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WebMemo #660 on Federal Budget

February 9, 2005

The President's Call To Fix the Budget Process

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The President's budget, released Monday, raises the bar for fiscal discipline. By setting spending priorities, it reduces growth in discretionary spending to less than inflation-a cut in real terms. Moving well beyond this commendable step, the President's budget also lays out a plan to help get spending under control for good by fixing the federal budget process.

 

As it currently stands, the budget process does not support or promote fiscal discipline. Quite the opposite, in fact-it actually rewards increased spending. Beneficiaries of the vast array of federal programs line the halls of Congress every day, pressing members for more spending and new programs. Even worse, the annual budget omits any mention of the federal government's long-term obligations, such as those from Medicare and Social Security. The result is predictable: Members ignore how their legislation affects the budget more than a few years down the road and find it easier to increase the burden of government on future generations than to be fiscally prudent. In short, the federal budget process is a big part of the spending problem, and the President is right to address it in his budget.

 

Fixing the Budget Process

The President's budget lays out a few much-needed, commonsense steps to change the budget process and make it easier for Congress to get spending under control:

 

  • Discretionary spending caps. The budget proposes discretionary spending capsthrough 2010 to limit spending. Legislation that would exceed these limits would have to jump a higher hurdle than today-the budget proposes a three-fifths vote in the Senate, as opposed to a majority vote now. Any successful bill that goes past the caps but doesn't pass the three-fifths vote would force an across-the-board cut to wring the excess spending out of the overall discretionary budget. Setting limits now to control discretionary spending is a necessary first step to restore fiscal health.
     
  • PAYGO. Long-term growth in entitlement spending, such as Medicare and Social Security, poses the greatest threat to fiscal responsibility. The President proposes to curtail growth in entitlements with a modified pay-as-you-go (PAYGO) spending limit. This would require that any increase in entitlement spending be offset with reductions in other entitlement programs. The alternative, mandated in years past, is increasing taxes to pay for greater entitlements-a direct sop on the economy. Intended to address unaffordable spending, the President's PAYGO would not apply to tax proposals. Like discretionary spending caps, overriding PAYGO would require a three-fifths vote in the Senate. Legislation that causes net entitlement spending to increase without this super-majority would result in across-the-board reductions in other entitlement programs.
     
  • Bringing future obligations into the budget. As stated, the greatest fiscal threat comes not from near-term deficits and discretionary spending, but from the long-term costs of entitlement programs that already exist, such as Medicare and Social Security. Keeping these programs out of the annual budget only exacerbates the problem by encouraging lawmakers to expand entitlements and forego entitlement reform, with its attendant up-front costs and long-term savings. The President sensibly proposes to bring these long-term unfunded obligations into the annual budget.

    A part of doing that is with the point of order. A mandatory point of order would raise the procedural bar for increasing the long-term unfunded obligations of entitlement programs, giving Members of Congress a tool to use to ward off such proposed legislation. This is a good first step that Congress should take. Further, Congress should include a three-fifths vote requirement to overturn a point of order.
     
  • Addressing emergency spending. Emergency spending has traditionally been exempt from budget limits. This makes sense-Congress and the President need flexibility to deal with truly unforeseen, urgent situations, such as the 9/11 attacks and the extraordinary hurricanes in Florida last fall. But emergency spending is no longer a rare occurrence. Increasingly, it is used as a vehicle to exempt routine spending from budget caps. The President's budget would tighten the definition of emergency to restrict emergency spending to events that are truly sudden, urgent, unforeseen, and temporary-not routine, predictable, and ongoing. The budget also proposes a requirement that the President and Congress agree on each specific emergency-spending proposal to keep members from piling on favorite programs under the umbrella of genuine emergency.
     
  • The line-item veto. To help restrain the plethora of special-interest items in spending bills, the President proposes line-item veto authority-specifically, the authority to defer new spending to reduce deficits. Under this proposal, any time a president determines that a new spending item is not an essential priority of the federal government, he could redirect that item's funding to reduce the deficit. As with previous line-item veto laws, this would most likely face legal challenge, with the outcome uncertain. If allowed, the line-item veto would be a powerful tool to cut spending on programs and projects that are not meritorious enough to pass on their own.
     
  • Making the budget binding law. Under the current budget process, the House and Senate attempt to craft a concurrent budget resolution that lays out the year's spending program. Even when they succeed (not always the case), the budget agreement never actually becomes law, meaning that, later down the line, nothing more than moral suasion stands to prevent appropriators from bursting their budget caps. Giving the annual budget resolution the full force of law would keep Congress from bypassing spending limits because it would force across-the-board cuts in response to excess spending. Also, making the budget resolution law would bring the president, a key player, into the budget game earlier. Congress and the president would have to sit down early in the process to agree on budget and policy priorities before Congress considers budget and tax bills.
     
  • Increasing accountability. The President's budget proposes authority for the President to establish two new commissions to increase accountability in the budget. The first, a "Results Commission," would seek to identify duplication and redundancy to streamline specific programs identified by the President. The second, a "Sunset Commission," would review and scrutinize programs regularly to determine whether they fulfill an appropriate function of the federal government.

Conclusion

The President's proposal to trim discretionary spending is a necessary step to bring spending under control. The next steps will require taking even tougher tough action: addressing entitlement programs, such as Social Security and Medicare. This will be possible only with a budget process that rewards fiscal discipline and requires Congress to look at the government's total obligations. Unfortunately, a number of process-reform proposals-many similar to the President's-were voted down in the House last month. But things should be different this time, with the President now in the game. Congress should adopt the President's proposals to amend the budget process in order to pave the way for tough the spending decisions that it will face very soon.

 

Alison Acosta Fraser is Director of the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

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