2006 Federal Budget Year in Review

The budget process this year began with a whimper and ended with even less, as Congress failed to act on 11 out of 13 appropriation bills and deferred this year’s business to next year’s Congress. At the beginning of February, the administration released its budget request for fiscal year 2007. It proposed deep cuts to the provision of domestic goods and services, while also making permanent the tax breaks that disproportionately benefit the wealthiest Americans. A week later, the administration submitted to Congress yet another request for more war spending. By the end of the year, Congress left most of the government running on last year’s budget allocations but passed more war-related spending and extended corporate tax cuts.

Proposed cuts in domestic spending and tax cuts for the wealthy

Under the budget request, $15 billion, or 4.4 percent of non-security domestic discretionary programs would be cut, after taking inflation into account. It proposed to reduce or eliminate 141 programs in almost every area of spending including community development, environmental protection and education.

The budget proposal also included making the various tax cuts passed since 2001 – and that primarily benefit the wealthy – permanent. This year more than half of the tax cuts went to the wealthiest 10 percent, and more than one-fourth went to just the top one percent.^{1 [2]}

The tax policy changes also represent a drain on federal revenues and are the largest contributor to the significant deficits of the past six years. In January 2001, the projected 10-year budget surplus was $5.6 trillion. Now, the projection for the same period is a deficit of $2.7 trillion.^{2 [3]} While increases in military spending also had a considerable impact on these numbers, the tax cuts are even more important to changing the budget outlook.

If the tax cuts were made permanent, the cost would total nearly $3 trillion, worsening the overall budget outlook and likely having a negative impact on the economy.^{3 [4]}

While the interests of Congress focused on campaigning and the Iraq War rather than taxes, it passed a two-year extension of certain tax cuts – worth $38 billion – that primarily benefit corporations or the wealthy.^{4 [5]}

More spending on war

A week after the budget request, the administration submitted to Congress an emergency supplemental request for $72.4 billion for more war-related spending in fiscal year 2006. Congress passed the request with few modifications, bringing spending on just the Iraq War in FY2006 to $100 billion. Congress passed a further $70 billion in war spending for fiscal year 2007 later in the fall. Combined with money already spent or allocated, the total cost of the Iraq War rose to nearly $380 billion. This money will only cover operations in Iraq through the first half of FY2007, or the end of March.

Broken down another way, on average, the federal government spends about $11 million every hour on the Iraq War, $256 million each day, or around $8 billion per month.^{5 [6]}

By the end of the year, the administration was already planning for the next war supplemental which will surely be higher than any to date and could even reach $160 billion.

End of the year, end of the budget process?

Though fiscal year 2007 began October 1, no more than two appropriations bills out of 13 were passed by that date: homeland security and defense. In mid-December, the 109th Congress closed and left the budget for fiscal year 2007 to be determined by the next Congress. In the meantime, the federal government continues to run based on the past year’s funding levels. Last year’s funding levels mean that fewer goods and services can be provided this year due to the increase in prices. It also means that the new Congress will have to deal with the budget for the current fiscal year while it faces a budget request for the next fiscal year and another war-related supplemental spending bill.

Notes: ¹G. Leiserson and J. Rohaly, ‘The distribution of the 2001-2006 tax cuts: updated projections,’ Tax Policy Center, Nov. 2006. ²A. Auerbach, W. Gale, P. Orszag, ‘New estimates of the budget outlook, plus ca change, plus c’est le meme chose,’ Tax Policy Center, April 17, 2006. The numbers represent the unified budget outlook which includes the Social Security surpluses. ³The impact on the economy depends on how the tax cuts are paid for. See ‘Tax cuts: myths and realities,’ Center on Budget and Policy Priorities, Oct. 12, 2006.Notes: ⁴Citizens for Tax Justice, ‘Time to end a wasteful congressional tradition,’ Nov. 2006. ⁵‘Burn rates’ may differ over time depending on the war, and how wear and tear of equipment is factored. For more information about Iraq War spending, see National Priorities Project, ‘Cost of Iraq War rises higher for American taxpayers,’ [7] Sept. 2006.