Time To Reform The Federal Budget Process
The Senate Budget Committee held a hearing this week, the first in a series, on the need to reform the federal budget process. Testifying were Michael Peterson, President and CEO of the Peter G. Peterson Foundation, Douglas Holtz-Eakin, President of the American Action Forum and former Congressional Budget Office (CBO) Director (2003-2005), and Deborah Weinstein, Executive Director for the Coalition on Human Needs.
Chairman Michael Enzi (R-WY), began the hearing pointing out the many problems with our country’s current budget process and how it has failed taxpayers. He highlighted how a well-managed budget process is supposed to strengthen democracy by giving citizens a better idea of government’s role and ensuring that their tax dollars are being spent wisely.
Enzi noted that prior to this year’s balanced budget resolution, the last time one was passed was in 2001. He further explained that once the budget resolution establishes the top spending levels, Congress must pass 12 annual spending bills before the start of each Fiscal Year, but in the past 40 years, the appropriations bills have been done on time in only four years. Enzi noted:
In most years, Congress didn’t even come close to enacting all annual spending bills, in 15 of them, not even one appropriations bill was enacted on time. Instead, there were 173 short-term spending bills (CRs) to prevent government shutdowns, funding the government for an average of 186 days per year, more than half of the year.
We cite similar statistics in our paper discussing the problems with the budget process, The Budget Act at 40: Time for a Tune Up?
Enzi attributed many of these problems to the fact that many rules are outdated and have not kept up with modern practices in finance, economics, and accounting, since the last budget concepts commission in 1967. He believes the budget process needs to provide regular order, predictability, and legislative oversight and provide transparency and accurate information for lawmakers and the public.
Enzi added that the budget process should be changed to reflect the new composition of federal spending. He pointed out that over the last 40 years, since the current budget process was put in place, discretionary spending has declined from 60% of the budget to about one third, although absolute spending has gone up. Mandatory spending, mostly not subject to regular review by lawmakers, has climbed to two-thirds of the budget.
Ranking Member Sanders acknowledged the need to reform the budget process while taking into account all parts of the economy. He noted the increase in inequality, suggested eliminating sequestration and pointed out that we are two weeks from hitting the debt ceiling. Sanders said that while the deficit needs to be addressed, it has already been reduced by two-thirds in the past six years.
Peterson argued that the current budget process keeps policies focused on the short-term and takes legislators' focus off the true debt drivers. He cited his organization's Solutions Initiative, as a model for developing comprehensive fiscal solutions, by bringing together policy experts from five leading think tanks across the political spectrum to develop scorable proposals that stabilize the debt as a share of the economy over the long term. Peterson pointed out that even though these five leading think tanks all have different priorities, their plans demonstrate that comprehensive solutions do exist. He suggested three guiding principles: 1) looking further into the future, perhaps a 25 year window, 2) setting rules that require medium and long-term goals for Congress and the President, and 3) enforcement of these policies should be strong but flexible enough.
Holtz-Eakin argued that the federal budget is in serious jeopardy, referencing CBO's baseline of $1 trillion deficit in 2025. He added that the question is not if a crisis will happen but when will it happen, and pointed to mandatory spending. He suggested reforms to Medicare, Medicaid and Social Security to secure these programs financially and better serve beneficiaries. He also suggested a constitutional amendment for reforming the budget process like Sweden has done, given that reconciliation has not been effective in helping to reform the mandatory programs.
Weinstein argued for protecting the poor and suggested collecting more revenues from the wealthy and corporations, pointing out that Congress is willing to not pay for big tax cuts. She acknowledged that debt needs to be reduced over time, while pointing out that current deficits are lower than at any time during Reagan’s presidency, with the Affordable Care Act (ACA) helping to reduce the deficit.
During the question and answer section, there was general agreement by Senators that the current process is failing. Several indicated the need to achieve bipartisan agreement on topline spending levels in the budget in the beginning, possibly by changing the process to make the budget resolution a law, thus including the President in the process upfront.
Senator Kelly Ayotte (R-NH) asked about biennial budgeting and the witnesses generally agreed it would be a good idea, especially since election year politics already put pressure on Congress to effectively budget two years at a time.
Senators also touched on budget treatment of the highway trust fund, asymmetries in treatment of taxes and spending, baseline budgeting, fair-value accounting, and the cost of uncertainty in the budget process.
Chairman Enzi wrapped up the hearing by noting that the purpose was to establish the need for budget process reform, and no one disagreed. He noted that there will be at least two more hearings that will begin to get into potential solutions. To see CRFB's proposed solutions, check out our Better Budget Process Initiative page.