May 11, 1987

May 11, 1987 | Backgrounder on Federal Budget

Using the Debt-Ceiling Vote to End the Spending Binge

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579 May 11,1987 r USING THE DEBT-CEILING VOTE TO END THE SPENDING BINGE INTRODUCTIO N At the stroke of midnight this May 15, the United States government essentially will go bankrupt--unless Congress adds another $200 billion to the national debt's current ceiling of $2.3 trillion. Without such action, the Treasury Department calculates that by the end of May, federal workers will not receive paychecks, the Treasury will begin defaulting on its loan obligations,-and much of the government would have to shut down. For Congress, this would be a deserved major political embarrassment.

U.S. national indebtedness has been growing at an alarming rate. It took the nation two centuries--spanning four major wars and the Great Depression--to accumulate $1 trillion of debt, yet in 'ust the last six years, Congress has rung up the second trilli o n dollars of national debt, thanks to enormous annual budget deficits. And if Congress continues to spend at its current frantic pace, the $3 trillion debt mark will be surpassed in 1991 A Dose of Restraint. The debt ceiling bill which Congress is now con s idering offers the lawmakers the erately needed spendin restraint into the that is supposed to reduce federal 1985 Gramm-Rudman-Hollings deficit reduction do this by attaching to t fi e bill a measure law that re uires federal lawmakers to reach a balance d budget by 1991 by shrinking the Gramm-Rudman-Hollings two years ago won approval for their measure only by attaching it to the debt bill size of the eficit by at least $36 billion each year over five years. Supporters of Gramm-Rudman-Hollin s has been we a kened by a Supreme Court ruling which constitutionally mandated separation of powers. The result of this is that liberals are roposin s ending bills in Congress that would exceed the Gramm-Rudman-Hollings iscal 199 Beficit levels by at least 40 billion in v alidated its automatic e nf orcement mechanism on the grounds that it conflicted with the F~ng Gramm-Rudman-Hollings. The Supreme Court struck down only one provision of Gramm-Rudman-Hollings on technical grounds. This can be fixed by reassigmn6 the dutie s the bill ori inally Fave to the General Accounting Office (an agen responsible to Congress) to the k xecutive Branch's Office of Management and Budget. 3;n is would Gramm-Rudman-Hollings. Lawmakers also cou P d begin to restore t! e traditional and cou P d be taken to prevent repetition of last year s incident w en Congress crammed much days of the session. This gar antuan bill was then sent to the &I ite House, where the President had choices only o f accepting the whole package or rejecting it authority This would 1 eef up the ! resident's budgetary powers by forcing Congress to lawmakers proba ly will never agree to spendin restraint voluntarily. 5% e $2.5 trillion f restore the law's original enforcement mechanism and place balanced budget track. At th e same time, it would be wise Social Security, welfare, and veterans benefits subject to s 1; sequestration process. For political reasons, they were exempted by the original bill.

Congress need not limit reform of the budget rocess to bolsterin pro er bal ance between the President and Congress on bud et matters.,Eor instance, steps of the entire federal budget into a giant $500 billion Continuin Resolution in the closing Solid Popular Support. Instead of this take-it-or-leave-it process, the President sho u ld be given what is known as a line-item veto; this would enable him to reject specific items of s ending while approving the remainder of the bill. This budget tool is su ported by over p 0 percent of Americans, according to a recent Gallup poll. Failing that, l enator Dan Quayle, the Indiana Re ublican, is roposing a compromise known as "eihanced rescission take a vote on any presidential rescission--which is a request to cancel or reduce umecessa3; rescission rough inaction coalitions in Con ess. The le s son of the Gramm-Rudman-Hollings le islation is that debt ceiling bill thus must be held hostage to re om. Experience shows that only the threat of bringing the federal money machine to a halt can force the big spenders to negotiate program funding. Under existing law, Congress can kill a presidential Most such sensible budget reforms have routinely been shot down by the pro-spending P THE EXPLOSION OF FEDERAL RED INK I I This will be the 18th straight year in which Congress has been forced to raise the de b t ceiling, now an annual Capitol Hill ritual. The figure that follows shows the explosion in the national debt over the past ten years with projections through 1992 based upon current spending patterns 2- The Alarming Growth in the Federal Debt 1860 IO 18 91 (pro

tod 3500 3000 2500 Bllllona of 2000 Dollan I500 1000 500 m 1950 1955 1980 I985 1970 1975 1980 1985 1991 Year What is causing this surge of red ink? Many lawmakers and observers wron y have attributed the rise in deficit spendin to a shrinka e in fe deral revenues cause 8 by tax were $30 billion higher in 1986 than in 1981 (in constant 1982 dollars). But federal s endin was $140 billion higher during that period. The underlying cause of the Jficit ten is clear: Congress has failed to control spending reductions.

This has led to calls for %l 'gher taxes. B vidence reveals that federal revenues REVIVING THE GRAMM-RUDMAN-HOLLINGS DEFICIT REDUCTION LAW When Congress enacted Gramm-Rudman-Hollings (GRH) in December 1985, it committed itself to a balanced bu d et by 1991, to be achieved through $36 billion annual its.congressional opponents acknowledge that the deficit is lower today than it would be without GRH. The law's very existence ieems to inhibit deficit spendmg to some extent reductions in red ink. T hough the udget law has not worked as originally envisioned, even GRH's potential, however, can be realize if it is amended in two ways 1) Reinsert the automatic sequestration trigger mechanism.

When Congress overwhelmingly passed the Grm-Rudman-Hollhgs law in 1985, it also agreed to live by the law's fail-safe enforcement mechanism known as "se uestration."

If in any year Congress failed to reduce the deficit to within $10 billion of the 8 RH deficit tar et, automatic across-the-board spending cuts would be invoked to make up the dderence. These spending cuts would strike all but a handful of exempted programs--regardless of how popular or how essential. In 1986, however, the Supreme Court invalidated this sequestration process on a technicality: the agen cy that tnggered the 3automatic spending cuts, the General Accounting Office, would be executing an Executive Branch power.

Con ess since has demonstrated convincingly that without the threat of automatic reduction targets. For this reason, several Democra tic and epublican lawmakers are supporting restoring GRH's teeth f across-t Yl e-board spending cuts, it has no intention of compl 'ng with the GRH deficit transferring t h e sequestration authority to the Presi d ent. The aim of this, sa Foley, is to Hou s e Ma'ority Leader Thomas Foley of Washin ton, for example, proposes I? This would not e likely to to approve and take the spending cuts. Thus even as usual with confidence if the President were programs would spending, but at the White House for allowing a inful cuts. In short, the Foley plan is a congressional ploy to absolve itself of fault for F ailing to cut spending sequestration triggering mechanism is reinserted h is is what Senator Phil Gramm, the would transfer the dual responsibility F or projecti n g the size of the deficit and for Branch agency, that the Constitution reserves for the Executive ranch. Once the Office of further de f icit reduction to comply with the deficit target. If ai ongress f ed to do so, only restore the original spirit of the law t a at Congress overwhelmingly passed two years ago Satisfying the Supreme Court. GRH will work roperly only if an automatic Texas Republican, recommends. His roposal, popularly known as "Gramm-Rudman II determining the necessary uniform percentage cu t m all programs required to bring the deficit below the GRH target from the General Accounting Office to the Office of Management and Budget. This would fully satisfy the Supreme Court's ob'ection that the original law wrongly assigned powers to the Gener a l Accountin 0ffice;a Lgislative Management and Budget had determined that Congress would fall short of the GRH deficit tar ets, Gramm-Rudman I1 would give Congress 30 da breathin room to enact then would across-the-board spendin cuts be instituted. Gramm- R udman 11 thus would There seems to be no constitutional problem with Gramm's new proposal. According to Supreme Court Justice Antonin Scalia, the powers delegated to the Office of Management and Bud et would be extremely narrow: the agency would have mini m al discretion as to how the udget cuts would be distributed across programs. And it would not be permitted to use se uestration to terminate any 'program,project, or activity What Gramm- 1 udman I1 would do is create an effective mechanism for spending re d uctions a e 2) Make all federal programs eligible for Gramm-Rudman cuts As first conceived, GRH would have subjected all federal programs to the budget knife in the event of a sequestration. From military weapons acquisitions to the food stamps program, e ach spending item in the entire budget would have been forced to swallow the same percentage reduction in program funding to bring the deficit down to the target level.

Yet politics intervened and Congress exempted Social Security, veterans benefits, and mostwelfare programs from sequestration. There is even a movement in Congress to exempt additional programs, such as highway funding.

By excluding almost 40 percent of the that programs still falling under the axe defense spending constitutes just 32 the n ational debt, which cannot be the current law. And, by Security from budget sequestration Equal Percentage. The GRH formula should be revised so that sequestration cuts every federal program by an equal percentage. For every sequestered dollar this would m ean defense s ending cuts of 32 cents, Social Security cuts of 23 cents, welfare rograms cuts of be balanced genuinely "across-the-board and in proportion with the spending priorities established by Congress 14 cents, P arm subsidies cuts of 4 cents and s o forth. Under this formula, t K e budget.vould RESTORING THE PRESIDENT'S BUDGETARY AUTHORITY The expansion in federal s ending and deficits over the past two decades is in art due to con ressional usu ation o F the President's traditional budget owers. Th e pro lem stems ack to the 19 ;P 4 Budget Act, when Congress repealed the resident'spower to em loyed to pare con essional a ropriations by almost every Presi f ent since Thomas Je ff erson impounded !f 50,000 for 'Fp avy gunboats. Presidents Kennedy, John s on, and Nixon Act rep f aced the impoundment power with two substantially weaker-substitutes: .the F impound" funds (that is, to refuse to spend excessive program fundin This had been used im oundment routinely to cut federal spending by 5 to 8 percent an nually. The 1974 deferral and rescission authorities.

Even these reduced White House spending prerogatives have been eroded. Last ear for example, federal courts voided the use of presidential "policy deferrals"--under w i ich the President sought to push a portion of program funding into the next fiscal ear This was about a siY billion worth of policy deferrals each year.

Worse yet, White House rescissions have not even dented the congressional spending armor. Rescission is a request to Congress to cancel a particular spending item. When the President issues a request, the House and Senate must vote to approve the rescission within 40 days. If they do not, then the spending remains at the level appropriated by Congress.

This means tqat Congress simply can ignore the President's resassion request without even I taking a vote. This has been the congressional response to virtually every Reagan rescission. The table that follows shows the figures for the number of rescissions approved by Congress durin Reagan ' s term. As the table indicates, fewer and fewer budget ficant blow. Both Republican and Democratic presidents typically K ad averaged austerity requests ave been approved by the legislature 1. Virginia A. McMurtry Impoundment of Federal Funds: A Brief Ove r view Congressional Research Service Government Division, April 15,1985 5Congressional Action in Response to Reagan Rescission Requests 1981-1987 Proposed by Reagan, Accepted by Congress Percentage of $ Amount of Rescissions Accepted Number Amount Number A m ount bv Conaress 1981 133 $15,361.9 105 $11 8 715 2 76 1982 32 7 907.4 5 4 364 -7 55 1983 21 1,569 0 0 0.0 0 I 1984 9 636.4 3 55.4 9 1985 244 1,843 3 96 165.6 9 1986 83 10,12609 4 143.2 1 1987 73 5,835.8 0 0.0 0 Total 595 $43,280.7 213 $16,444.1 38 Defici t elimination depends upon restoring a pro er balance between the budget powers of the Con ess and those of the President. his could be achieved by amending the debt ceiling bi in a way that calls for two measures: f Give the President a Line-Item Veto Alm ost every President since Abraham Lincoln has asked Congress for a line-item veto.

This would empower the President to veto specific budget items in a spending bill while approving the remainder of the bill.

Last year Congress, presumably unintentionally, made a strong case for the line-item veto by stuffing every appropriations bill into a sin e $560 billion Continuing Resolution a standstill. Even The New York Times --a longtime opponent of the line-item ve t o--hinted that if Con ess was going to persist in passing such budet extravaganzas The President was forced to sign the resolution or f! ring virtually the entire government to save bil k '011s of dollars. The recent $90 billion highway bill is a case in p oint: it contained could have been excise B with a lme-item veto. Congress never voted on these pork barrel then the President shou ff d be granted a more discriminating veto tool. i Rea an has demonstrated on several occasions that if he had a line-item v eto, he could hundreds of parochial s ending projects with a combined price tag of over $4 billion that projects individually; had it been forced to, most of them likely would have been turned down 2. "Fraud and Fantasy in Congress The New York Times, Sep tember 26,1986, p. A

34. The editorial criticized the 562 billion Continuing Resolution by saying No President should be forced to swallow all that at once. Such irresponsible packaging only re-inforces the case for line-item veto power 6At the very least, Congress should 've the President a line-item veto on a four-year experimental basis to determine whet a er the device in practice would confer too much power to the Executive and whether it would actually limit spending Strengthen the President's Rescis s ion Authority If legislators are determined to continue opposing a line-item veto, an alternative would be to strengthen the President's rescission authority. Senator Quayle's roposal, which he calls the "pork-buster would require Congress to vov for or a g ainst a rescission within 15 legislative days of that rescission. This would replace the current congressional practice of revoking a rescission sim ly by refusing to act on it. Over the last three years, the Administration has issued over 40 i! rescissio n s with potential savings of $18 billion. Congress has not voted on even one ite House Unlike the pro osed line-item veto, which Con ess could override onlyvh~ a two-thirds vote in 0th chambers, the pro osed e I# anced rescission could be blocked by g wou f d not shift fundamental power from Congress to the White House. It merely would 1 Con ess by a simple majority vote in eac House. The enhanced rescission, therefore force Congress to vote individually on those programs or pork barrel projects that the Pr e sident disapproves. It would force lawmakers to go on the record. If a program could not muster the test of winning a majority vote in both chambers, clearly it was not a priority of Congress. The Quayle "enhanced rescission" proposal at least would ensur e congressional consideration of the President's rescissions REFORMING THE CONGRESSIONAL BUDGET-MAKING RULES The 1974 Budget Act was designed to produce timely and responsibleibudgets;' Neither of these objectives has been achieved. Lawmakers routinely i o r e their own against red ink, Congress must take steps to tighten its own rules in four ways unenforceable procedural 'delines and miss their own dead rl ines. Since the Budget Act became law, the national crl ebt has quadrupled. If there is ever to be suc c ess in the battle Budget Resolution "ceiling" by an annual average of $25 r3 illion. The appropriations committee to a point-of-order if the excee d the Budget Resolution outlay allocation. As a result of such a parliamentary ch J lenge, the ap ropriation bill almost surely would be exem tion, named after Victor Fazio, a California Democrat. 8 e Fazio exemption Enforce the Budget Resolution more strictly During the past seven years, Congress has enacted ap ropriations bills exceeding its own committees hav e discovered several loopholes that allow them to violate the Resolution's spending ceilings.

GRH created a new budget rule that sub'ects all appropriations bills reported out of B ruled out of order. A three-fiiths vote is require to override a Gramm-Rudm an enate. The House, however, has waived this budget rule throu enab es Congress to breach its own Budget Resolution by permitting the A pro riations Committee to report out spending bills which contain higher outlay totals an esignated oint-of-order. Thi s has proved an effective instrument for budget discipline in the the so-called Fazio tKB P 3. For a detailed analysis of Senator Quayle's "pork buster" reform, see: Conmessional Record February 5,1987 7in the Budget Resolution. The Fazio exemption, of cou r se, makes a mockery of the GRH attempt to balance the budget Ignoring Priorities. Under Congress' current budget rules, the appro riations committees are able routinely to ignore the s ending riorities contame B in the Budget Resolution. In particular, th e House habitu aYK ly robs t e defense budget of funds to hike up reporte t! out of committee inch Xb e omestic spending totals t 1 at violate the Budget Bud et Resolution, separate spending cei f ings could be set for the defense and the non d efense port i ons of the budget. These separate spending ceilings would be enforced by to bun le all unfinished bud et business into a year-end package called a E ontinuing 8 spendin for some pet domestic ro rams. Thus while appro riations bills that are Resolution, th e overall spending total is still below the total spending allowance. To safeguard against this practice of changin the spending prionties voted by Congress in the subjecting any bill above the ceiling to a point-of-order requiring a three-fifths vote to b e considered I Penalize the use of Continuing Resolutions Con ress rarely passes the 13 annual appropriations bills separately It refers instead Resolution. It is called this ecause the program spending levels are supposed to continue" at the previous year ' s amount. In practice, however, Congress passes Continuing Resolutions with much higher spending levels. During the past four years, reliance on Continuing Resolutions has grown routine: each year the Agriculture, Treasury, and foreign operations budgets have been contained in a Continuing Resolution; and in three of the past four years Reagan has not even been presented with a separate Defense budget.

This practice could be discouraged in two ways 1 I 1) A line-item veto could be enacted to allow the Pres ident to veto specific appropriations when Congress sends him a spending bill containing more than one appropriations bill feeping with the original purpose of Continuing Resolutions observe budget deadlines by penalizing the packagmg of spending bills 2) Program spending levels in a Continuin Resolution could be limited b law to the revious year's spending levels, thus voiding a f 1 program increases. This wou r d be in Either of these steps would give congressional spending committees an incentive to Ado p t a two-year budget cycle I Con res now takes almost twelve months each year atchin together a budget and still usually f ails to complete the process before the start of tRf e fisca year. A biennial budget savings which o B ten never materialize. Typical ly, Congress' budgets contain more cycle may avoid this by requiring passage of two-year budget authority in the first year of each new Congress.

One advanta e of this is that it would be more difficult for Congress to project illusory 8ambitious spending reductions in the "out years future fiscal years than they do for the year to which the budget actually applies. Understandably, Congress refers to push the pain of budget cuts into future years, knowing that later budgets can as ways hike program spendin g A two-year budget cycle would bind Congress to genuine second year spending reductions.

Another advantage of the two-year budget is that it would be crafted in off-election years, thus eliminating some of the temptation to engage in special interest spen ding Multi-Year Efficiency. The most attractive feature of a two- ear budget is that it would allow for more economical Pentagon spending. Single year bu J gets deter the Pentagon from purchasing economical uantities of weapons and spare parts. A 1986 Con $ ressional 6.2 billion i3 total obligation authority for these contracts, relative to costs using annual procurement The report continued These savings occur largely because materiqs and components can be purchased more efficiently using economic order qua n tities early in the contract eriod, but savings may also stem from the reduced risk that a multiyear contract grown more common, a two-year budget would further promote this money-saving practice Budget Office report reviewe 1 40 multiyear Defense contrac t s and estimated sawngs of affords t K e contractor Though multiyear procurement by the Department of Defense has purchasespants, and direct monetary transfers, no suc x procedures exist for federal loan Reforms in federal credit program accounting practic e s Although the current federal budget rules require a roper accounting for federal programs. Direct loans are measured in the budget on a net cash flow basis. This disguises the implicit federal subsidy to the borrower by treating the entire face value of the loan as an asset, even though some of the loans will never be repaid.

Treatment of federally guaranteed loans makes even less sense. Since no cash outlay occurs at the time of the guarantee, loan guarantees appear on the federal books as a costless tr ansaction, even though the federal government assumes a future liability. When there is a default on a guaranteed loan, moreover, the federal government sim 1 pays off the lending institution and then carries the loan at face value as a direct loan. gis a c counting rocedure, which would never be tolerated in the private economy, leads to an ulbmately raises the cost of federal loan programs. Paying for Loans. Senator John Heinz, the Pennsylvania Republican, has introduced Administration-backed legislation t o place federal credit pro ams on the same basis as federal a encies request appropriations to pay for the guaranteed loans and direct loans loan obligations during a given year, federal agencies would be required to sell all new improper ai ocation of fed e ral resources among various federal loan programs, and direct federal spending programs. The cornerstone of this bi ff 1 is its requirement that that it wi B 1 undemte during the upcoming fiscal year. To calculate properly the cost of its 4. Congressional Budget Office Alternative Strategies for Increasing Multiyear Procurement Staff Working Paper July 1986 5. For a more detailed explanation of the need for federal credit reform, see: John Buttarazzi, "Cashing in on the Federal Quarter-Trillion Dollar Loan Portfolio Heritage Foundation Backsounder No. 541, October 28,1986 9direct loans in the rivate secondary credit market within three months of origination. The agency would also K ave to purchase reinsurance for all guaranteed loans.

The Heinz credit refor m package would prevent Congress from sheltering federal subsidies off budget in the federal credit market CONCLUSION I The 100th Congress is already losing the war against the deficit. Since it convened in January, it has voted to override two presidenti a l vetoes of multi-billion dollar budget busting spending bills and it has rejected all of the President's requested spending cuts without proposing any new deficit reduction ideas of its own, except to continue to raise taxes. In short, the congressional s pending juggernaut continues rolling spenders should not be permitted to raise the de i: t ceiling to $2.5 trillion without being forced to the bargaining table to hammer out budget reforms. These reforms, as a minimum, include 1 The debt bill offers taxp a yers one of their ve few opportunities to strike back The big 1) Repair Gramm-Rudman-Hollings or else there should be no raising of the federal debt ceiling 2) Alter the rules of the spendin4 game permanently by giving the President a line-item veto, incr easinb the President's rescission authority, discouraging con essional reliance on take the pro-spending tilt out of the budgetary process.

The stakes are admittedly high. There is the chance, after all; that)most federal?'lf operations would be closed dow n if there is no debt ceiling increase. This is an issue however, in which high stakes are warranted. Action, at last, is needed to force Congress to restrain its compulsive spending habit year-end Contmuing Resolutions, and enacting a two-year budget. Ti ? ese measures will Stephen Moore POllCy Analyst 10-

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