U.S. Budget Problems Threaten Competitiveness, Experts Say at AAAS Forum

A panel of influential budget experts on a AAAS panel Thursday warned of dire federal budget problems in the months and years ahead, and said that soaring mandatory expenses and looming deficits pose a risk to U.S. funding for research and development.

Appearing at the 31st annual AAAS Forum on Science and Technology Policy in Washington, the experts predicted that a deeply divided Congress would have trouble agreeing on a 2007 budget before congressional elections in November. That would mean the 2006 budget would prevail into the 2007 budget year—but it contains billions less than proposed by President George W. Bush or the U.S. Senate, and that could directly affect R&D spending anticipated in Bush’s budget plan.

John H. Marburger III, director of the White House Office of Science and Technology Policy, acknowledged the climate of fiscal constraint during the opening keynote speech. But he predicted that the president’s proposed American Competitiveness Initiative, if approved, would “assure the future economic competitiveness of our nation.”

[To read the prepared text of Marburger's address, click here.]

Experts on a later panel, however, were less sanguine. Unless escalating long-term costs for Social Security, Medicaid and Medicare, interest on U.S. debt and other mandatory expenses are offset by dramatically increased revenues, the U.S. faces a major debt build-up or deep budget cuts. But the tax increases needed to close the gap could be so substantial that they would undermine economic growth.

“It’s bigger than a budget problem,” said Douglas Holtz-Eakin, the former director of the Congressional Budget Office who now serves as director of the Maurice R. Greenberg Center for Geoeconomic Studies at the Council on Foreign Relations. “I promise you that if these trends are all to continue, it will attack the core of American competitiveness.”

U.S. competitiveness and innovation have emerged as a crucial theme in recent months, and the issue could be prominent in the coming congressional election campaign.

Reports by scientific, education and industry groups have warned that, with increasing global competition, the United States must take ambitious steps to preserve its status as the world leader in innovation. President Bush has offered the American Competitiveness Initiative and others bills pending in Congress are intended to encourage innovation.

Those themes also were prevalent during the first day of the AAAS Forum on Science and Technology Policy, which annually brings together top science policy experts and government officials to explore some of the most challenging issues facing scientists and society. More than 400 scientists, policymakers, educators, students and others enrolled to hear this year’s speeches and panel discussions.

The Forum was opened Thursday by AAAS Board Chairman Gilbert S. Omenn, professor of internal medicine, human genetics and public health at the University of Michigan in Ann Arbor. He reminded the audience of the state of the U.S. economy in 2001—the National Institutes of Health budget was being doubled, and even then there was a $550 billion federal budget surplus. It was, Omenn said, a time of bipartisan celebration and an opportunity for visionary planning.

But the 9/11 terror attacks, the related military actions in Afghanistan and Iraq and deep tax cuts have had a profound impact on the budget. Omenn noted that a government report quietly circulated late last year had pegged the official deficit at $319 billion; measured by accrual accounting, which includes future obligations included in the budget, the deficit is $760 billion, the report found. One analyst cited by Omenn has pegged per capita debt at $156,000, or the equivalent of a $750 monthly mortgage for each person in America—without the benefit of a house.

Marburger followed that introduction with a summary of how the process and temper of federal R&D budgeting has changed in the past two decades. Today, he said, the process is shaped by a new emphasis on funding areas that contribute to economic competitiveness. In Bush’s first term, he said, overall federal R&D spending rose by 45 percent, the highest rate of growth since the Apollo space program in the 1960s and early 1970s.

“The administration is not given enough credit for the impact of this increase,” he said.

The 2007 cost of the administration’s American Competitiveness Initiative—roughly $6 billion—is “dwarfed” by earmarks in the current budget, Marburger complained. Earmarking goes beyond the president’s budget to make narrowly focused appropriations for research or other projects in a particular congressional district. When an agency’s budget is laced with earmarks, he said, there’s a “gross exaggeration” of how much money the agency actually has to fulfill its plans.

Other speakers focused on different problems, especially the constraints resulting from chronic deficit spending.

Kei Koizumi, director of the AAAS R&D budget program, detailed both the upside and the downside of the administration’s 2007 budget proposal. While the National Science Foundation, the Department of Energy’s Office of Science and the National Institute of Standards and Technology stand to gain from the White House competitiveness initiative, Koizumi said that spending at most other R&D agencies would fall.

“In this very tight budget, for every increase there would be steep cuts elsewhere,” he said. That trend would continue for several years, he said, with some agencies facing real cuts of 10 to 30 percent.

Koizumi predicted there could be “fierce competition” for scarce 2007 budget funds in the months ahead. The many innovation initiatives now pending in Congress are not likely to advance, added, unless new money is found to pay for them.

G. William Hoagland, director of budget and appropriations for Senate Majority Leader Bill Frist (R-Tenn.), agreed that the budget process in the next few months could be unusually difficult.

Hoagland, who described himself as a “deficit hawk,” said that when Congress returns to work on Monday (24 April), the schedule for passing a 2007 spending plan will be extremely tight—85 days before the pre-election break in October, or, more realistically, 57 days if Mondays and Fridays are excluded.

Meanwhile, Congress still has to deal with two remaining 2006 budget matters—a $92 billion appropriation for hurricane relief and the Iraq war, and a $70 billion tax-reduction measure. The 2006 budget may, in the end, have a deficit approaching $400 billion, he said, compared to $319 billion in 2005. And a considerable bloc of Republicans will be pressing for substantial budget cuts in advance of the election—cuts that might come out of research and development investment.

“Let me state the obvious,” Hoagland said. “This is an extremely difficult political year. The president’s job approval ratings remain near the lowest of his presidency. Congress’s approval ratings aren’t much better.” That’s compounded, he said, because the top two officials at the Office of Management and Budget have taken new jobs in the administration, and new leaders will take office under difficult conditions. Republicans are divided and Democrats, sensing possible victories in November, aren’t in a mood to compromise with them.

According to Hoagland and Holtz-Eakin, that dynamic may grow more pronounced as the cost of non-discretionary programs rises in the years ahead.

Holtz-Eakin listed Social Security, Medicare, Medicaid as the three programs that will consume an ever-greater proportion of the federal budget as the population ages and medical costs continue to soar. Hoagland added defense spending and interest on the federal debt to that list, and noted that those five are already crowding out other needs.

“You basically can do away with the rest of the government and you might be able to balance the [2007] budget,” he said. If current trends hold, Hoagland said, by 2035 the federal government will be able to pay for Social Security, Medicare, Medicaid and a small portion of interest on the federal debt—and nothing else.

Clearly, he noted, R&D would suffer in that scenario.

Given their pessimistic prognoses, the budget experts expressed surprising optimism that the United States can resolve its budget dysfunction—if voters and political leaders summon the political will to make difficult decisions. The U.S. economy is resilient, Hoagland said, and the world economic system has allowed foreign interests to invest in the U.S. and underwrite its debt.

But “that may not always be the case,” he cautioned. “And for some reason, it just doesn’t seem right to this farm boy from Indiana that the richest country in the world today actually imports capital from all other regions of the world—particularly oil-producing countries. It’s not a secure feeling about controlling our future destiny.”

Edward W. Lempinen

21 April 2006