Federal Government and Budget

¶ … federal budget with the Washington State budget. On the first note, the two budgets have been prepared in different ways. The Washington State budget was prepared using a fairly traditional public budgeting process which builds the current budget on top of prior budgets. New spending priorities are added, older ones removed, but for the most part the budget is focused on existing programs. The federal budget is usually produced the same way -- and in a sense it is because a lot of the budget items are built out this way. But the current proposed budget reflects radical shifts in spending priorities. The current budget tabled by the White House is more a reflection of a particular set of spending priorities than it is based on a) prior budgets or b) sound economic policy. In essence, the proposed federal budget is radically different from prior budgets largely because of a wildly different priorities.

The Washington State budget is built using the traditional tools of an incremental budget, where the subsequent budget is based on the prior budget. Loosely these budgets arise as performance budgets, where different departments have a number of priorities, or duties, that they are expected to perform. Funding is then provided to bring about those outcomes. At the federal level this method works because the federal government has tremendous capacity to raise funds, should it need to, but at most state levels this capacity also exists.

The Federal budget was not produced using any coherent budgeting methodology. It is clearly created top down, loosely within the parameters of a performance budget, but not using reasonable estimates of what it might take to achieve the desired outcomes. The desired outcomes are vague, and the final budget contains spurious economic assertions and egregious arithmetic errors (Beckwith, 2017). It is not a professional-level Federal budget.

Market inefficiencies are a known issue -- there is no perfect market outside of an economics textbook. So there is no point of comparison between a budget impacted by inefficiencies or not, as they all are. If there is a question about a specific type of inefficiency, that could be more properly evaluated, because the type of inefficiency matters. Taxes are often considered something of a deadweight loss, but really the entire concept of government is a deadweight loss in a perfect market environment. So I'm not sure I understand the question -- it seems a random detour into economic philosophy than a pragmatic dissection of budget-making.

At the state level, there is a mandate to deposit 1% of funds into a Budget Stabilization Account. In Washington, this fund is set to reach $1.2 billion by the start of the next budget and total state reserves are expected to top $2.1 billion. A system like this would also be valuable for the federal government, though there are differences. State governments have much lower capacity to borrow via debt markets; the Federal government can borrow a nearly infinite amount of money. As such, the Federal government does not have the same depth of need for such reserves. That said, it might make sense for the federal budget to include such reserves as a means of paying down debt, or at least avoiding a perpetual budget deficit.

The issue of course with rainy day funds at the federal level is that the federal budget has a deep deficit. Every day is a rainy day in Washington, DC. The Federal government setting aside money for when costs exceed revenues makes little sense that way -- all funds are accounted for, plus any theoretical future surplus. The US Federal government's ability to raise funds being quite different from any state government's is also a factor -- it is cheaper to raise money via open market operations than it is to set it aside.