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A Macro-, Micro-Budget Refresher Course

February 13, 2015

These “Friday updates” — originally developed for the Alliance’s members — are now nearly 7 years old. During that period, we have developed a particular way of describing the federal budget and its impact on FDA. We feel comfortable with the accuracy of this approach but recognize some of the terminology is not widely used. Regardless, the topic is complex. For all readers, both new and old, we are providing a refresher this week.

I often distinguish between the macro- and the micro-budget. The macro budget is the entirety of Federal spending (about $4 trillion), of which just over $1 trillion is spent on discretionary programs (defense, social programs, FDA, etc.). FDA-relevant macro-budgetary considerations include the annual budget deficit, spending allocations provided to each appropriations subcommittee and caps on defense and non-defense spending The key to the macro-budget is what I have come to call “the iron triangle of deficit reduction.” This is described below.

In contrast, the micro-budget is all about FDA. How much did the President request? How much will the House and Senate appropriate? And particularly pertinent: Does Congress perceive that FDA monies are well-spent and that there is a strong rationale for prioritizing growth at FDA over other pressing demands? While macro-budgetary struggles grab headlines and can dramatically affect how much (or how little) is available to spend, in most years it is Congress’ micro-budgetary judgment of FDA that drives the agency’s appropriation. Because of the limited ability of any interest group to impact macro-budgetary issues, the Alliance’s focus is on FDA’s micro-budget.

The “iron triangle of deficit reduction” is that there are three ways — and only three ways — to reduce the annual deficit and lessen the growth of the national debt. These are: revenue and taxes; entitlement and mandatory programs; and discretionary spending (defense and non-defense). Republicans (in general) favor tax policies that do not increase net revenue and feel the deficit should be solved by cutting mandatory spending. Democrats (in general) are against entitlement changes and are willing to see revenue (tax) increases to balance the federal budget.

While the Rs and the Ds are stalemated on this debate, the only way to show progress on narrowing the annual deficit is to cut into discretionary spending. However, discretionary programs represent necessary services and eliminating them in their entirety would still not produce enough dollars to balance the federal budget in 2020. Eventually, Congress will have no choice but to deal with revenue vs. entitlements, but in the interim, the discretionary pot from which FDA receives its money is in a tight squeeze.

One aspect of the current (FY 16) macro-budgetary debate is “fiscal cliffs.” Over the course of this year, there are several times (maybe as many as a half-dozen) when Congress will have to decide some issue that has substantial impact on spending and deficit reduction. Each of the cliffs is an opportunity for Congress to try to create a more orderly macro-budget that can meet the nation’s needs. This type of resolution would finally create an environment in which available funds for FDA would be driven only by micro-budgetary considerations.

Note: This week’s Analysis and Commentary was written by Steven Grossman, the deputy executive director of the Alliance for a Stronger FDA.

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