The Need for Fiscal Goals

The House Budget Committee held a hearing on Wednesday (June 15, 2016) on budget process reform and the need for fiscal goals. CRFB president Maya MacGuineas testified alongside Harry Stein, Director of Fiscal Policy at the Center for American Progress, and Doug Holtz-Eakin, President of the American Action Forum.

 

Chairman Tom Price (R-GA) began the hearing by stating that balanced budgets during peacetime used to be the norm. He went on to say that absent a balanced budget, Congress has never had a real fiscal goal. Exceptions in the balanced budget philosophy have become routine, and Congress must have solid budget enforcement if the situation is to change.

 

Acting Ranking Member John Yarmuth (D-KY) opened by expressing his appreciation for reform efforts, and then cited the inability of the House Republicans to put pass a budget. He argued that hyper-partisanship has held up bipartisan efforts and that fiscal goals aren’t useful without agreement on policy. While he believes fiscal goals are necessary, he said that arbitrary goals won’t work in the current political climate.

 

MacGuineas began by arguing that our debt and deficit problems are far from solved. She provided many benefits of getting debt to a more manageable level, including greater economic growth and income, lower interest rates and interest spending, and greater flexilibility to respond to problems. She went on to discuss implementation issues with regards to fiscal goals, noting that the goal should be aggressive enough to help fix the problem but realistic enough to be achievable and for enforcement and should be accompanied by procedures to help the goal stay on track. These goals could be required in the current budget process through the President's budget and/or the Congressional budget resolution.

Stein agreed that the current budget process is less than ideal and needs amending. However, he also argued responsible borrowing can be helpful to the economy, particularly in the situation we are now. He suggested a more gradual approach to handling the debt and said that too rigid fiscal goals could be counterproductive.

Holtz-Eakin said that two-thirds of current spending is “on auto-pilot” and that Congress is borrowing to pay off previous borrowing. He contended that it is difficult to bind future congresses, and thus maybe a fiscal goal would be most useful in the budget resolution. If Congress wants to use binding rules, though, then they should be done via Constitutional amendment. This would force Congress to carefully consider a goal in a highly visible setting and explain it to the public.

During the question and answer segment of the hearing, lawmakers asked the witnesses about several topics, but many pertained to specific ramifications a fiscal goal would have on government spending.

Chairman Price asked if it was reasonable to require the growth of the government to be less than that of the economy. MacGuineas responded by saying there is too much growth built into the current process, which is a major problem for budgeting but also said that reducing spending as a share of GDP over time would become harder to implement due to population aging increasing retirement program spending. She argued that at least it would force policymakers to examine how they allocate resources.

Yarmuth took a more skeptical view in his than his Republican counterparts, stating goals are necessary but nothing more than arbitrary numbers if compromise cannot be found. He asked the panel about the current ability to fight a recession if one arose, and MacGuineas said the United States is not equipped to handle a recession to the extent we were in 2008 because of our higher debt levels. She made the point that fiscal goals should include flexibility and could be designed to loosen or tighten over the business cycle.

MacGuineas contended that both sides need to be more cognizant of where their counterparts are coming from. By first setting a goal and realizing tradeoffs are necessary, it should become easier for the two sides to find a compromise. She also highlighted the importance of finding common ground on a solution sooner rather than later, as the longer the two sides wait, the harder it will be to institute reasonable but adequately aggressive goals.

When asked by Vice-Chairman Todd Rokita (R-IN) about President Obama’s proposal to increase Social Security benefits, MacGuineas was quick to state that entitlement reform is necessary in an effort to bring down debt. At one point MacGuineas cited past productive sessions working through policy options with lawmakers and recommended that the committee meet to utilize our budget simulator. In his conclusion, Price stated that the committee would take up MacGuineas on her offer.

This hearing was one of several the House Budget Committee has convened on budget process reform. Chairman Price has previously indicated an interest in eventually proposing a rewrite of the 1974 Budget Act and plans to hold additional hearings this summer. CRFB has put forward many suggestions for possible budget process reforms through our Better Budget Process Initiative.

Click here to read Maya MacGuineas's full testimony.