By Robert D. Reischauer

The Federal Budget Mutated from a Civil Process into a Political Weapon 7 Steps Back to Fiscal Sanity

The Federal Budget Mutated from a by Robert D. Reischauer

February 24th, 2015

The American public, as well as a broad range of policymakers, agree the United States is careening down an unsustainable fiscal path.

The growth of spending, largely driven by entitlements for an aging population, increasingly will exceed the taxes policymakers are willing to impose and the public is willing to pay. Deficits will grow, swelling the nation’s public debt to dangerous levels and slowing economic growth. Faced with this problem, the budget process established by the Congressional Budget Act some 40 years ago has proven ineffective at facilitating the adjustments necessary for a more prudent fiscal path.

The process is broken from start to finish (which never seems to come). The release of the president’s budget in February once was surrounded by rampant speculation and frenzied media attention as it kicked off a serious annual budget debate. More often than not, the president’s proposal now is largely ignored and considered dead on arrival. Congress has failed miserably to fulfill its core budgetary responsibilities.

For the past five years, the House and Senate have been unable to agree on a budget resolution, the plan Congress uses to shape and constrain spending and revenue decisions for the coming fiscal year. Without agreement, few, and sometimes none, of the 12 annual appropriations bills – which give the departments and agencies of government resources to fund the non-mandatory activities of government – have been enacted by the start of the fiscal year in October. Instead, continuing resolutions (CRs), or short-term funding measures tied to the past year’s spending levels and priorities, have been used to provide temporary financing for anywhere from a few days to several months.

Unsure about both the amount of resources they will be given for the fiscal year and the allocation of those resources across their competing responsibilities, departments and agencies have not been able to operate efficiently, contract responsibly, manage their workforces productively or plan for the medium term, let alone the long term.

Budgeting has lurched from crisis to crisis. “Must pass” legislation – increases in the debt ceiling, renewals of expiring tax provisions, funding to keep the government from shutting down – has provided small groups of ideologically motivated legislators with repeated opportunities to distort the priorities of the majority. They extort policy concessions under the threat of fiscal or political disaster and contort both congressional schedules and the leadership’s ability to manage the legislative agenda. When faced with the task of enforcing whatever fiscal discipline has been imposed in previous budget cycles, Congress more often than not has evaded hard choices by drawing from its bottomless well of budget gimmicks, waiving points of order, ignoring its own rules, classifying actions as “emergencies” outside the realm of restraint, or postponing the ultimate day of reckoning.

Some say the political and policy environments are so toxic and the institutional structure so flawed, no budget process could mete out the gradual fiscal restraint that is needed. The two political parties have sharply different views on how fiscal restraint should be imposed; both realize that the next election, which is always less than two years away, can turn a majority into a minority in today’s unstable political environment. Absent a crisis, they have little incentive to find middle ground.

CONGRESS HAS EVADED HARD CHOICES BY USING BUDGET GIMMICKS, WAIVING POINTS OF ORDER, IGNORING ITS OWN RULES, CLASSIFYING ACTIONS AS “EMERGENCIES,” OR POSTPONING THE DAY OF RECKONING.

With budgetary responsibility fragmented between the executive branch, the House and the Senate, the responsibility for failure is hard to assign unless one political party controls the White House and has commanding majorities in both chambers. Even then, decisiveness is unlikely. The public, for its part, is not lining up to share sacrifice in the name of fiscal responsibility. It sees no compelling reason for sacrifice now, as opposed to a few years down the road.

While there is little prospect for improved fiscal outcomes under today’s budget process, it is not difficult to identify the essential components of a process that could function better and identify realistic reforms that could be made. These reforms would not require constitutional amendments or major congressional restructuring – and they would move the current process in the desired direction.

There are four essential components to a functional process:

One: There must be some mechanism that incentivizes or forces policymakers to agree on a medium term – meaning 10 to 15 years – fiscal plan, one embodying a mainstream view of the desired fiscal path. That path might be a goal for the deficit, the debt-to-GDP ratio or the size of government 15 years out. The plan must then be translated into annual targets for overall revenues and broad categories of mandatory and discretionary spending that achieve the plan’s bottom lines. Since economic conditions, the international environment, and national priorities change, there must be a regularized process for periodically reviewing and modifying the fiscal plan.

Two: The process must ensure that annual spending and taxing decisions are made in a timely fashion, at least before the start of the fiscal year. The ability of individuals and small groups of legislators to slow down or derail basic budgetary decisions must be reduced significantly.

Three: The responsibility for failure must be clearer. This may require some reallocation of budgetary authority between the executive and legislative branches or within the legislative branch.

Four: Some automatic mechanisms must stand in when the political process fails. These can incentivize policymakers to act by providing them with some political cover. To be effective, the mechanisms should be calibrated to provide a partial, rather than a full, substitute for restraint the political system could not swallow.

As frustration with the current budget process has mounted, a number of measures have been proposed that, taken together as a package, could transform today’s ineffectual process into the functional process outlined above.

FIRST: Make the concurrent budget resolution, which only requires approval by Congress’ two chambers and has no force of law, into a joint resolution, requiring the president’s signature. While reaching agreement on such a resolution would be harder, especially during times of divided government, the resulting resolution would be more meaningful, have more visibility with the presidential imprimatur, and be more enforceable.

SECOND: Transform the Senate and House Budget Committees into leadership committees made up of party leaders and the chairs and ranking members of relevant (tax, appropriation, etc.) major committees. Together with the first measure, this would clarify that responsibility for failure rests squarely with the leadership at both ends of Pennsylvania Avenue. It would also ensure greater alignment of priorities between the budget, appropriations and taxing committees.

THIRD: Transform the annual budget and appropriations cycles into biennial cycles. Policymakers would have more time to develop the budget plan and shape policies to meet its targets. This would also raise the stakes for budget decisions and would reduce the impression that every year budgeting is a continual year-round activity.

A number of other measures should be adopted to reduce disruptions and delays. One would be to make increases in the debt ceiling an automatic component of the Joint Budget Resolution. A second would be to establish automatic one-month CR authority at the previous year’s spending levels for any appropriation measure not enacted by the start of the fiscal year.

If an appropriation had not been approved after a month, a CR for the rest of the fiscal year would automatically go into effect. This would provide agencies with the flexibility to shift a small amount of their new budget authority – one percent or two percent – across their accounts for efficiency reasons.

It is likely that the fiscal plan – the Joint Budget Resolution – would contain targets or limits on certain broad budget categories like discretionary spending, revenues and certain tax expenditures and mandatory spending programs. Self-correcting mechanisms should be created to moderate spending growth and boost revenues when political inaction threatens to leave too large a gap between the fiscal plan’s targets and likely outcomes.

An effective, equitable way to do this would be to modify the automatic indexation that currently is part of the tax code and many mandatory programs. For example, indexing the top two tax brackets could be cancelled, indexing Social Security benefits above certain thresholds could be withheld, and Medicare provider payment updates could be cut by a third. The purpose would not be to make up the shortfall, but rather to impose a small but tangible penalty on the population capable of bearing the burden for the failure of their elected leaders to meet their budgetary responsibilities.

Finally, a revitalized budget process should give the president enhanced rescission authority. The president could then submit to Congress items that he would like struck from enacted appropriations bills. Congress would be required to approve or disapprove the request within a prescribed time period. While enhanced rescission would probably have little impact on overall spending, it could reduce the amount of special interest spending that is tucked into large spending bills and strengthen the president’s budgetary power and responsibility.

Would reforms like these guarantee success? Clearly, no. A good process offers an opportunity for a coalition of the willing to do the right thing. No process, though, can force elected leaders to support policies that will cause them to lose their jobs.

At best, a budget process can provide clear signs, guardrails and speed bumps on the fiscal highway. Even so, members of Congress are still behind the wheel. If they allow themselves to be distracted by every parochial concern of their constituents, insist they can drive while under the influence of ideologically inspired “facts,” or focus myopically on the smooth road a few feet ahead rather than the washed-out bridge in the distance, we’ll wind up right back in the ditch.

Robert D. Reischauer is a Distinguished Institute Fellow and President Emeritus at the Urban Institute. He was the Director of the Congressional Budget Office between 1989 and 2005 and served in several positions during CBO’s first five years (1975 to 1981).