Rudolph Penner: Instead Of Seeking Budget Process Reforms, Congress Should Cut Spending And Raise Taxes

Dr. Rudolph Penner was the director of the Congressional Budget Office from 1983 to 1987, and he is an Institute Fellow at the Urban Institute and a member of the Committee for a Responsible Federal Budget. He wrote a post that appeared on the Tax Policy Center blog, TaxVox. It is reposted below.

As this fiscal year began, Congress faced budget projections that showed rapidly rising deficits and debt over the next 10 years. Lawmakers reacted by cutting taxes and increasing spending. Alarmed by the gargantuan federal budget deficits that are sure to follow, the congressional leadership appointed a special bipartisan committee of House members and Senators to suggest reforms in the budget and appropriation processes.

The special committee will probably recommend the addition of disciplining rules to an already convoluted process. If adopted, those rules will probably be waived or ignored when they become politically uncomfortable .

The committee has a better chance of being productive if, instead of recommending process changes, it suggests a combination of specific spending cuts and tax increases aimed at reducing future deficits. 

It is quite easy to get around budget rules. Waivers can be buried in complex pieces of legislation, so that no one notices. The pay-as-you-go rule in the current process offers a perfect example. It says that any tax cut or increase in entitlement benefits must be paid for with some other tax increase or benefit cut. If policy changes are not paid for, there is supposed to be an automatic cut in a number of entitlements. Clearly, the recent tax cut should have been paid for. But the pay-as-you-go rule was quietly waived in the continuing resolution passed in December 2017.

The new committee should turn away from the budget process. It is too broken to be repaired. The panel should instead turn to the substance of the problem. It is not complicated. An aging population is causing spending on Social Security and health program to grow faster than the economy and tax revenues. Those programs constitute roughly one-half of federal spending. If left unreformed they will lead to ever-growing deficits and debt. As a result, the interest cost of the debt becomes the fastest growing component of government spending.

The problem cannot be solved solely by restraining spending or by only raising taxes. Restraints on spending would have to be so draconian that they are not politically plausible. Taxes would have to be raised repeatedly to keep up with the financing needs of Social Security and health care. Because Republicans will have to give up their obsession with tax cuts and Democrats will have to accept restraints on programs that they love, any solution will have to be bipartisan. In the current environment, it is an understatement to say that won’t be easy. However, it will be easier than finding magic budget rules that solve the problem. And it will be more effective than creating complex processes that Congress won’t follow.

In early 2010, President Obama created the National Commission on Fiscal Responsibility and Reform, headed by Alan Simpson and Erskine Bowles. The commission proposed a well-balanced package of spending restraints and tax increases. The proposals received the bipartisan support of 11 of its 18 members. The report of that commission provides the new special committee with a good place to start the bargaining.

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the Committee.