ED052396b: How to Avoid the Next Budget Crisis

COMMENTARY Budget and Spending

ED052396b: How to Avoid the Next Budget Crisis

May 23rd, 1996 3 min read

For months now, Congress has been in retreat after being blamed for two partial government shutdowns, the result of its battle with President Clinton over the fiscal 1996 federal budget.

Lawmakers are now scurrying to accommodate the president's spending priorities to avoid an election-year bruising over the 1997 budget, even as they try to preserve enough of their own agenda to save face. But no matter how hard they try, they are going to find themselves in yet another battle royal.

Why? Is America doomed to suffer government shutdowns year after year, depending only on how vociferously Congress and the White House disagree on budget priorities, tax and spending policy?

Not at all. As it turns out, there is a perfectly good reason why Congress and the president seem perpetually at loggerheads over the budget: Because the law is written in a way that makes this inevitable.

Under the 1974 Budget Act, a Watergate-era attempt by Congress to limit the power of the executive branch, the president is excluded from the budget process until it's almost over -- a recipe for the kind of 11th-hour budget showdowns that grabbed the headlines for so many months.

Here's how it works. Each January the president sends a budget to Capitol Hill, which Congress promptly ignores. In the spring, Congress adopts its own budget resolution based on its own priorities. During the summer, Congress crafts the 13 detailed spending bills needed to meet the budget targets outlined in the resolution, as well as a reconciliation bill making changes in tax and entitlement policy. Finally, in the fall, usually just before the Oct. 1 start of the new fiscal year, Congress sends the budget bills to the president, who now has only one way to try to restore his spending priorities: veto the bills and force an end-of-the-year budget fight.

The result: With insufficient time to negotiate the details, the government shuts down over a dispute about whether or not Medicare premiums should rise by $6 a month.

To make matters worse, the Budget Act also forces spending to go up even if Congress doesn't want it to. When members of Congress sit down to figure out how much to spend on a program in the coming fiscal year, the Budget Act mandates that they take last year's spending level and automatically add in the cost of population growth, anticipated inflation and other factors. This becomes the new "baseline" for spending, which means that even if Congress does not vote to increase the budget for a program, spending increases will happen anyway.

Any member of Congress who proposes to increase spending on a program by less than the baseline projection is accused of "cutting" the program. That's how Congress' plan to boost spending on Medicare by $100 billion over seven years became a "cut."

A reform plan proposed by Rep. Christopher Cox, R-Calif., would fix the problems created by the Budget Act of 1974. For starters, the budget resolution adopted by Congress in the spring would be a legally binding law, signed by the president, and would set a limit on how much the government can spend in the coming fiscal year. In addition, the resolution would have to pass by an early date, April 15, in Cox's plan.

As a result, Congress and the president would know more than five months before the start of the new fiscal year exactly how much money they have to work with. This would give the two sides a strong incentive to get the big, controversial budget issues (like tax cuts and entitlement reform) out of the way first, greatly lessening the chance of a last-minute deadlock forcing a government shutdown.

The Cox plan also would purge the budget process of the pro-spending bias created by "baseline budgeting." Year-to-year spending totals would be compared in real dollars, not in the inflated dollars of the baseline. No longer would advocates of higher spending be able to call a spending increase a "cut." Spending hikes would be out in the open, rather than buried in the dark recesses of the budget process.

The United States has experienced numerous budget crises over the past decade -- in 1986, 1988, 1990, and again in 1995-96. Add to this the bias toward higher spending written into the Budget Act and it's clear the time has come for reform.

Why wait for the next budget crisis to expose (yet again) the flaws in the current system? If Congress wants to end the saga of government shutdowns and impose some real spending control, it should fix the system now.

Note: David Mason is former vice president for government relations at The Heritage Foundation, a Washington-based public policy research institute.