Better Budget Process Initiative
About the Better Budget Process Initiative
There is a growing consensus that the budget process is broken. The Better Budget Process Initiative will put forward specific options to reform and improve the budget process in a wide range of areas, including increasing focus the on long-term fiscal outlook, improving the process for dealing with the debt limit, strengthening statutory budget enforcement, revising the content and structure of the budget resolution, moving to biennial budgeting, and addressing treatment of tax expenditures in the budget process.
In 2010 and 2011, policymakers enacted two important budget process improvements: statutory caps on discretionary spending and the statutory pay-as-you-go (PAYGO) law to prevent tax cuts or mandatory spending increases that are not offset by other changes. Although neither of these laws will prevent the unsustainable growth of the debt, both are designed to prevent policymakers from worsening the overall fiscal situation. Unfortunately, policymakers have negated these rules’ effectiveness by finding ways to circumvent them on many occasions.
The experience with the discretionary spending caps and PAYGO requirements originally enacted as part of the 1990 Budget Enforcement Act demonstrated that when lawmakers took these rules seriously, they were more likely to abide by the rules. With debt at a modern record high and projected to grow unsustainably, it is unacceptable for policymakers to avoid hard choices by relying on gimmicks and loopholes. Congress should therefore reaffirm its commitment to strictly enforced budget rules, and enact reforms strengthening these rules to make it harder to evade the letter and spirit of the rules. We recommend several improvements to help them do so.
The debt ceiling was first created in 1917 and established in its current form around 1940. Prior to that, Congress had to approve each issuance of debt, whereas the new ceiling allowed debt to be issued regularly as long as it stayed below a nominal limit. Because spending has generally exceeded revenue collection causing the government to borrow each year, the country has regularly bumped up against the debt limit. As a result, the debt limit has been increased, extended, or suspended a total of 92 times. A number of these increases, in the past, have been used as an opportunity to address our growing national debt or enact Fiscal reforms. As one of the only fiscal speed bumps in the budget process, it has served the purpose of helping to focus Washington’s attention on our fiscal situation. This paper outlines options to reform the debt limit.
The budget process focuses on the short term, often at the expense of longer-term considerations. This distortion allows policies to be crafted in ways that mask their true costs, and produces results that downplay looming fiscal challenges. The short-term focus leads to many poor outcomes, such as emphasis on short-term deficit reduction (with little improvement in the long-term fiscal outlook), the use of “timing gimmicks” designed to obscure the budgetary impact of policy choices, and the reliance on one-time savings are to ensure “deficit neutrality” within a budget window but deficit increases beyond it. The short-term emphasis is the result of both an overreliance on ten-year budget windows for scoring and analysis, and insufficient enforcement of long-term fiscal goals. Modifying the rules governing the budget process could be a powerful tool to help correct this myopic thinking. We suggest several possible remedies in this paper.
Forty years ago, President Nixon signed the Congressional Budget and Impoundment Control Act of 1974 (“The Budget Act”) into law, establishing the modern budget process and institutions. Enacted to settle ongoing clashes between the executive and legislative branches, the Budget Act established procedures and institutions to allow Congress to establish its own budget priorities independent of the executive branch and provide a framework to guide and coordinate legislation affecting spending and revenues within overall budgetary limits.
There is a growing consensus that the budget process is broken. After functioning relatively well for more than two decades, Congress has increasingly moved to dealing with budget issues on an ad hoc basis. Congress adopted an annual budget resolution, approved by both chambers, each fiscal year from 1976 through 1998. Since then, however, there have been eight fiscal years in which Congress has not approved a budget resolution. Furthermore, Congress has increasingly relied on temporary patches to fund parts of the federal government rather than full-year appropriations.