StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



By Request: Why Eating A Cupcake is Like "Off-Budget" Federal Spending

17 Feb 2012
Posted by Stan Collender

The managing editor of Roll Call -- the guy who keeps me on as a weekly columnist for the great metropolitan newspaper about Congress -- asked me to explain what it means when something is said to be "off-budget."

Here's the best way to think about it.

Supposed you're on a 1300 calorie-a-day diet (I'm talking from personal experience here: I've been on a diet like this for the past 5 months) and to keep track of how much you're eating you write down every morsel that goes in your mouth in a little book. Let's call it "the budget."

It's going well. Combined with an exercise program, your diet is producing good results and you're losing weight.

But today at 4 pm you walk past one of those cupcake stores that, like the donut and cookie shops in years past, now seem to be everywhere. And because this particular cupcake emporium is featured in a reality series on cable, you get an impossible-to-ignore craving for that large tiramisu cupcake with extra espresso icing in the window.

The only problem is that the cupcake is at least 500 calories and at this point in the afternoon you've already eaten 850.

At this point you have five basic choices to stay on your 1300 calorie-a-day diet:

  1. Avoid the temptation to eat the cupcake. It will be hard, but you won't have to worry about how you fit the 500 calories into that day's 1300 calorie limit.
  2. You only eat half the cupcake. The 250 calories mean that you would still have room for a very light snack instead of a full dinner.
  3. You skip dinner (and some of breakfast the next day) to make up for the 500-calorie cupcake.
  4. You work out again today so you burn more calories. Although you will take in more than 1300, the bottom line at the end of the day will be the same as if you stayed on the diet.

Or...5...You eat the cupcake with the extra 500 calories but don't write it down in your little book. That way at the end of the day it looks as if you've stayed at or below 1300 calories.

You've just eaten the cupcake "off-diet."

Although it's much less common now than it used to be, some of what the federal government spends money on each year is "off-budget." Like any other program, this spending is appropriated and, if there's a deficit, the national debt increases to pay for it; it's just not written down in the budget.

If you have a cupcake off-diet, your weight will be higher than your little book indicates its should be and that will become obvious when you next get on the scale. The same is true with off-budget. Just like your daily calorie count, the apparent budget deficit -- which is based on what everyone has agreed to write down -- doesn't increase when something is off-budget. But like your weight, federal borrowing increases.

There are no rules for when something is off-budget. In some cases, like the Federal Reserve, a decision is made not to include the spending on budget to preserve the organization's independence.

But in most cases the decision has been almost completely political. For example, in 1981 OMB Director David Stockman decided to make the purchase of oil for the strategic petroleum reserves off-budget. The stated reason was that the government was just exchanging one asset -- cash -- for another -- oil -- so that the net economic impact of the transaction was zero. The real reason was that the price of oil had skyrocketed and Stockman didn't want the additional spending reflected in the deficit.

Stockman actually had the same five choices as you do when you think about that tiramisu cupcake.

  1. Not to buy any oil for the strategic petroleum reserves
  2. Buy less oil
  3. Cut something else to offset the cost of the oil
  4. Increase revenues so that, while spending would still be higher, the deficit would remain the same.

Stockman instead chose option 5: He ate the whole cupcake, cut nothing to offset it, and didn't increase revenues. He just didn't write it down in the budget. As a result, the deficit didn't appear to increase.

For the record, spending for the military activities in Iraq and Afghanistan is not off-budget. The appropriations have often been done on an emergency basis but the spending has always been included when the deficit was calculated.

Social Security technically is off-budget. But its spending and revenues are included in the standard "unified" budget calculations so it's included in the deficit or surplus calculations.

 

Do I have this right? There

Do I have this right? There is off-budget (like Social Security), which is actually in the budget. And there is off off-budget, which is spending but not in the budget? If I have the distinction right, do we have examples of off off-budget spending that are of consequence?


Got the analogy, but....

We're assuming your editor asked the question because there is either a lot of existing or someone's proposing a whopping amount of... off-budget expenditures. For those of us who aren't among the cogniscenti, explication SVP. Also, no one, let alone a vegan, should be on a diet of 1300 calories for 5 months, so I speak for the gang in hopes that that is an analogy [albeit rather specific for that one fears], not a reality.


Interesting analogy

But do you have stats? Is there any hard data or estimates of how much "off-budget" spending there is now or how it compares to the past off-budget spending? Numbers would be nice.

Also: Stan, you are no Chris Christie, get off that awful diet.


cupcakes

Stan,
You need to get on WeightWatchers! You can eat anything, but not everything. But you do have to write it down: if you bite it, you write it!


"Like any other program, this

"Like any other program, this spending is appropriated and, if there's a deficit, the national debt increases to pay for it; it's just not written down in the budget." But it isn't the case that all spending is appropriated. In fact, that kind of the definition of "entitlement" program. When you create a legal entitlement to payment as with Social Security no further annual appropriations are needed for those payments. Rather the appropriation for the Social Security Agency pays for the administrative costs of making those payments, not for the payments themselves. Which has little to do with whether it should be on or off budget.


Not exactly

 Most entitlements have permanent, indefinite appropriations. The fact that they don't require annual legislation doesn't mean that they funds aren't appropriated.

In fact, the U.S.Constitution requires that all spending-- entitlements and otherwise -- be appropriated. It's Article I, Section 9, Paragraph 7: "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law..."




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