2006 was a busy year in federal fiscal policy. As in 2005, the regular budget process broke down almost entirely, increasingly urgent issues were neglected, and much time and attention were devoted to consideration of items and priorities seen by many as insignificant and misguided. As a result, the nation continues to see its overall debt grow at an alarming rate, to the point where interest expense payments on it are the fastest-growing area of spending. Despite this, the President and Congress remained as focused as ever on enacting still more tax cuts, almost all of which strongly favor the wealthy, provide only marginal broader economic benefits, and dig the country into an ever-deeper deficit hole.

• Bankrupt Nation
• The Daily Opportunity Cost of Interest Expense
• Despite Short-Term Gains, CBO Forecasts Grim Long-Term Fiscal Outlook

There were a few bright spots, however: Congress continued to ignore the Program Assessment Rating Tool and enacted a bill to make federal spending more accessible and transparent to the public. Two dangerous budget process proposals were defeated, and OMB Watch launched a new searchable website containing easily accessible information on federal spending. What's more, there is hope for more advances and victories for responsible and equitable fiscal policy in 2007. But before that, we review all that was in 2006 federal fiscal policy. Budget/Appropriations A Budget Full of Cuts and Congressional Inaction In February, the President proposed a FY2007 federal budget of $2.77 trillion, replete with funding reductions for important programs. The budget estimated a deficit of $354 billion by setting a discretionary spending cap of $873 billion and making deep cuts in student loan programs, the Community Development Block Grant, veterans' health funding, and other health care cuts. Months of congressional negotiations followed, but only two appropriations bills passed, and the government is now operating under a long-term continuing resolution.

• Initial Analysis of the President's 2007 Budget
• Budget Gimmicks in Bush's FY07 Proposal
• Budget Failures: Cutting to the Core
• Congress to Have Short Year; Appropriations Work Likely to Suffer
• Congress Squanders Year As Appropriations Remain Unfinished
• Lame Duck Session Holds Little Hope for Appropriations Bills

Congress Increased Debt Ceiling Again With Hardly a Mention An unexpected surge in tax revenues, reflecting better-than-expected short-term corporate profitability, held the official FY2006 budget deficit to $248 billion. But that deficit figure doesn't tell the entire story because Social Security and Medicare trust funds, which are in temporary surplus, are being used to pay other bills. Count those liabilities, as Congress should, and the debt went up by almost $550 billion in 2006. Congress took action to increase the country's debt limit for the fourth time in the last five years to almost $9 trillion. The Senate passed the increase 52-48, while the House skipped a debate (and vote) entirely by increasing the limit through a special rule that sidestepped a recorded vote.

• Honest Debate Is Needed Around Vote to Increase Debt Limit
• House Passes Budget, Slips in Increase to Debt Ceiling
• Treating Deficit Addiction
• Treasury Reports Quarter-Trillion Dollar Deficit; President Still Obscures Fiscal Problems

Budget Process FY2006 Reconciliation Bill Finally Pushed Through Congress In its budget resolution in 2005, Congress called for a bill that would allow for special fast-track protections for $34 billion in cuts to mandatory programs and more than twice that amount in additional tax cuts, primarily for the wealthy. In the end, it took well over a year for Congress to pass this bill that, contrary to the original purpose of the reconciliation process, actually increased the deficit. Students saving for college, low-income Medicaid beneficiaries, and Americans working abroad were a few of the groups of people worse off under the law.

• Final Budget Bill Passed; Tax Bill Sent to Conference
• Dishonest Budget Gimmick Enables Passage of Irresponsible Tax Cuts
• Who Wins With The Tax Bill? Bush Raises Taxes On Students, Expatriates

PAYGO Fails By the Narrowest Margin Congress again considered restoring true Pay-As-You-Go (PAYGO) rules that would force any increases in mandatory spending or tax cuts to be deficit neutral through the full budget window. The Senate voted on reinstatement of true PAYGO rules during the FY2007 budget resolution debate, and it failed in a 50-50 vote. However, given the change in control of Congress next year, and statements from the Democratic leadership, prospects for PAYGO are now considerably brighter in 2007.

• Sen. Coburn Caves on PAYGO; GOP Opposes Fiscal Responsibility
• House Dems Plan Loong Sloow Rolll-Out of Ethics Package

Dangerous Process Changes Fail to be Enacted Two dangerous budget process proposals underwent serious consideration throughout the year, but in the end, were defeated in Congress. President's Bush proposal to reenact the line-item veto and conservative attempts to create sunset commissions were both framed as fiscally responsible reforms by their supporters, but would have turned out to be anything but. The defeat of these proposals preserved an important level of checks and balances between the executive and legislative branches of government on budgetary issues.

• President Restarts Push for Line-Item Veto
• Harmful Budget Process Plans Could Become Reality

Continuing Resolution Locks in Funding Shortfalls The unique configuration of the continuing resolution will hold funding for almost half of FY2007 at low levels that are likely to have dire consequences for programs. The Social Security Administration has mentioned the possibility of furloughing every employee. Without adjustments, funding will not keep pace with demand for low-income housing vouchers. School breakfast and lunch programs would face a $1 billion shortfall, cutting off 1.2 million participants, and the Veterans Health Administration would have to absorb the $3 billion increase to maintain hold-harmless funding levels elsewhere.

• To Be Continued: Budget Irresolution
• Same Old Congress, Same Old Budgetary Gimmicks
• The Longest CR
• Continuing the Resolution ... into the New Year

Dishonest Budgeting and Deceptive Analysis The Bush administration's FY2007 budget promoted dishonest and manipulative budget practices that have decreased the transparency of the federal budget and distorted the debate about important long-term policies. Such practices include skewing budget analysis in order to reinforce and support political goals, omitting certain costs of proposed policies and actual war costs from budget projections, and assuming the extension of the president's tax cuts. In doing so, the White House has misled Congress and the American people about the fiscal health of our country and our capacity to meet current and future financial obligations.

• More Dishonest War Budgeting from White House
• Budget Gimmicks in Bush's FY07 Proposal

Wealth and Income Inequality Congress Fails to Increase Minimum Wage For Ninth Straight Year Despite numerous efforts in the Senate, Congress closed out its ninth consecutive year without passing an increase to the federal minimum wage. Many states, tired of waiting for leadership from the federal government, have instituted their own minimum wage increases, including six states that passed ballot initiatives in the midterm elections.

• States Continue to Lead on Wages Where Feds Have Failed
• Not a Happy Anniversary

Economy Improves, Fails to Benefit Most Americans The gap between the rich and the middle class widened again this year. Key economic indicators showed that income for high earners vastly outpaced everyone else. Expanding wages showed up in unexpected bumps in federal tax receipts that were driven by high-earners, corporate profits, and a banner year on Wall Street. But average workers' wages were held stagnant as the median wage failed to keep up with productivity gains. Average pay for corporate chief executive officers is now 369 times that of average workers (up from 36 times in 1976).

• Income Inequality Has Intensified Under Bush
• Income, Poverty Stats: Two Tales of the Economy
• Wealth/Income Trends Reported In Wall Street Journal
• NY Times Fronts Inequality Findings

Federal Tax Policy Efforts to Repeal, Slash Estate Tax Fail in the Senate For the fourth time in five years, the House of Representatives passed a bill to permanently repeal the estate tax. The Senate, however, held fast against repeal as well as a host of "compromise" measure to slash the estate tax by over half a trillion dollars over ten years, rejecting both stand-alone repeal and the compromise.

• Senate Rejects Estate Tax Repeal; Frist Likely to Turn to Costly 'Compromise'
• Last-Minute Attempt to Add Estate Tax to Pension Reforms Fails
• Senate Defeats Estate Tax Giveaway…Yet Again

Package of "Extenders" Finally Passes Congress The popular set of tax breaks that expired at the beginning of 2006, known as the Extenders — featuring a varied package of middle class and business tax credits — proved too politically appetizing to pass on a stand-alone basis. Senate Majority Leader Bill Frist (R-TN) pulled the Extenders off of the tax reconciliation and pension bills, then affixed them to the poison pill of the estate tax. Eventually, the extenders package passed the full Senate during the lame-duck session and will become law before the end of the year.

• Senate Finally Passes 'Extenders' Tax Cut Package

Accountability and Transparency in Federal Spending Federal Funding Accountability and Transparency Act (S. 2590) In the most significant spending disclosure efforts in several years, OMB Watch worked with Sens. Tom Coburn (R-OK) and Barack Obama (D-IL) to pass the Federal Funding Accountability and Transparency Act. The Act mandates increased government accountability and public access to federal spending data, through a free, public, searchable website of all federal spending, including government contracts and grants that will be available to the public by January 1, 2008.

• Battle Brewing on How to Track Contract and Grant Bucks
• Spending Transparency Bill Passes Senate, House Approval Imminent

FedSpending.org One of the major OMB Watch initiatives of 2006 was the launch of a new website - FedSpending.org. A massive undertaking, the site combines data from the Federal Procurement Data System on federal contracts and the Federal Assistance Award Data System on federal assistance such as grants, loans, insurance, and direct subsidies like Social Security. FedSpending.org enables the public to exercise its right to know how the federal government spends our money so citizens are able to hold elected officials accountable for the national priorities Congress sets.

• OMB Watch Launches Fedspending.org
• FedSpending.org

Earmark Reform "Earmarks" — lines of funding legislation in appropriations bills members of Congress designate for specific projects in their districts — became a dirty word in Washington in early 2006, evoking visions of a $250 million "bridge to nowhere," questionable projects bearing the name of a congressional sponsor, Jack Abramoff, casinos, and a cash-for-favors culture. A sham to some, a harbinger of progress to others, the GOP-led House adopted an internal rule that required sponsors of earmarks to be identified by name in the given spending measure. The rule stayed on the House books until the adjournment of the 109th Congress, but was largely ignored, disappointing many reformers.

• Earmark My Word: Boehner Promises House Action This Week
• Understanding the New Earmark Rule
• Clearer Marks On Earmarks

Government Performance and Management PART Fails to Provide Unbiased Program Assessments The Program Assessment Rating Tool (PART) continued to fail as a tool to provide an unbiased, useful mechanism to grade programs across the federal government. Instead, the program was seen by many as a thin veneer of accountability and good government, thrown up to deflect attention and criticism from controversial, politically biased judgments. OMB Watch continued our work monitoring the impact of PART and educating Congress and the public about its implementation, and Congress continued to exercise good judgment by largely ignoring the results of the PART.

• OMB Watch Congressional Testimony Opposing PART
• New PART Score Showcase More Contradictions of Program
• PART and the FY06 Federal Budget
• PART and the FY07 Federal Budget

Problems with Management and Oversight At Federal Agencies 2006 was filled with reports of contractors that engaged in illegal dealings with government officials, questionable management and policy decisions within government agencies, and a general lack of accountability throughout the public and private sectors. The release of FedSpending.org this fall has helped to bring increased attention to the lack of oversight of government contracting and management decisions, but much more is still needed to help enact policies to improve government performance and effectiveness while promoting and protecting the common good.

• Strange Happenings at the IRS Could Affect Enforcement
• FedSpending Spotlight: Skyrocketing Contracts, Less Competition
• Congress Continues Insufficient Oversight of Federal Contracts
• Oversight of Iraq Reconstruction Funds Still Needed
• "Anything Goes" at Interior Department. Anything.
• Efforts to Undermine Contract Oversight at GSA
• Contractors, FEMA Still Bungling Hurricane Relief
• House Saves Program for Measuring Results of Government Assistance