How a federal spending cap can worsen the economy

A cap on spending sounds reasonable until you start looking at the nation's growing population. The problems with a cap are more severe for Indian Country, where there is no private sector capable of picking up the slack.

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A cap on spending sounds reasonable until you start looking at the nation's growing population. The problems with a cap are more severe for Indian Country, where there is no private sector capable of picking up the slack.

It sounds reasonable: Why not just cap federal spending? Make every agency operate with the money that’s already there. This notion has common sense ... yet it is impossible in practice.

A few years ago the U.S. Commission on Civil Rights looked at the federal funding needs for American Indians and Alaska Natives. The report concluded that “federal funding for Native American programs has increased significantly. However, this has not been nearly enough to compensate for a decline in spending power, which had been evident for decades before that, nor to overcome a long and sad history of neglect and discrimination.” The commission said the result was a backlog of unmet needs “even though the government has a binding trust obligation to provide them.”

However, the commission also reported incremental progress and a growing tribal government infrastructure. That narrative of improvement was boosted following the American Recovery and Reinvestment Act. As the National Congress of American Indians pointed out in a publication of case studies, several American Indian and Alaska Native groups used that money to develop models of excellence for schools, criminal justice programs, transportation improvements, and health care systems. Indeed, one of the most exciting things to me was the development of community health clinics that provided new sources of revenue beyond the Indian Health Service and Medicaid. These innovations are critical if Indian Country’s health programs are to have a self-sustaining future.

But what now?

On paper, at least, federal funding only looks tight.   The Congressional Budget Office budget outlook last week says there will be a slight increase for federal programs over the next decade. In 2021, for example, the CBO projects spending of $5,409 billion with revenues of $4,969 billion. This remains true even if you take away the required $469 billion that the congressional Super Committee is supposed to find through either spending cuts or more revenue. 

Those numbers make it seem like a no-growth budget might work. But that idea is misleading, particularly for those programs that impact Indian Country.

First of all, the country is growing larger. That means a flat budget is actually a cut for existing programs. One way to measure that is looking at federal spending as a percentage of the Gross Domestic Product (the total of all goods and services). The CBO projects federal spending will decline to 22 percent by 2015 from about 25 percent today.

Much of that decrease, CBO says, comes from “the waning of the additional funding” through the American Recovery and Reinvestment Act; the very investment that’s been so useful to tribal governments.

But cuts will also come about because Congress has already decided on an automated program to cap domestic spending. “After 2015, spending for mandatory programs such as Social Security, Medicare, Medicaid, and other health care programs is projected to increase relative to GDP, while spending on programs funded through discretionary appropriations is projected to continue falling,” the CBO reports.

But the rub here is the short-term complication: The more the federal government pares back when the economy is already weak, the weaker the economy gets in general. And this is even more true in Indian Country, where the federal government is the primary funding agent. A period of contraction will increase already high unemployment rates and virtually every social ill.

Tribes will have to respond to federal spending cuts the way every state government is dealing with it now: laying off employees, cutting back and redefining eligibility for services, and doing what ever is required to balance the budget. (Which, in turn, strips even more purchasing power from reservation communities.)

The response from Indian Country ought to be clear: First, treaty rights are obligations and must be paid. And, second, don’t cut back on funding investments now. There is too much evidence that recovery funding is doing what it was supposed to do. There is no private sector that will come to Indian Country’s rescue, so those kind of basic investments are a smart long-term strategy.

The alternative is too gloomy to even consider. A deep and real depression in Indian Country that will cost every government — federal, state and tribal — even far more in basic human services.


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