Restraining runaway federal spending will
require difficult decisions by lawmakers. Lawmakers who are willing
to take a tough stand need a budget process that helps, rather than
hinders them, and that is not stacked in favor of excessive
Unfortunately, Congress remains saddled
with an outdated budget process that was created in 1974--when the
federal budget was only one-third of its current size. A
30-year-old budget process that has been punched full of holes by
successive Congresses cannot adequately address the nation's
current budgetary challenges.
Lawmakers are working to repair the
federal budget process. Yet, budget process reform can easily
become bogged down in technicalities, obscuring the big picture.
Any positive budget reforms should reflect four general
Principle #1: Overall Spending Should Be
Capped at a Set Level
Families understand spending caps. Every
year, millions of families sit down at their kitchen tables and
evaluate how much they can afford to spend. A family's wish list
almost always exceeds what it can afford; therefore, the family
must prioritize in order to remain underneath the cap. Setting
limits is never easy: However, responsible budgeting keeps these
families solvent in the long run.
federal government does not cap spending. Lawmakers can simply add
up the cost of their preferred programs and pass legislation to
fund them. Mandatory programs--which now comprise 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. Without real federal spending caps,
lawmakers often avoid difficult trade-offs and 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.
There are several options available to cap
spending. Multi-year caps on discretionary spending succeeded in
the 1990s, when they were enforced and considered politically
realistic. Lawmakers could set annual spending cap levels every few
years or determine them by a formula, such as inflation plus
population growth. Linking spending increases to budget deficits or
to the gross domestic product is more difficult because economic
growth and tax revenues can fluctuate rapidly. Additionally, those
limits would require the deepest spending cuts during recessions
and allow large spending hikes during booms.
could work for mandatory programs as well. In the 1990s, these
programs were subjected to PAYGO rules that limited only the
creation of new entitlements--and did nothing to limit the
calamitous spending increases projected in the current Social
Security and Medicare baselines. With mandatory spending projected
to double in 10 years and overwhelm the rest of the budget, current
mandatory programs can no longer be left off the table. Effective
caps should apply to all federal spending--whether mandatory or
discretionary, current or proposed.
Lawmakers could create separate levels for
mandatory and discretionary spending, utilizing distinct levels or
Alternatively, they could set a single "omnicap" that applies to
all federal spending. An omnicap would have the advantage of
allowing trade-offs between mandatory and discretionary
spending--thus promoting flexibility and simplicity.
Principle #2: The Annual Budget Should
Present a Full Picture of Future Obligations
Families also understand the costs of
long-term financial commitments. They can quickly calculate how
much they owe on their mortgage, car, and other long-term
obligations, and when those obligations will be fully paid.
Importantly, families cannot commit to new financial obligations
without demonstrating that they can pay for them. For example,
potential homeowners must make a substantial down payment and show
that they can afford the monthly payments.
Businesses operate under similar fiscal
constraints. A business is required to disclose the size and scope
of its obligations on financial statements so that shareholders,
oversight entities, and potential investors can understand the true
nature of its financial condition and can make informed decisions.
It must report all long-term obligations, including liabilities
associated with pension and retirement health care plans--similar
in nature to Social Security and Medicare--while a measure of their
growth is counted against the business's bottom line.
While measuring these types of liabilities
is much more difficult than reporting the liability on a contract
or mortgage, excluding this information from financial reports can
grossly misrepresent a business's financial viability and lead to
poor decisions by management and boards. Including the best
estimate of such liabilities--and their annual impact on the bottom
line--is superior to implying that no obligation exists by
excluding such calculations because they are imprecise and
difficult to estimate. In this way, every business is required
to pay today in order to fulfill its obligations for tomorrow.
federal government is under no such constraints. The federal budget
does not include any measure of the federal government's future
obligations and thus misinforms citizens about the true fiscal
burden facing the nation. This omission allows policymakers to
ignore the need for fiscal planning and reforms. Lawmakers can
commit to a massive financial entitlement (such as the Medicare
drug benefit) with no down payment, no set monthly payments, and no
standard "credit check" to determine which commitments are
affordable. The entire open-ended spending spree is placed on a
credit card with no spending limit, relying on blind faith--rather
than annual planning--that future generations will pay the
positive first step would be to include a measure of all future
obligations in the federal budget, just as businesses are required
to do. This would contain a breakdown of contractual liabilities,
such as debt, and social insurance liabilities, such as Medicare
and Social Security. If budgets began including these measures,
policymakers would no longer be able to ignore these liabilities
and could begin budgeting for their costs and initiate the reforms
necessary to keep these financial commitments manageable.
Principle #3: The President Should Be
Involved Throughout the Budget Process
two parties are expected to negotiate a detailed agreement on a
complex subject within a nine-month period, separating them until
the end of the ninth month makes little sense. It makes even less
sense for one side to spend a great deal of time working out the
smallest details of its offer without first having forged the basic
structure of an agreement with the other side. Yet, Congress and
the President currently use this method to write the federal
President begins the process in February by presenting his proposed
budget as an opening offer. Congress then spends up to eight months
preparing its counteroffer in the form of 13 detailed, annual
appropriations bills. At that point--with the deadline for
completion quickly approaching--the President's options are limited
to either signing or vetoing each appropriations bill.
Without any agreed-upon budgetary
framework, these last-minute negotiations over the details of
hundreds of programs become extremely difficult. The inevitable
results are rushed compromises that are completed well past the
fiscal year deadline. In fact, the past two federal budgets were
completed four months late--one-third into the year that they were
designed to fund.
increasingly popular solution would be to move from a concurrent
budget resolution (which does not involve the President) to a joint
budget resolution (which would be signed into law by the
President). By working out differences early in the process and
enacting a binding law, contentious debates on the size of
government would be settled in March--rather than in October, when
delays risk government shutdowns. The appropriations debate would
be limited to the composition of federal spending, and
disagreements would be far easier to resolve if spending limits
were already fixed by law.
Issues remain regarding how to move the
budget process forward when Congress and the President are unable
to agree on a budget blueprint. One idea is to require a
supermajority to pass spending bills that are introduced under an
unsigned budget resolution. That would provide adequate pressure on
Congress and the White House to settle their differences.
Another way to bring the President into
the process would be to require congressional votes to block
rescissions. Presidential rescission requests, which cancel
previously appropriated budget authority, currently require both
House and Senate approval to take effect. Thus, Congress can block
a rescission by simply refusing to vote on it. Requiring Members of
Congress to vote down the rescissions they oppose would be a
positive reform. Rescission proposals not voted down by at least
one house of Congress within 45 days would go forward. Supporters
of questionable spending could no longer avoid going on the public
record with their position.
Principle #4: Budget Decisions Should
Include Strong Enforcement.
Budget restraints without strong
enforcement are paper tigers. Restraints are intended to force
Congress to make some uncomfortable trade-offs in order to preserve
the nation's long-term economic health. However, Members of
Congress typically take the easy path of seeking loopholes that
bypass restraints, thus avoiding difficult choices. Consequently,
rules are only strong as their weakest link.
example, the discretionary spending caps of the 1990s did not apply
to emergency spending. Predictably, lawmakers began classifying
regular annual spending as "emergency" spending in order to bypass
the caps. Congress should budget sufficiently for regular
"emergencies" while assuring that the necessary escape hatch for
unforeseen, catastrophic emergencies is not abused. Modest reform
options include altering the definition of emergency spending and
requiring the President to agree to an emergency designation. A
more ambitious reform would require lawmakers to set aside a
pre-determined portion of the budget for emergencies and require a
supermajority vote to spend beyond that fund.
budget resolution's spending ceilings are also weakly enforced. In
the House of Representatives, passing a spending bill that exceeds
the spending ceiling requires only a simple majority--which is no
more of a hurdle than any other spending bill must clear. This
renders the budget resolution's spending ceilings meaningless in
the House of Representatives. The Senate is slightly better,
requiring a three-fifths vote to violate the budget resolution. Real enforcement,
however, may require closer to a two-thirds vote. Furthermore, if
lawmakers convert the concurrent budget resolution into a joint
budget resolution, exceeding spending limits would also require
White House approval.
reforms would promote better planning and coordination within the
constraints of the budget caps and annual budget resolution.
federal government currently spends over $20,000 per household.
That cost is projected to begin rising sharply over the next 10
years, when retiring baby boomers begin receiving Social Security
and Medicare benefits. Lawmakers can avert painful tax increases
only if they make the difficult decision to limit federal spending.
The current budget process, which is designed to maximize federal
spending, is the wrong tool for that job. The four principles
listed above represent positive budget reform consistent with sound
planning, responsible spending, and low taxes.
Riedl is Grover M. Hermann Fellow in Federal Budgetary
Affairs in, and Alison
Acosta Fraser is Director of, the Thomas A. Roe Institute
for Economic Policy Studies at The Heritage Foundation.