McCarthy Suggests Increased Focus on Long-Term Budgeting

House Majority Leader Kevin McCarthy (R-CA) tells Politico that his priorities for the next Congress include the budget process, and in particular, evaluating the budgetary impacts of legislation over the long term and biennial budgeting. We generally share McCarthy's support for biennial budgeting though our enthusiasm depends on what emerges from the legislative process –  and it is by no means a silver bullet.

On long-term budgeting, Politico's Jake Sherman writes:

Also in McCarthy’s crosshairs: the congressional budget process. He thinks writing a budget each year is antiquated, and said Congress should consider budgeting once every two years. Also, he wants to reform the Congressional Budget Office so it studies the impact of legislation over, say, 20 years, instead of 10. He said Congress often times gets “stuck in our subcommittees” and he wants to “start looking at what we’re doing in the next 50 years.” McCarthy says Washington is frozen because the “structure holds us back.”

“The ideas are great,” McCarthy said, “but what stops the ideas from becoming law? Some of the archaic things we do.” McCarthy added, with a hefty dose of incredulity, “The budget act is the Budget Act of 1974. Does the world look like it did in ‘74?”

We are encouraged to hear McCarthy discuss the importance of long-term budgeting. Our recent paper "The Budget Act at 40: Time for a Tune Up?" shared McCarthy's concerns about a lack of focus on the long term as one of the key problems in the current budget process:

The government’s largest fiscal challenges are not over the next year or next decade, but over the long-run. As the baby boomer generation retires, the population ages, health care costs continue to grow, and interest costs compound, the federal debt is scheduled to grow unsustainably. Indeed, under CBO’s current law projections, debt levels will be relatively stable (albeit high) at 74 percent of GDP through 2018, but then begin to rise, exceeding the size of the economy by 2038. Under CBO’s alternative projections, the situation is far worse and debt will reach 158 percent of GDP by that year.

Unfortunately, there is little political benefit for politicians who pursue long-term reforms. And rather than push against that reality, the current budget process reinforces it in a number of ways. The budget process encourages lawmakers to evaluate policies based on the ten-year score of legislation, often at the expense of the long-term costs or benefits of the policy.

In a previous report, "Looking Beyond the Ten Year Budget Window," we discussed methodologies and tradeoffs for projecting long-term budget impacts. We listed the policies that are more likely to produce additional savings over the long term, as well as those that may have additional costs in the out years. Using these methodologies will help level the playing field for policies that have vastly different effects in the short term and long term. Some examples include second-decade scores (as McCarthy supports), actuarial estimates as the chief actuary does for Social Security proposals, and steady-state analysis. These types of analyses can eliminate "noise" in short-term scores and ensure legislation that is fiscally responsible in the long term -- when the debt is of largest concern – as well as in the first ten years.

While changes to the budget process are not a substitute for making the tough political decisions necessary to put the long-term debt on a sustainable path, improvements to the process can produce additional transparency and accountability so that the system works better for policymakers and constituents. Biennial budgeting and longer-term cost analysis can help in this effort. Improving the budget process should be a bipartisan effort, and we are encouraged to see Majority Leader McCarthy putting forward ideas to make the process better.