The past couple of weeks showed two different ways to react when you don’t have enough money coming in: the Arkansas state government reaction, which is relatively effective, and the federal reaction, which isn’t at all.
Why the difference? One big reason is that Arkansas has a structure for responding to budget shortfalls and, more important, a culture that respects that structure. The federal government has neither nor the structure nor the culture.
Let’s start with Arkansas. The state’s budgetary decisions are governed by the Revenue Stabilization Act, a law passed in 1945 that is amended by the Legislature each budget cycle and sets the parameters for a balanced budget. Under the act, state spending is divided into categories: an essential Category A and a much smaller, spend-it-if-we’ve-got-it Category B.
State revenues this year have been a little lower than was budgeted because sales and corporate income tax revenues are lower than expected while income tax refunds have been higher.
Faced with a deficit, on Friday Gov. Asa Hutchinson announced that various state agencies would see total cuts of $70 million in Category B (out of a $5.33 billion general revenue budget) to make up the difference. The announcement took up part of a half-hour news conference that also covered the death penalty and the health care-related legislative session occurring this week. And that was that.
Contrast that with what happened in Washington, D.C., where members of Congress, faced with a looming government shutdown, managed last week to pass a continuing resolution to fund the government for another week – a process that happens so often these days that Americans hardly even notice anymore. Then on Monday it was announced that the Trump administration and Congress had agreed to a $1.1 trillion spending bill that increases money for defense and other areas while not cutting much elsewhere. The bill does not affect Social Security and Medicare, the government’s biggest programs, which Trump has vowed not to cut.
This is happening within the context of a federal government that is expected this fiscal year to spend $4 trillion but only collect $3.4 trillion, leaving a $559 billion deficit ($1,731 per American) that is being added to the $20 trillion national debt ($62,000 per American).
Meanwhile, President Trump released the bare outlines for tax cuts that the nonpartisan Committee for a Responsible Federal Budget guesstimates will reduce federal revenues by $5.5 trillion over the next decade. His administration promises the tax cuts will spur enough economic growth to pay for themselves, but history has shown that rosy scenario simply won’t happen. History has shown, however, that when a president calls for tax cuts, there’s a good chance taxes will be cut.
For comparison, the federal government’s deficit for 2017 is 14 percent of expected expenses, and nothing is being done to close the gap. In Arkansas, the $70 million shortfall – $23.33 per Arkansan – was 1.3 percent of the state budget, and Hutchinson filled it with nary a peep from the Legislature or the affected agencies.
So why can’t Uncle Sam do what Gov. Asa did? There are many reasons, but one of the biggest is the fact that the federal government doesn’t have effective structural controls like the Revenue Stabilization Act.
A national Revenue Stabilization Act is not the answer. Letting the president unilaterally make cuts would give him or her too much power and would be unconstitutional. One potential solution is an amendment to the Constitution requiring a balanced budget, an idea that goes back to the Founding Fathers. Sometimes that idea gains some traction, but there always have been too many opponents who’ve stopped it without offering a better idea.
Even if it were to pass, the culture of Washington still would have to be changed. A balanced budget amendment could be bypassed like other parts of the Constitution are bypassed now.
On the other hand, a structure helps create a culture. Gov. Hutchinson acted so decisively and uncontroversially in 2017 in large part because the Revenue Stabilization Act, passed in 1945, has become ingrained in the way we do things here over the past 72 years.
Regardless, future generations of Arkansans can be thankful they someday won’t have to pay back that $23.33.
They can apply it to the $20 trillion.