November 6, 2009

November 6, 2009 | Commentary on Budget and Spending

New Priorities Require New Budget Process

As federal spending soars past $30,000 per household, America finds itself at a fork in the road. Realistic budget estimates show unsustainable trillion-dollar budget deficits as far as the eye can see. Unless lawmakers restrain spending, closing these budget deficits would require permanent tax increases in excess of $10,000 per household. Which path will America choose?

The responsible course is to restrain government and empower individuals. A federal budget weighed down by corporate bailouts, failed stimulus bills and -- quite possibly -- national health care costs will risk bankrupting the families and entrepreneurs that drive economic growth.

It will take more than a menu of spending cuts to protect the family budget from the federal budget. It also requires fundamentally changing the way Congress puts together a budget. The Spending, Deficit and Debt Control Act, authored by Republican Reps. Paul D. Ryan of Wisconsin and Jeb Hensarling of Texas would do just that.

Spending caps are the act's centerpiece. Washington currently sets no limit on overall spending before budgeting. Lawmakers can simply add up the cost of their preferred programs and pass legislation to fund them. Mandatory programs, which now make up two-thirds of all federal spending, grow each year without any cap or oversight. Discretionary programs grow with only slight constraints imposed by the annual budget resolutions, which are routinely bypassed through the "emergency" designation.

Without real federal spending caps, lawmakers often avoid difficult trade-offs. Spending grows beyond what taxpayers can afford. Not surprisingly, mandatory spending is growing 7 percent annually. Abandoning enforced caps on discretionary spending has resulted in double-digit growth in annual discretionary spending.

Discretionary caps successfully held down spending in the 1990s. Mr. Ryan and Mr. Hensarling would bring them back, limiting discretionary spending growth to the inflation rate (and limiting abuse of the "emergency" loophole). The bill also would also require any entitlement expansions to be paid for, and return federal spending to the post-war average of 20 percent of the economy. Under President Obama's budget agenda, spending would hit the 28 percent level by 2019.

With spending limits in place, lawmakers would have an excuse to reject special interest pleas for more spending. Budgeting would become about setting priorities and making trade-offs.

The act would also give the annual budget resolution the force of law. This has two advantages. First, it would enable the president and Congress to settle budget disputes early in the year, rather than waiting until the appropriations bills reach the White House desk in October. Second, it would make it harder for lawmakers to blow past the budget resolution's spending levels.

The Spending, Deficit and Debt Control Act also addresses Social Security and Medicare's $43 trillion unfunded obligation. Absent reform, these costs would, over time, require income tax rates to more than double. Yet these programs are on autopilot, giving Congress and the president no obligation to confront these costs. And when lawmakers propose new or richer entitlements, only the 10-year budget impact is calculated, even though these changes can profoundly increase longer-term spending.

The new bill would require an annual reporting of these long-term unfunded obligations and create a new point of order against expanding those obligations. It would mandate 75-year budget projections and require that Congress put Social Security, Medicare and Medicaid on a sustainable path. Should these programs fall off the path, the bill provides a fast-track legislative procedure to bring it back in line. This would force Congress to confront the long-term fiscal land mines arising from entitlements and prevent trillion-dollar debt from being dumped into the laps of future generations.

Additionally, the act would create commissions to eliminate waste, fraud and abuse and to recommend sunsetting outdated and unnecessary federal programs. Rather than merely write a report that collects dust on a bookshelf, these commissions' recommendations would be converted into legislation that Congress would be required to vote on.

Of course, some will argue that the current "pay as you go" (PAYGO) rules are sufficient. Yet PAYGO has absolutely failed to rein in runaway spending and budget deficits. Although it is supposed to require that all spending increases and tax cuts be offset, it exempts all discretionary spending programs, as well as the automatic annual growth of current entitlement programs. For the limited portion of the federal budget constrained by PAYGO, Congress has voted repeatedly to waive the law, pushing up entitlement spending and budget deficits to historic levels. Not surprisingly, since PAYGO's 2007 implementation, the budget deficit has leaped from $162 billion to $1.417 trillion.

A desire to restrain government is necessary but not sufficient. To make the difficult but necessary choices to reverse unsustainable budget trends, Congress must modernize the budget process. Mr. Ryan and Mr. Hensarling's bill would do just that.

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

Brian M. Riedl Grover Hermann Fellow in Federal Budgetary Affairs
Thomas A. Roe Institute for Economic Policy Studies

First Appeared in The Washington Times