Time to Reform the Budget Process
Policy + Politics

Time to Reform the Budget Process

TFT Staff

One consequence of the Senate’s irresponsible delay in confirming Jacob Lew as director of the Office of Management and Budget is that Congress will have less time to finish its work on the budget next year. This week, the White House announced that the president’s budget won’t be sent to Capitol Hill until mid-February, a week later than usual.

It probably won’t make much difference. For decades, the president’s budget has been dead on arrival in Congress. This wasn’t always the case. Before creation of the Congressional Budget Office in 1974, the White House had a virtual monopoly on budget numbers. Congress, therefore, had little choice but to work from the president’s baseline and accept his underlying assumptions, which meant that appropriations bills tended to adhere closely to presidential priorities.

Moreover, every president until Richard Nixon had effective line-item veto authority called “impoundment.” If the president didn’t want to spend money appropriated by Congress, he didn’t have to. The law was changed in 1974, requiring the president to spend every penny appropriated by Congress exactly the way Congress wanted it.

Congress Gains Budgetary Power
By the 1980s, budgetary power had shifted dramatically from the White House to Congress. The president’s budget was not particularly meaningful as far as Congress was concerned; it was merely a suggested approach that could be, and usually was, heavily revised. And Congress had little use for OMB’s numbers once it had the CBO to crunch its own.

But as Congress increasingly wrote a budget from scratch every year, in effect reinventing the wheel annually, the budgetary process became longer and longer. This year is typical. Even though we are three months into fiscal year 2011, we still don’t have a real budget, just the fourth version of a stop-gap omnibus appropriation that does little more than prevent a government shutdown until March 4. Only two of the 12 regular appropriations bills even passed the House this year and none passed the Senate.

The result is that effective budgetary oversight is lost, and departments and agencies are left to operate on automatic pilot, which often leads to waste. For example, NASA is being forced to throw away $500 million on the discontinued Ares rocket program because Congress couldn’t be bothered to undo a Republican earmark that forces it to continue funding the program.

Readers may find it hard to believe, but up until 1974 the new budget year began on July 1, meaning that Congress had just five months from the time the president’s budget was submitted to pass all its appropriations bills – and most years it did so without difficulty. The Budget Act of 1974 gave Congress an extra three months, changing the beginning of the new fiscal year to Sept. 1. Yet it is a rare year since then that Congress got all its appropriations bills enacted in time.

A key reason for Congress’s inability to do its basic job this year is that it failed to adopt a budget resolution for fiscal year 2011. This should have been done by April 15 in order to guide the appropriations committees by setting overall caps on outlays for major budget functions. The House didn’t get around to voting on a budget resolution until July 1. The Senate never bothered to act at all.

Another consequence of failing to enact a budget resolution is that Democrats lost the ability to use “reconciliation” to enact a tax bill on their own terms. Reconciliation is a budget procedure that cannot be filibustered in the Senate, which Republicans have used repeatedly to ram budget-busting tax cuts through Congress. But reconciliation can only be used when authorized by a budget resolution. Therefore, no budget resolution, no reconciliation.

This made it easy for Republicans to filibuster any tax bill not exactly to their liking. Eventually, President Obama was forced to cut a deal with them and support a tax cut during the lame duck session, largely on Republican terms. If the Democrats had been able to use reconciliation, they could have passed a tax bill before the election, which may have helped a few of their candidates.

Pushing Tax Cuts Through
Republicans are talking big about forcing massive spending cuts into law next year and perhaps more big tax cuts, too. Toward this end, they plan to change the House rules to require that entitlement program increases be offset only with entitlement cuts. Keep in mind that a major contribution to higher spending today is that Republicans created an entirely new entitlement program in 2003, Medicare Part D, and didn’t pay for a penny of it. Now they want to shut the barn door after they themselves let the horses loose.

Tax increases would not be permitted to pay for new spending under the new rule, not that Republicans would permit a tax increase anyway. However, tax cuts, no matter how large, would be permissible under any circumstances and not have to be paid for in any way. This is because Republicans simply deny that lower revenues can ever increase the deficit; deficits, according to their dogma, are only caused by spending, no matter how much revenues fall. As Rep. Michele Bachmann, R-Minn., recently put it, “I don’t think letting people keep their own money should be considered a deficit.”

Those that live in the real world, however, know that about half the increase in the budget deficit has been caused by lower revenues. Since 2007, revenues have fallen by 3.9 percent of the gross domestic product and spending has risen by 4.2 percent. This is partly due to the impact on revenues of a slow economy, but also because of tax cuts that made up a third of the February 2009 stimulus bill. Yet, Republicans continue to claim, without any evidence, that the prime cause of the slow economy is high taxes, even though federal revenues as a share of GDP are at their lowest level since 1950.

Rethinking the Budget Process
Given the reality that Congress is always going to write its own budget and ignore the president’s, and given the growing importance of long-term budget problems, I think it’s time to rethink the current budget process. Budget expert Stan Collender suggests doing away with the president’s budget altogether. It has no force of law, as it does in other countries, because the Constitution requires that all spending be approved by Congress. Since Congress has final budget authority, perhaps the process should begin there as well.

Instead of wasting four months after the end of a fiscal year for the president to make a proposal that it will simply ignore, Congress could start the budget process in the fall so that it could get the appropriations process started as soon as it reconvenes in January. The president’s budget message could be reformed to emphasize long-term trends and structural imbalances along the lines of the Financial Report of the United States Government, an obscure Treasury Department report that I discussed last week.

The original idea of the Budget Act of 1974 was to focus attention on the budget aggregates – total spending and revenues. This is still a good idea, but the current budget process doesn’t accomplish that purpose. Instead, there is far too much attention paid to trivialities such as earmarks and insufficient attention to entitlement programs such as Medicare. And the nonsensical Republican belief that tax cuts have no effect on the deficit needs to be refuted before it bankrupts the country.

There are, of course, many other budget reforms that could be enacted. The important thing is that the nature of budgeting and our budgetary problems have changed dramatically since 1974. It’s well past time to acknowledge those changes and institute reforms that will better serve the country in the future.