Reversing a Decade of Domestic Disinvestment

Later this week, the Biden administration will send a proposal to Congress detailing recommended levels of discretionary spending for fiscal year 2022, which starts on October 1. As is typical of first-year presidents, President Joe Biden is expected to release his full budget—which will include proposals for mandatory spending and revenues and cover a longer time horizon—at a later date.

To contextualize President Biden’s discretionary budget proposal, this column examines recent trends in nondefense discretionary (NDD) spending, illustrating the extent to which the United States has disinvested from critical domestic government services over the past decade. The consequences of this disinvestment, as discussed below, highlight the need for greater spending on the programs that sustain communities and ensure the health of the U.S. economy writ large.

The NDD part of the budget includes everything that the federal government does except: (1) mandatory programs whose budget Congress does not determine on an annual basis, such as Social Security and Medicare, which make up most of the budget; (2) national defense; and (3) interest on the national debt. Although the NDD budget contains the vast majority of federal programs and functions (see text box below), over the past decade, it is only about 15 percent of the federal budget, having declined from 19 percent in 2010.*

The disinvestment from NDD programs began when Republicans took control of the U.S. House of Representatives in 2011. That summer, in an unprecedented tactic to force domestic spending cuts, House Republicans refused to pass an increase in the debt limit—the law enabling the U.S. Department of the Treasury to finance spending that Congress has already authorized. Their refusal brought the United States to the brink of a default that could have been catastrophic for the U.S. and global economy. The Obama administration ultimately struck a deal to stave off the crisis, and the Budget Control Act (BCA) of 2011 was enacted.

The BCA heralded a sharp shift toward fiscal austerity, which greatly slowed the already-fragile economic recovery from the Great Recession. And in the years after it passed, the BCA resulted in deep cuts to NDD programs—bigger even than the original compromise Congress had envisioned. The BCA imposed restrictive caps on defense and NDD spending. The law also provided that those caps would go even lower unless the White House and Congress reached a subsequent agreement to reduce mandatory spending or raise revenue. They never reached such an agreement, and over the next several years, discretionary spending was cut even further below the original BCA caps. A series of bipartisan compromises partially alleviated the cuts over the following years, and Congress has recently relaxed the original caps, which expire this year. The legacy of the BCA, however, was a decade of profound disinvestment from domestic programs—disinvestment that had very real consequences for the quality and reach of many vital government services.

As Figure 1 shows, after 2010, NDD spending decreased in relation to the size of the economy every year through 2019, falling from 4.4 percent of GDP, below its historical average of 3.9 percent, to a record-low 3.1 percent of GDP.**

Figure 1

The disinvestment over the past decade left major gaps in government funding. Had NDD spending remained at its 2010 level as a share of the economy, the total NDD budget would have been $1.7 trillion more from 2011 to 2019. Due to the Great Recession and other factors, 2010 was a recent high point in NDD spending. But even if the United States had invested in NDD programs at the historical average levels that it did before 2011 relative to GDP, the NDD budget would have been nearly $800 billion more in total from 2011 to 2019.

Those figures understate the resultant squeeze on most NDD functions because, over this period, Congress substantially increased spending on veterans’ benefits, and primarily veterans’ health care. While Veterans Affairs benefits increased by 67 percent in real terms as Congress addressed serious deficiencies in services for veterans, other NDD functions were cut.

As a result, the United States missed myriad opportunities to invest in people and communities in ways that would have made the country stronger, healthier, more competitive, more innovative, and more humane. To give just several examples:

• Drastic cuts to the U.S. Environmental Protection Agency (EPA) have weakened environmental protections, endangering Americans’ health and the environment. The budget for the EPA—the main agency charged with protecting the natural environment and ensuring that Americans have clean air and water—has been cut by 26 percent in real terms since 2010. As a result, the agency has lost more than 3,000 employees, an 18 percent reduction in staff. In 2020, the EPA made the lowest number of inspections of polluting facilities and had the fewest civil enforcement actions in the past 20 years. Criminal enforcement actions also dropped to new lows over the past four years.
• Cuts to the Social Security Administration (SSA) have harmed the agency’s ability to serve retirees, survivors, and people with disabilities. While Social Security benefits are not part of the discretionary budget, its administrative costs are. Between 2010 and 2021, the SSA’s operating budget was cut by 13 percent in real terms, while the number of beneficiaries rose 21 percent, according to the Center on Budget and Policy Priorities (CBPP). The shortchanging of the SSA’s operations has hurt the retirees, survivors, and individuals with disabilities whom the program serves in a number of ways, including closed field offices, long waiting times at field offices that are open, long backlogs for appeals of disability benefit eligibility, and poor phone service.
• Funding for the Title X family planning program has been insufficient to meet current needs, and the program will need to recover from the harm caused by the Trump administration. Title X, the nation’s only domestic family planning program, saw a significant decrease in funding in 2011 and has since been flat-funded—cutting its budget by 25 percent in real terms. Title X provides grants for family planning and related preventive health services, such as contraceptives, cancer screenings, well-woman screenings, HIV prevention, and other services, including for many people who otherwise could not afford to access care. As funding eroded, Title X sites served 25 percent fewer patients. In 2016, in a study published by the American Journal of Public Health, researchers estimated that the program’s funding was 40 percent below the level needed to meet the need for publicly funded family planning services. More recently, the Trump administration took drastic actions to dismantle the program, cutting the capacity of the Title X network of clinics nearly in half, affecting potentially 1.6 million patients. The Biden administration has stated its intent to rebuild the Title X program and reverse the harmful Trump-era changes. Even more, rebuilding Title X is one component of addressing access to reproductive health care as well as the maternal health crisis, which for decades has led to disparities in maternal mortality and morbidity among Black and Indigenous women. Legislation known as the “Momnibus”—the Black Maternal Health Momnibus Act of 2021—provides a comprehensive response to the crisis.
• Failures to invest in stewardship has worsened increasingly severe wildfires. Budget cuts to the Bureau of Land Management (BLM) and U.S. Forest Service (USFS) fire prevention activities have contributed to catastrophic wildfires such as those that devastated Western states last year. For more than a decade, those agencies have resorted to borrowing from forest restoration programs to fight wildfires. This borrowing has caused forest management projects covering millions of acres to be placed on hold, leaving dead trees and brush that, in turn, increase the risk of more wildfires. Funding for wildfire fuel reduction was cut severely after 2011 before returning to about the same levels in real terms. That, along with a 2018 wildfire funding fix passed by Congress, should have helped the agencies catch up. But decades of diverting resources to fighting fires have left the USFS with a 39 percent reduction of its staff other than firefighting personnel. Last year’s fires in the West killed 46 people, burned more than 10 million acres, and caused $16.5 billion in damages—more than twice the total budget of the USFS.
• Congress has underfunded affordable housing despite the urgent and growing need. 7.6 million extremely low-income households, about half of whom include seniors or people with disabilities, spend more than half of their incomes on rent and utilities. Nearly half of the 44 million households who rent their homes spend more than 30 percent of their incomes on housing costs. Congress provided emergency housing aid in the American Rescue Plan Act and other COVID-19 relief initiatives—but those emergency responses follow years of disinvestment in affordable housing. Over the past decade, the budget for public housing fell to nearly 30 percent of its inflation-adjusted level from 2000, before inching up to 17 percent below the 2000 level in 2019. The budget for rental housing vouchers has increased as the costs of rent have increased, but still fewer than 1 in 4 households who are eligible for vouchers and other rental assistance receive any help, leaving out more than 17 million households. That help is desperately needed: Extending rental assistance to all eligible families would move 9.3 million people out of poverty (including 3.4 million children) and more than 3 million out of deep poverty (including 1 million children), according to research by Columbia University’s Center on Poverty and Social Policy. This would have an especially large positive effect for Black and Hispanic families, who comprise a disproportionate share of people living in poverty in the United States.
• The United States has starved innovation by underfunding research and development (R&D). Federal investment in R&D as a share of GDP had declined for decades before the BCA’s budget caps resulted in deeper reductions. The BCA caused the United States to invest about $240 billion less in federal R&D, including about $100 billion for basic and applied research, according to the American Association for the Advancement of Science. That $240 billion represents investments that were not made in energy science and technology, basic science, agricultural and environmental research, and medical and health research. Federal R&D provides a bedrock for the innovation that drives productivity growth, boosts living standards, and enhances U.S. competitiveness relative to countries such as China, whose total R&D has grown much faster than the United States’. Investments in R&D are also critical to address and prepare for climate change. As CAP emphasized in a report last year, it is important not only to invest more federal dollars in R&D but also to invest them more equitably, investing in Black innovators who have faced persistent racial inequality in federal R&D support.
• IRS cuts have let wealthy tax cheats off the hook while diminishing services for honest taxpayers. While the BCA’s ostensible purpose was to reduce budget deficits, some discretionary spending cuts have pushed those deficits higher. From 2010 to 2020, the IRS budget was cut by more than 18 percent, adjusted for inflation, while the number of tax returns and demands on the agency increased. The budget cuts fell hardest on the IRS’ tax enforcement function, as the IRS lost 15,000 enforcement personnel over the past decade. As a result, from 2011 to 2018, the audit rate for large corporations halved, and the audit rate for millionaires dropped by 74 percent. Taxes went uncollected from hundreds of thousands of high-income people who did not even file tax returns. Lacking the resources to go up against ultra-wealthy individuals and corporations, the IRS has focused a greater share of its enforcement resources on audits by mail that often target low-income taxpayers. The tax gap—the amount of taxes that are owed but uncollected—is estimated to be about $600 billion this year and projected to be $7.5 trillion over this decade, with the richest 1 percent of Americans responsible for a disproportionate share of the gap. Meanwhile, when taxpayers call the IRS for guidance, its staff is only able to pick up 1 out of every 4 calls. And in recent months, as more people called with questions about stimulus payments and other COVID-related tax issues, the IRS answered only about 1 out of 11 Reversing IRS budget cuts would pay for themselves many times over while also creating a more equitable and efficient tax system.

The examples above illustrate only a small portion of the country’s unmet needs and the effects that years of disinvestment have had on federal programs and services. The CBPP’s broad overview of NDD disinvestment highlights even more consequences.

Conclusion

The COVID-19 crisis exposed profound weaknesses in America’s public health infrastructure and the institutions that provide health and economic security. People of color—especially Black, Latina, and Asian women—have suffered especially hard during the crisis. They are some of the most vulnerable groups that are left behind by the lack of investments in health care and economic security. The emergency relief bills that Congress passed since have ameliorated the crisis, and the American Rescue Plan Act provides substantially more relief. Yet as vaccinations accelerate and the United States hopes to turn the corner on the crisis, policymakers must not repeat past mistakes. They must recognize that significant cuts to core government functions over the past decade left the country less prepared for COVID-19 and the resulting economic fallout, and that many pre-crisis needs are still far from being met. To address those needs, foster shared growth, enhance America’s competitiveness, and meet fundamental challenges such as addressing climate change and closing the racial wealth gap, the United States needs substantial increases in NDD.

Seth Hanlon is a senior fellow at the Center for American Progress. Lorena Roque is a senior policy analyst for Race and Ethnicity Policy at the Center.

* Note: This does not count the very large category of “tax expenditures,” or special tax provisions that are akin to spending programs, which the Congressional Budget Office estimated to be $1.8 trillion in 2020.

** Note: The historical data on NDD spending provided by the Office of Management and Budget begins in 1962.