary appropriations, which gives

federal agencies the authority to incur obligations. Appropriations acts typically provide authority

for a single fiscal year, and may come in the form of regular appropriations (providing authority

for the next fiscal year), supplemental appropriations (providing additional authority for the

current fiscal year), or continuing appropriations (providing stop-gap authority for agencies

without a regular appropriation). 36

Most recently, the Consolidated Appropriations Act, 2018 (P.L.

115-141) was signed into law on March 23, 2018, providing full-year appropriations for all

federal agencies without a regular appropriation through the end of FY2018 (which ends

September 30, 2018). Time periods for which no or incomplete appropriations are provided are

known as funding lapses, and may result in partial or full shutdown of federal operations. Short-

term funding lapses occurred in January and February 2018. 37

Recent legislation has also modified the statutory debt limit. BBA 2018 suspended the debt limit

until March 1, 2019, and dictated that the debt limit be increased upon reinstatement as needed to

accommodate any additional federal borrowing undertaken up to that point. 38

Before enactment of

BBA 2018, Treasury had implemented extraordinary measures (which had been used in prior debt

limit episodes) to prevent the debt limit from binding upon its reinstatement from a previous

suspension on December 8, 2017.

Budget for FY2019 The Trump Administration submitted its FY2019 budget to Congress on February 12, 2018. The

President’s budget lays out the Administration’s views on national priorities and policy initiatives.

Congress has also begun consideration of the FY2019 budget.

36

For more information on the annual appropriations process, see CRS Report 98-721, Introduction to the Federal

Budget Process, coordinated by James V. Saturno. 37

For more information on lapses of appropriations, see CRS Report RL34680, Shutdown of the Federal Government:

Causes, Processes, and Effects, coordinated by Clinton T. Brass, and CRS Report RS20348, Federal Funding Gaps: A

Brief Overview, by Jessica Tollestrup. 38

For more information on recent debt limit events, see CRS Report R43389, The Debt Limit Since 2011, by D.

Andrew Austin.

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Trump Administration’s FY2019 Budget

President Trump presented his policy agenda in the Administration’s FY2019 budget submission.

If the policies are fully implemented, the Administration estimates that total FY2018 outlays

would be $4,214 billion (21.0% of GDP) and revenues would be $3340 billion(16.7% of GDP),

resulting in a budget deficit of $873 billion (4.4% of GDP). The Administration estimates that

deficits under the proposed budget would increase in FY2019 and then decline as a share of

output over the course of the budget window, with the significance of the decline varying with

how certain macroeconomic effects are applied to the forecast.

A summary of the total deficit effects of the budget’s proposed changes is presented in Table 4.

The budget proposes reforms that would reduce several types of outlays. The largest spending cut

proposals are to (1) nondefense discretionary programs, with an outlay reduction of $1,669 billion

from FY2019 through FY2028; (2) Medicaid and other mandatory programs (including

Children’s Health Insurance and welfare), with $1,074 billion in FY2019-FY2028 outlay

reductions; (3) repeal and replacement of the Patient Protection and Affordable Care Act (ACA;

P.L. 111-48), with $675 billion in FY2019-FY2028 deficit reductions; and (4) Medicare

programs, with a $236 billion reduction in FY2019-FY2028 outlays.

The budget proposes increases in infrastructure spending, which would result in total outlays

increasing by $199 billion over the FY2019-FY2028 period. Finally, the budget proposes

increases to the total defense budget, with increases in base defense spending and decreases in

Overseas Contingency Operations (OCO) spending resulting in an increase in discretionary

defense outlays of $143 billion over the FY2019-FY2028 period.

The President’s budget assumes that those policy changes produce additional indirect budgetary

effects on net interest spending and through changes in economic output. The proposed policy

changes are estimated to reduce net interest spending by $319 billion over the FY2019-FY2028

period. Moreover, the budget assumes those policies increase economic growth in a manner that

reduces FY2019-FY2028 deficits by an additional $813 billion. The budget’s economic forecast

was based on information available in November 2017, and the budget states that this additional

growth accounts for enactment of the 2017 tax revision. 39

As noted earlier, the CBO and JCT

included smaller deficit reduction estimates ($461 billion over the FY2019-FY2028 period and

$385 billion over the FY2018-FY2027 period, respectively) resulting from such macroeconomic

feedback. 40

Table 4. Budgetary Effects of President’s FY2019 Budget Proposals, FY2019-FY2028

(in billions of dollars)

Proposal (Major Budget Category)

Increase (+) or Decrease (-) in FY2019-FY2028

Deficits from Policy Changes

Infrastructure Investment (Mandatory Outlays) +199

Medicare (Mandatory Outlays) -236

Medicaid & Other Programs (Mandatory Outlays) -1,074

Defense (Discretionary Outlays) +143

39

Office of Management and Budget, Budget of the U.S. Government for FY2019, Analytical Perspectives, p.12. 40

Joint Committee on Taxation, Macroeconomic Analysis of the Conference Agreement for H.R.1, the “Tax Cuts and

Jobs Act”, JCX-69-17, December 22, 2017.

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Proposal (Major Budget Category)

Increase (+) or Decrease (-) in FY2019-FY2028

Deficits from Policy Changes

Nondefense (Discretionary Outlays) -1,670

Net Interest (Net Interest Outlays) -319

Repeal and Replace Affordable Care Act (Unspecified) -675

Effect of Assumed Boost to Economic Growth (Unspecified) -813

Total -4,445

Source: OMB, Budget of the U.S. Government Fiscal Year 2019, Tables S-1 through S-3.

Notes: Indirect budgetary effects are italicized. For past budgets CBO has provided an independent analysis of

proposals in the President’s budget. That information has not yet been released.

The President’s budget uses economic projections in its calculations that differ from those used in

congressional budget operations. The budget projects that the real economic growth rate

(measured as the percentage change in real GDP) will be 3.0% per year both in FY2018 and over

the FY2019 through FY2028 period. That total is higher than the assumptions included in CBO’s

April 2018 forecast, which includes real economic growth projections averaging 1.9% per year

from FY2019 through FY2028. Previous iterations of the President’s budget have also included

differences in economic projections with those produced by CBO, though such differences have

typically been smaller than the projection gap in the FY2018 and FY2019 budgets. 41

The United

States last experienced real economic growth of greater than 3.0% in FY2005. 42

The

Administration estimated that assuming real economic growth to be 1% lower over the FY2018-

FY2018 period would increase its projected budget deficits by $3,144 billion over the FY2018 to

FY2028 window.

Deficit Projections in the President’s FY2019 Budget

The Trump Administration provided two deficit projections in its FY2019 budget. 43

First, OMB

projected a Balanced Budget and Emergency Deficit Control Act (BBEDCA) baseline: the

BBEDCA baseline, or “pre-policy” baseline, assumes that discretionary spending remains

constant in real (i.e., inflation-adjusted) terms and revenue and mandatory (or direct) spending

continue as under current law. 44

Under this scenario, the FY2019 deficit is projected to total

$0.969 trillion (4.6% of GDP), the FY2028 deficit is projected to be $1,378 billion (4.3% of

GDP), and cumulative deficits are projected to be $11,540 billion over the FY2019-FY2028

period.

The other deficit projection, the proposed budget, illustrates the effect on the budget outlook if all

of the policies proposed in the budget are implemented. In FY2019, the Administration projects

that the deficit will reach $984 billion (4.7% of GDP). Under the proposed budget, deficits would

41

For example, the first budget issued by the Obama Administration (released in 2009) included real economic growth

assumptions of 2.6% per year in FY2016 through FY2019, as compared with 2.3% growth over the same period issued

by CBO. Congressional Budget Office, A Preliminary Analysis of the President’s Budget and an Update of CBO’s

Budget and Economic Outlook, Table 2-6, March 2009, https://www.cbo.gov/sites/default/files/111th-congress-2009-

2010/reports/03-20-presidentbudget.pdf. 42

Bureau of Economic Analysis, National Income and Product Accounts, Table 1.1.1, May 2018. 43

For details of these projections, see U.S. Office of Management and Budget, Budget of the U.S. Government Fiscal

Year 2019, Tables S-1 through S-10. 44

For a description of the policies included in the various baselines, see U.S. Office of Management and Budget,

Budget of the U.S. Government Fiscal Year 2019, Analytical Perspectives.

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Congressional Research Service 17

steadily decrease from FY2021 through FY2028, producing a budget deficit of $363 billion

(1.1% of GDP) in FY2028. The net budget deficit from FY2019-FY2028 totals $7,095 billion in

the proposed budget. Neither projection incorporates the budgetary effects of BBA 2018, which

was enacted just prior to the budget release. CBO estimated that BBA 2018 would increase

FY2018-FY2027 deficits by a combined $252 billion relative to current law, exclusive of debt

servicing costs. 45

Figure 4 illustrates how federal deficits in the President’s pre-policy and

proposed budgets compare to current law (CBO baseline) over the next decade. 46

The proposals

in the President’s budget are projected to result in deficit reductions of $4,445 billion over the

next decade relative to the pre-policy baseline. 47

Figure 4. Budget Deficit Projections, FY2018-FY2028

(as a % of GDP)

Sources: Congressional Budget Office, The Budget and Economic Outlook: 2018 to 2028, April 2018, Table 1;

Office of Management and Budget, Budget of the U.S. Government Fiscal Year 2018, Tables S-1 and S-3.

45

Congressional Budget Office, Cost Estimate for Bipartisan Budget Act of 2018, February 8, 2018. Cited figure

incorporates both direct (mandatory spending and revenues) and indirect (discretionary spending) budget effects. 46

Structural variation in economic modeling typically accounts for a small difference between the baseline produced by

CBO and the President’s pre-policy baseline. 47

U.S. Office of Management and Budget, Budget of the U.S. Government Fiscal Year 2019, Table S-2.

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Adjustments to BCA Discretionary Caps

The President’s budget proposes to adjust the caps on discretionary spending as originally

established by the Budget Control Act (BCA). In August 2011, the BCA placed limits on

discretionary budget authority and included provisions for additional spending cuts to be

implemented through an automatic process that were eventually triggered by the absence of

agreement from a committee tasked with passing deficit reduction legislation. Since enactment of

the BCA, Congress and the President have modified the BCA several times, primarily to allow

increases in discretionary spending (for more information, see the earlier section titled “Recent

Budget Policy Legislation and Events”).

A summary of the changes to the discretionary caps in the President’s budget is presented in

Figure 5. In FY2019, the President’s budget would leave the defense cap unchanged while

decreasing the nondefense cap by $57 billion; both caps were recently modified by BBA 2018.

The budget calls for increases to the defense caps by $84 billion and $87 billion in FY2020 and

FY2021, respectively, and proposes decreases in the nondefense caps of $87 billion and $109

billion in FY2020 and FY2021.

While the caps on discretionary budget authority as established by the BCA are scheduled to

expire after FY2021, the President’s budget also proposes changes to discretionary spending in

FY2022-FY2028 under the assumption that discretionary spending grows with current services

growth rates. Over the FY2022-FY2028 period the administration proposes increases to defense

spending in each year ranging from $87 billion to $92 billion. The budget proposes decreases in

nondefense spending that grow from $132 billion in FY2022 to $274 billion in FY2028.

The Federal Budget: Overview and Issues for FY2019 and Beyond

Congressional Research Service 19

Figure 5. Discretionary Cap Changes in the FY2019 Proposed President’s Budget

(billions of dollars of budget authority)

Source: Office of Management and Budget, Budget of the U.S. Government Fiscal Year 2018, Table S-7, and OMB,

Addendum to the President’s FY19 Budget to Account for the Bipartisan Budget Act of 2018.

Notes: Discretionary caps are currently scheduled to expire at the end of FY2021: FY2022-FY2028 changes are

taken from OMB budget documents, which assume that those caps would grow at current services growth rates.

FY2019 Congressional Budget Activity

Following passage of full-year FY2018 appropriations, Congress has turned its attention to the

FY2019 budget. The budget committees in the House and Senate each may develop budget

legislation as they receive information and testimony from a number of sources, including the

Administration, the CBO, and congressional committees with jurisdiction over spending and

revenues. Absent legislative action, the limits on discretionary budget authority for FY2019 are

scheduled to be $647 billion for defense activities and $597 billion for nondefense activities,

which is a combined $36 billion higher than the limits in FY2018 (see Table 3).

Considerations for Congress Ongoing federal budgetary challenges remain which may lead to congressional action. Issues

related to deficit reduction and the long-term budget outlook may continue to arise in policy

discussions. Increased spending on entitlement programs, as currently structured, will likely

contribute to rising deficits and debt, placing ever-increasing focus on how to achieve fiscal

sustainability over the long term.

The Federal Budget: Overview and Issues for FY2019 and Beyond

Congressional Research Service 20

Ongoing Budget Issues

Various budget issues may feature prominently in near-term congressional debates. Discussions

over FY2019 discretionary appropriations legislation may be held in advance of the beginning of

the fiscal year (or afterwards in the case of supplemental or continuing appropriations). Congress

may elect to revisit the deficit reduction measures imposed by the BCA as amended, which

include discretionary caps on defense and nondefense budget authority through FY2021 and

spending reduction measures on certain mandatory programs through FY2027. As discussed

earlier, Congress has already lifted the discretionary caps (to allow for more spending) in each

year from FY2013 through FY2019 relative to their values established in the BCA. 48

Congress may also choose to modify the statutory debt limit. The debt limit is currently

suspended through March 2019, at which time it is to be reinstated to accommodate federal

borrowing levels. If faced with a nearly binding debt limit, Treasury may choose to enact

extraordinary measures to postpone when the debt limit binds. Short-run budget surpluses in

March and April of that year (primarily from the receipt of annual income tax returns) mean that

extraordinary measures enacted in March will likely postpone a binding debt limit by several

months. 49

The latest CBO budget forecast projects a larger nominal budget deficit in FY2019

($981 billion) than the federal deficit in FY2017 ($665 billion), which was the last year

extraordinary measures were enacted in March. Such an increase may reduce the length of time

extraordinary measures would postpone a binding debt limit relative to what was experienced in

2017.

Long-Term Considerations

The federal government faces long-term budget challenges. Occasional budget deficits are not

necessarily problematic. Deficit spending can allow governments to smooth outlays and revenues

to shield taxpayers and program beneficiaries from abrupt economic shocks in the short term,

while also temporarily boosting GDP when the economy is underperforming. Persistent deficits,

however, lead to growing levels of federal debt that may lead to higher interest payments and may

also have adverse macroeconomic consequences in the long term, including slowing investment

and lowering economic growth. Indefinite growth of real debt will eventually lead to a borrowing

crisis, though the timing of such an event is subject to great uncertainty. Reducing large deficits

will require increases in taxes, reductions in spending, or both.

Some measures of fiscal solvency in the long term indicate that, under current policy, the United

State faces major future imbalance, specifically as it relates to rising retirement and health care

costs and the likely impact on government-financed health care spending. Existing deficit

reduction policies like the BCA had improved recent and near-term deficits but do not make

significant changes to the parts of the budget that are projected to grow the fastest in the long run.

Therefore, many budget analysts believe that additional deficit reduction is required to put the

budget on a sustainable path over the long term. CBO’s current law baseline projects inflation-

adjusted deficits (equal to 4.9% of GDP) from FY2019-FY2028 despite a real economic growth

48

Policy debate surrounding the BCA and subsequent amendments has often included a discussion of the “parity

principle,” which refers to equality between the changes made to the budgets of defense and nondefense programs. The

way the parity principle applies to the BCA as amended has shifted over time. For more information on the parity

principle and recent budget agreements, see CRS In Focus IF10657, Budgetary Effects of the BCA as Amended: The

“Parity Principle”, by Grant A. Driessen. 49

More information on seasonal changes in budget outcomes may be found in CRS In Focus IF10292, The Debt Limit,

by Grant A. Driessen.

The Federal Budget: Overview and Issues for FY2019 and Beyond

Congressional Research Service 21

rate averaging 1.8% per year over the same period: that combination of sustained economic

growth and large federal deficits would be unprecedented in the postwar era.

CBO, GAO, and the Trump Administration agree that the current mix of federal fiscal policies is

unsustainable in the long term. The nation’s aging population, combined with rising health care

costs per beneficiary, may keep federal health costs rising faster than per capita GDP. CBO

projected in March 2017 that under current policy, federal spending on health programs

(including Medicare, Medicaid, CHIP, and exchange subsidies) would grow from 5.5% of GDP in

FY2017 to 8.8% of GDP in FY2047. 50

A 2017 GAO report on fiscal health also cited health

spending as a source of concern. 51

Though these forecasts are highly uncertain, it seems probable

that spending on these programs will rise as a share of GDP over time.

In addition, growing debt and rising interest rates are projected to cause interest payments to

consume a greater share of future federal spending. CBO projects that under current law,

spending to service the federal debt (net interest payments) will grow rapidly, from 1.4% of GDP

in FY2017 to 5.2% of GDP in FY2047. 52

GAO’s recent long-term fiscal simulations, under an

alternative policy scenario, projected that debt held by the public as a share of GDP would exceed

the post-World War II historical high in the next 15 to 25 years. 53

Keeping future federal outlays at 20% of GDP, or approximately at their historical average, and

leaving fiscal policies unchanged, according to CBO projections, would require drastic reductions

in all spending other than that for Medicare, Social Security, and Medicaid, or reining in the costs

of these programs. Under CBO’s extended baseline, maintaining the debt-to-GDP ratio at today’s

level (77%) in FY2047 would require an immediate and permanent cut in non-interest spending,

increase in revenues, or some combination of the two in the amount of 1.9% of GDP (or about

$380 billion in FY2018 alone) in each year. Maintaining this debt-to-GDP ratio beyond FY2047

would require additional deficit reduction. If policymakers wanted to lower future debt levels

relative to today, the annual spending reductions or revenue increases would have to be larger. For

example, in order to bring debt as a percentage of GDP in FY2047 down to its historical average

over the past 50 years (40% of GDP), spending reductions or revenue increases or some

combination of the two would need to generate net savings of roughly 3.1% of GDP (or $620

billion in FY2018) in each year. 54

The alternative to decreased spending as a means of deficit reduction is to increase revenues

through modifications to the federal tax system. The 2017 tax revision represented the latest

major change to the federal tax code, and was estimated by CBO and JCT to reduce revenues

over the FY2018-FY2027 period. CBO’s latest budget and economic forecast projects that

revenues as a percentage of GDP will be at or below their postwar average (17.2% of GDP) from

FY2018 through FY2023 before reaching 18.5% of GDP in FY2028. Federal revenue levels

toward the end of the 10-year baseline window will depend in part on whether the temporary tax

provisions enacted as part of the 2017 tax revision expire as scheduled.

In the long run, increases in federal debt are constrained by the amount of remaining “fiscal

space,” which is the amount of government borrowing that creditors are willing to finance. The

50

Congressional Budget Office, The 2017 Long-Term Budget Outlook, March 2017. 51

Government Accountability Office, The Nation’s Fiscal Health: Action is Needed to Address the Federal

Government’s Fiscal Future, January 2017. 52

Congressional Budget Office, The 2017 Long-Term Budget Outlook, March 2017. 53

Government Accountability Office, The Nation’s Fiscal Health: Action is Needed to Address the Federal

Government’s Fiscal Future, January 2017. 54

Congressional Budget Office, The 2017 Long-Term Budget Outlook, March 2017.

The Federal Budget: Overview and Issues for FY2019 and Beyond

Congressional Research Service 22

amount of fiscal space available depends on the current size of the debt, how fast it is increasing

relative to GDP, and the attractiveness of federal debt to investors relative to other market

instruments. Changes in debt relative to GDP depend on the size of deficits, the government’s

borrowing rate, and how quickly the economy is growing. With continuously increasing debt

levels, at some point debt would become so large that investors would no longer be willing to

finance deficits and fiscal space would be exhausted. Exactly when investors would stop

financing federal borrowing is uncertain. Because interest rates are presently lower than their

historical averages, there is little current concern that the federal government is in danger of

running out of fiscal space in the short run. 55

55

For more information on fiscal space, see CRS Insight IN10624, “Fiscal Space” and the Federal Budget, by Grant

A. Driessen and Marc Labonte.

The Federal Budget: Overview and Issues for FY2019 and Beyond

Congressional Research Service 23

Appendix. Budget Documents

CBO Documents

The Congressional Budget Office (CBO) provides data and analysis to Congress throughout the

budget and appropriations process. Each January, CBO issues a Budget and Economic Outlook

that contains current-law baseline estimates of outlays and revenues. 56

In March, CBO typically

issues an analysis of the President’s budget submission with revised baseline estimates and

projections. These documents can be delayed as a result of the legislative agenda or if the

President’s budget is off schedule. In late summer, CBO issues an updated Budget and Economic

Outlook with new baseline projections.

In these documents, CBO sets a current-law baseline as a benchmark to evaluate whether

legislative proposals would increase or decrease outlays and revenue collection. Baseline

estimates are not intended to predict likely future outcomes, but to show what spending and

revenues would be if current law remained in effect. CBO typically evaluates the budgetary

consequences of most legislative proposals and the Joint Committee on Taxation (JCT) evaluates

the consequences of revenue proposals.

CBO also releases other periodic publications focusing on the future fiscal health of the United

States. In its publication The Long-Term Budget Outlook, CBO makes projections on the state of

the federal budget over the next 30 years. CBO discusses spending and revenue levels and the

related issues that it expects will arise under different policy assumptions. In its Budget Options

volumes, CBO provides specific policy options and the impact they will have on spending and

revenues over a 10-year budget window. CBO also provides arguments for and against enacting

each policy.

OMB Documents

The President’s budget contains five major volumes: (1) The Budget, (2) Historical Tables, (3)

Analytical Perspectives, (4) Appendix, and (5) Supplemental Materials. 57

These documents lay

out the Administration’s projections of the fiscal outlook for the country, along with spending

levels proposed for each of the federal government’s departments and programs. The Historical

Tables volume also provides significant amounts of budget data, much of which extend back to

1962 or earlier. Along with the Administration’s budget documents, the Department of the

Treasury also releases its Green Book, which provides further detail on the revenue proposals that

are contained in the budget. 58

56

At the request of the House and Senate Budget Committees, CBO delayed the release of their 2018 Budget and

Economic Outlook in order to incorporate the effects of the 2017 tax revision (P.L. 115-97) and of BBA 2018 (P.L.

115-123). A 2018 analysis of the President’s Budget has not been released at the time of this publication. 57

The President’s budget proposals can be found on the OMB website at http://www.whitehouse.gov/omb/. The

Supplemental Materials include the Federal Credit Supplement, the Object Class Analysis, the Balances of Budget

Authority, and the Public Budget Database. 58

The FY2019 Green Book has not yet been made available. For the FY2018 version, see U.S. Department of the

Treasury, General Explanations of the Administration’s Fiscal Year 2018 Revenue Proposals, available at

http://www.treasury.gov/resource-center/tax-policy/Pages/general_explanation.aspx.

The Federal Budget: Overview and Issues for FY2019 and Beyond

Congressional Research Service 24

Author Contact Information

Grant A. Driessen

Analyst in Public Finance

[email protected], 7-7757

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Vol.:(0123456789)

Business Economics (2019) 54:157–159 https://doi.org/10.1057/s11369-019-00121-y

O R I G I N A L A R T I C L E

Perspectives on debt and deficits

Paul Krugman1

Published online: 15 April 2019 © National Association for Business Economics 2019

Abstract Vast countries that borrow in their own currency have enormous latitude to run up debt. It’s not at all clear why this should be an urgent concern for us right now. If r is less than g, if the interest rate you pay on the debt is less than the growth rate of the economy, then the debt to GDP ratio stabilizes even if you run a primary deficit. That says that if you want to run deficits to spend on something productive, you don’t need to worry about a debt spiral. We’re in a world where interest rates tend to be low even in good times; we are in a world which looks a whole lot like a secular stagnation world. In that kind of world, having persistent deficits can actually be a positive thing. If our debt would cause the foreign flow of money to the U.S. to slow down, that would also mean, by definition, a smaller trade deficit achieved through a weaker dollar.

Keywords Debt · Deficits · r minus g · Debt spiral · Secular stagnation

There are some people out there who say that debt never matters, it’s never a concern. I’m not in that camp. I think that it can matter. It can be a problem. The question is how important is it in the context of where we are now. I think you would have a hard time putting government debt into the top ten list of problems that we face. It’s just not that major an issue.

I think that looking at where debt in the United States is, relative to our own history, is way too narrow a view. You want to look across the history of other countries; the his- tory of what we’ve seen in the world. Take the case of Brit- ain, which has a long history. Britain had debt in excess of 100% of GDP for most of the 20th century. It almost became funny, that during the discussion about austerity policies in Britain, people were saying Keynes may have spoken for his time, but he would never have been arguing for Keynesian policies if Britain had had the kind of debt level it has now. It turns out in the 1930s Britain already had debt of more than 100% of GDP, as a legacy of World War I. It didn’t have problems with solvency then. It doesn’t have problems

with solvency now. The idea that debt should be a central focus of policy concern was never justified by the evidence. Japan has gross debt that’s 240% of GDP. Interest rates are negative. People who bet on a debt crisis used to call it the widow-maker trade because anybody who bet on that has been losing money year after year after year.

Vast countries that borrow in their own currency have enormous latitude to run up debt. It’s not at all clear why this should be an urgent concern for us right now. Clearly, bump- ing up the deficit to provide a tax cut that is basically being used to buy back stock was not a smart policy. But is that the thing that we should be worrying about most right now?

I would like to go on to say that most of the concerns when we talk about “fiscal space” are kind of undefined. When you try to push people on what are the limits on fis- cal space, they end up saying, well, it’s about how people will perceive it. Which is kind of saying, “I’m creating this concern and people are going to believe me, and therefore you cannot do the things you want to do,” which is a peculiar way to put it. If Japan can have debt that’s 240% of GDP and has, in fact, been following a policy of fiscal stimulus, what is the chance that the United States is going to be running out of fiscal space in some concrete fashion, as opposed to the kind of inside the beltway perception, any time in the near future? I just don’t see it.

We want to get into the question of how does one even think about the burden of debt with interest rates as low as they are. When we are at or near full employment, as

Prepared from remarks presented at the session Perspectives on Fiscal Policy at the NABE Economic Policy Conference, February 27, 2019.

* Paul Krugman [email protected]

1 City University of New York Graduate Center, New York, NY, USA

158 P. Krugman

we are, I think (God knows we’re not even sure about that these days) then I think there is crowding out. If the Trump tax cut had not been enacted, then the Fed would not have raised rates as much as it has. Interest rates would be a lit- tle bit lower and we would have a little bit more, probably mostly residential, investment than we now have. There’s some crowding out. If I could take the TCJA and make it go away and replace it with some significant part of the Green New Deal, I’d do it in a heartbeat. Of course, I would prob- ably go with some significant part of the Green New Deal even if we can’t get rid of the TCJA.

There are a couple of reasons that the low interest rate changes the story about debt. The most important involves fears that you have about a debt spiral when you have high debt. The concern is that if you have a large debt, that in order to stabilize the ratio of debt to GDP, you need to run a large primary surplus Well, if r is less than g, if the interest rate you pay on the debt is less than the growth rate of the economy, then the debt to GDP ratio stabilizes even if you run a primary deficit.

Further, the higher the level of the debt, the size of the primary deficit that is consistent with a stable debt ratio actu- ally grows. Debt does not crowd out your ability to spend on other things. The stock of debt is not really a problem. The low interest rates are also telling us that the private sector does not see very good investment returns. To the extent that deficits do crowd stuff out, the private sector doesn’t think it has any very good use for the money.

That says that if you want to run deficits to spend on something productive, you don’t need to worry about a debt spiral. You don’t need to worry that you’re crowding out highly productive private investment, because the private sector doesn’t think it has those great investment projects. In an environment like this, the market is basically trying to tell government, “Maybe you want to borrow some. If you’ve got some good stuff to spend money on, why don’t you actually borrow it?” It’s a peculiar thing that we sit here and say, “Well, no. We’re economists and we know better than the market.” There are times when that may be true, but that’s not something you want to act on unless you have very good reason to.

We’ve learned from Japan. Some of us worried about Japan-type experiences long before they actually happened. There was kind of a Japan worrier caucus at Princeton University when I first went there, which was Mike Wood- ford, Lars Svensson, me, and Ben Bernanke (I don’t know what happened to him). We used to castigate the Japanese all the time for not dealing with their problems effectively. I’ve been proposing that all of us should go to Tokyo and apologize to the Emperor because the fact of the matter is that now that we’ve seen how we handled a similar crisis, they did better than we did. You took at look at Japan and everybody’s very down on Japanese performance. But you

really need to adjust for demography. If you look at Japa- nese growth per working age adult since the early 1990s, it’s about the same as ours. The fundamental reason for slow growth in Japan is not that they’ve had enormous economic underperformance, but basically just a shortage of Japanese. The idea had been that Japan had given some needed lessons about the need to address debt problems. There is a mild, very mild negative correlation across nations between debt levels and growth. But almost certainly the causation runs the wrong way. Aside from Japan, Italy has high debt, but that’s because Italian growth collapsed. It’s not that Italian growth collapsed because of high debt.

Turning back to the Japanese performance, Japanese monetary policy was too conventional. They allowed them- selves to slide into deflation, which they didn’t need to. If they hadn’t done that, they’d be in even better shape than they are. After all of those years of deficit spending, they have a lot of debt which doesn’t seem to be doing any harm. It certainly hasn’t made the markets question their credit worthiness. They’ve never had the kind of mass suffering that we had after 2008. They’re still there. Japan is hanging together as a society better than we have.

Demography is probably the single best guess about why interest rates are so low. That’s the original secular stagna- tion hypothesis. Alvin Hansen was about demography, was about slowing population growth. He was wrong at the time because of the baby boom. But if you ask now, the reason why Japan got into this low interest rate liquidity trap envi- ronment 10 years ahead of the rest of us is probably demog- raphy. The reason that Europe is persistently weaker than we are has a lot to do with demography, because working age population growth is negative in Europe now.

Because we’re in a world where interest rates tend to be low even in good times, we are in a world which looks a whole lot like a secular stagnation world. It’s a world in which slumps in which you hit the zero lower bound hap- pen often. That’s what secular stagnation means. Not that you never grow but that you’re constantly at risk of finding yourself in slumps that can’t be fought with monetary policy. In that kind of world, having persistent deficits, having debt to the extent that the private sector regards the debt as net wealth and, therefore, saves a bit less, can actually be a posi- tive thing. It’s certainly a reason why any kind of extraor- dinary efforts to reduce debt in the current environment are almost surely self-destructive.

I’ve seen a lot of people quoting Olivier Blanchard, as they should because Olivier’s the most balanced man on Earth. He says, “Well, we’ve been overstating this debt thing.” There’s an excellent paper also making this point by Furman and Summers. One of the wonderful things about Olivier’s paper was that he pointed out that r less than g is the historical norm. It’s not an exceptional thing. The excep- tional thing was that period in the early ‘80 s of aggressive

159Perspectives on debt and deficits

disinflation with the Fed raising rates sky high to squeeze inflation out of the system. Aside from that, r is almost always less than g.

Let me talk about the vulnerability to flight by foreign investors, because that’s a risk that people constantly raise. It’s a constant concern, and yet if you try to come up with examples of countries that borrow in their own currency that have had crises because foreign investors lose confidence, I believe you come up blank. Argentina borrowed in dol- lars. Greece borrowed in euros. If you actually look for a country like us that borrows in its own currency and saw flight, the closest I can come up with is France in the ‘20s. But, even then, it was really not a big problem. Under the current circumstances, if the foreign flow of money to the U.S. were to slow down, that would also mean, by definition, a smaller trade deficit achieved through a weaker dollar. A smaller trade deficit would help us in many ways macro- economically. It would make it easier for us to maintain full employment, which is a plus. If the dollar were to weaken by 10%, 20%, why would that be a crisis for a country like the U.S? Because we don’t have large debts in foreign currency, public or private, there are no balance sheet issues that arise. We’re in a peculiar situation where our net international investment position improves when the dollar depreciates.

Under the circumstances of chronic large deficits and growing debt will the Fed ever be able to shrink its bal- ance sheet? I think it can. But it’s also not clear what the urgency of the Fed is in doing that. What are the problems that are being created by the fact that the Fed owns a bunch of longer-term securities as well as T-bills, or just that it has a large balance sheet? It’s not clear that there’s any action- able cause for concern there. It makes people uncomfortable, but that’s a little bit like the fiscal space argument. Again, it’s kind of saying, “I worry about this because other people might worry about it.” It’s almost kind of circular logic.

If you’re on the progressive side of this thing you should be thinking about paying for three kinds of spending. There is infrastructure investment. The question is how should we pay for investment? The answer is we shouldn’t. We should borrow. Borrowing costs are low. Private invest- ment opportunities are low. Even if there is some crowd- ing out, it’s worth doing. Second is what I’ve been calling benefit enhancements, which require moderate amounts of

government spending. Those probably should be paid for, but they can be paid for with narrow based taxes. They can be paid for with taxes on high incomes, as Obamacare was. If you want to have a Scandinavian welfare state, you have to have Scandinavian levels of taxes. I’m fully on for PAYGO on that from broad-based taxes. My guess that’s not going to happen in the next 4 years or in the next 10 years but it’s worth talking about. For the kinds of things we can do in the near term I’m for some revenue increases. In the long run we’re going need more of those. However, some benefit enhancements should be paid for by borrowing. Child nutri- tion and child health care are clearly things you can think of as investments, although they’re very long-term investments.

In conclusion, there’s enough stuff on the progressive agenda that is really clearly investment, that I think would use up even my amount of borrowing. Then the other items on the agenda probably should be paid for through taxation.

Publisher’s Note Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Paul Krugman joined The New York Times in 1999 as an Op-Ed col- umnist. He is distinguished professor in the Graduate Center Econom- ics Ph.D. program and distinguished scholar at the Luxembourg Income Study Center at the City University of New York. In addition, he is professor emeritus of Princeton University’s Woodrow Wilson School. In 2008, Mr. Krugman was the sole recipient of the Nobel Memorial Prize in Economic Sciences for his work on international trade theory. Mr. Krugman received his B.A. from Yale University in 1974 and his Ph.D. from M.I.T. in 1977. He has taught at Yale, M.I.T. and Stanford. At M.I.T. he became the Ford International Professor of Economics. Mr. Krugman is the author or editor of 27 books and more than 200 papers in professional journals and edited volumes. His professional reputation rests largely on work in international trade and finance; he is one of the founders of the “new trade theory,” a major rethinking of the theory of international trade. In recognition of that work, in 1991 the American Economic Association awarded him its John Bates Clark medal. Mr. Krugman’s current academic research is focused on economic and currency crises. At the same time, Mr. Krugman has written extensively for a broader public audience. Some of his articles on economic issues, originally published in Foreign Affairs, Harvard Business Review, Scientific American and other journals, are reprinted in Pop Internationalism and The Accidental Theorist.

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At the Minnesota Capitol, countdown to - what? No one knows what shutdown of government would look like Date: June 3, 2011 From: Finance and Commerce Publisher: BridgeTower Media Holding Company, LLC Document Type: Article Length: 1,498 words Lexile Measure: 1380L

Full Text: Byline: Charley Shaw

As acrimony and posturing continue to dominate relations between DFL Gov. Mark Dayton and GOP legislative leaders, the countdown to a July 1 state government shutdown proceeds. Yet even as the zero hour draws closer, many basic questions - such as the scope of services to be shuttered and the likely public impact - remain mysteries that would ultimately be settled in a courtroom.

During Minnesota's only previous shutdown, in 2005, the public effects were minimized by numerous factors, most notably the passage of many budget bills beforehand and the short duration of the stoppage.

This time around, most observers are expecting a much harsher set of circumstances. The prevailing line of rumor and speculation in Capitol hallways is that Dayton will petition the court for a much more minimal definition of the essential state services that must be maintained during a government closure.

Minnesota Association of School Administrators chief Charlie Kyte said, "When they shut the government down last time, they defined essential employees quite loosely, so that it was what was called a soft closure. Other than a few people maybe not using the parks, life went on.

"I'm picking up rumors that Gov. Dayton is planning on redefining what essential services really are. He will then serve it up to the courts to say [many things] are not essential services, and make the close-down much more painful in order to move a compromise."

Critical operations

The 2005 shutdown created a legally awkward situation in which a court-appointed special master approved spending on operations deemed critical to state government. Then-Gov. Tim Pawlenty, a Republican who was facing re-election in 2006, was in a tricky situation as he tried simultaneously to hold the line on taxes and avoid stoppages that could generate significant public blowback. On the day before the shutdown began, Pawlenty signed the environment and natural resources agency budgets, which kept state parks open during the Fourth of July holiday and mitigated the pressure on lawmakers to act immediately.

The shutdown lasted eight days and was resolved when lawmakers accepted Pawlenty's proposal to close the deficit with revenue from a 75-cents-per-pack fee on cigarettes sold at the wholesale level.

Dayton, by contrast, does not face a re-election bid until 2014, while the entire Legislature will be on the ballot again in 2012. The governor is also widely thought to believe that a hard shutdown is likely to minimize public hardship in the long run by forcing a budget deal sooner rather than later. That would augur for letting park systems and other high-profile services close in an effort to maximize pressure on Republican legislators.

One of the few things that's clear at this point is that no one has ever tried to catalog the range of services that could be affected in a broad-scale government shutdown - much less model their economic and political impacts. That has not stopped insiders from trying to imagine the consequences. "What's the impact on business if there's a long period of time in which commercial drivers' licenses can't be renewed?" one nonpartisan legislative staffer mused recently. "Minnesota police might be inclined to look the other way because of the circumstances, but would the businesses in other states and countries that those drivers' employers are doing business with be so magnanimous?"

Shutdown mechanics

If the 2005 precedent offers little guidance about the impact of a 2011 shutdown, it does offer insight into how the process is likely to unfold. In the middle of June 2005, when a shutdown appeared likely, DFL Attorney General Mike Hatch petitioned the court to allow "core functions" of government to remain funded and operating during the shutdown. (Pawlenty, a longtime political rival of Hatch's, filed his own petition the same day.)

A hearing was held on June 23, and Ramsey County District Judge Gregg Johnson subsequently issued an order indicating that the state Constitution requires core functions to be carried out. Included in those functions: complying with the rights of citizens as spelled out in the state and federal constitutions, and adhering to federal mandates. Johnson appointed former state Supreme Court Justice Ed Stringer as special master; in that capacity, Stringer handled requests to keep certain parts of government funded.

In preparation for this year's possible shutdown, Minnesota Management and Budget (MMB) has been gathering input from state agencies about essential services and the staff required to carry them out. DFL Attorney General Lori Swanson is expected to represent the state in court. When that day comes, however, the administration is unlikely to be the only party bending the judge's ear about what constitutes "core functions" of government.

The failure to enact a state government finance bill in particular could make a shutdown more difficult to manage. That's because the bill funds state agencies like MMB, the Department of Revenue and the Department of Administration that handle the basic tasks of entering into contracts, collecting revenue and paying bills. John Pollard, MMB's legislative and communications director, said a court would have to approve the funding for certain positions at MMB that are responsible for cutting paychecks to people in other agencies that the special master deems to be essential.

"The reason it's important is because though a lot of agencies [funded in the state government bill] are not necessarily high-profile agencies in the public eye, they are the agencies that support the agencies that are," Pollard said.

Legal ambiguities

There is at least one legalistic wild card in the process as well. In 2005 a group of breakaway GOP legislators flouted the wishes of then-House Speaker Steve Sviggum and proceeded with a lawsuit challenging the court's authority to continue government operations at all. They pointed to a provision in the Minnesota Constitution: "No money shall be paid out of the treasury of this state except in pursuance of an appropriation by law." The court's order had anticipated that argument, effectively overruling it by noting that depriving constitutional officers of the power to do their jobs was a violation of the federal Constitution.

But notably, the suit was ultimately dismissed not on its merits but because it was deemed to be filed too late. Such a challenge could theoretically arise again this year, but so far Republicans don't appear to making much noise about it. Taxpayers League of Minnesota President Phil Krinkie, who in 2005 was a Republican legislator and a plaintiff in the lawsuit (along with Reps. Mark Buesgens, Paul Kohls and Scott Newman), said he doubts that a court would take the plaintiff's side.

"Someone somewhere will say we need to obviously keep [open] the prisons, state hospitals, those types of services," Krinkie said. "Obviously if some radical right-wing group like the Taxpayers League said no, no, no, the court would say the precedent has been set."

The one legislator who has been outspoken on the constitutional issue is DFL Rep. Ryan Winkler of Golden Valley. In a story at Minnpost, Winkler was quoted as calling the 2005 court-approved appropriations "clearly unconstitutional."

Preshutdown steps

While the legal jousting over "essential" employees plays out, the state and labor unions are preparing for a shutdown. Members of the American Federation of State, County and Municipal Employees (AFSCME) Council 5, will receive layoff notices for about 36,000 employees on Wednesday. Per AFSCME's contract, employees could apply for unemployment insurance when the shutdown begins and receive health insurance for six months.

In 2005 the unions and the state came to terms on an arrangement known as a limited interruption agreement. State workers were allowed to use their comp and vacation time until July 15. There was also agreement that employee layoffs would go into effect 10 days after the shutdown began. Had the shutdown gone that long, workers would have been entitled to severance.

Eliot Seide, executive director of AFSCME Council 5, whose union endorsed Dayton in the 2010 campaign, said there isn't an agreement this year concerning a limited interruption of work.

"We have not tried to negotiate anything like that. It's a different situation," Seide said.

In contrast to 2005, when AFSCME pressed lawmakers to reach a deal and get employees back to work, Seide said the Republican position in 2011 is unacceptable - and worth a prolonged fight, however disruptive a shutdown would be.

In AFSCME's eyes, Seide said, rushing to consummate a bad deal would amount to "going back to work to get pink slips."

In addition to the worker paychecks, the terms of the shutdown might have an impact on commerce.

There are two types of essential services. Priority 1 services ensure life and health safety matters, such as maintaining security at prisons. The Priority 2 class involves things that would cause a severe economic disruption.

The shutdown could have a significant impact on everyday commerce depending on what services are allowed to continue under Priority 2.

By the numbers

36,000 AFSCME employees due to receive layoff notices on Wednesday

8 Number of days of partial government shutdown in 2005

Charley Shaw

Copyright: COPYRIGHT 2011 BridgeTower Media Holding Company, LLC http://finance-commerce.com/ Source Citation (MLA 9th Edition) "At the Minnesota Capitol, countdown to - what? No one knows what shutdown of government would look like." Finance and

Commerce, 3 June 2011. Gale General OneFile, link.gale.com/apps/doc/A258498540/ITOF?u=pres1571&sid=ebsco&xid=6bf21b89. Accessed 1 Oct. 2021.

Gale Document Number: GALE|A258498540