Almost all Americans agree that the process to pass a federal budget has become more difficult than scaling Mt. Everest. The 1974 Congressional Budget Act, or CBA, requires Congress to agree on a budget resolution as the framework for tax and expenditure bills. As amended, CBA requires Congress to set a revenue floor and an expenditure ceiling. The spending caps are enforced through sequestration.
If Congress and the president can’t agree on a budget consistent with these rules, sequestration enacts across-the-board spending cuts. CBA also requires Congress to determine debt levels as part of the budget resolution, in conformity with the debt ceiling.
For several years, Congress has failed to agree on a budget resolution. However, this has not stopped politicians and bureaucrats from circumventing the constraints imposed by these fiscal rules. To keep the federal spending spigot freely flowing, Congress routinely suspends spending caps and increases the debt ceiling. The results of Congress’ spending spree are trillion-dollar deficits and a $21 trillion national debt.
In the current Congress, elected officials are congratulating themselves on restoring “regular order.” All 12 appropriation bills have been advanced in the House and Senate, and most of the spending bills have passed on the floor in each chamber. Congress has avoided relying on a continuing resolution that allows it to postpone controversial spending decisions. When Congress relies on a continuing resolution, spending bills are often passed in an ad hoc manner. Congressional leadership negotiates an omnibus spending bill late in the year, which does not allow for much input from the rank and file in Congress.
Congress has passed these appropriations bills without agreeing on a budget resolution. Every appropriations bill calls for a significant increase in spending, and Congress continues to suspend the spending caps to ensure the bills are passed. It is easy to reach bipartisan agreement on a budget when there are no budget constraints.
Elected officials are more than aware that the budget process is broken. This year, the House appointed a Joint Select Committee on Budget Process Reform. The committee will make recommendations for budget process reform measures in November.
The reform measures proposed by Rep. Nita Lowey, D-N.Y., co-chair of the committee, will come as a shock to many. Her proposals would facilitate passage of appropriations, even when there is no budget resolution agreement. Lowey aims to increase the 2020 spending caps, and then allow them to expire permanently after 2021. Lowey’s proposals would give the president the authority to suspend the debt ceiling, and then repeal the debt ceiling permanently. In short, Lowey’s proposals would give Congress the authority to spend taxpayer dollars without restraint.
It remains to be seen which reforms the committee will recommend. Unfortunately, the proposals offered by Lowey signal that Congress is likely to weaken the current fiscal rules, which are already, in many respects, too weak. Although spending caps and the debt ceiling have failed to constrain spending, these rules have slowed the growth of debt and required a more deliberative budget process.
Congress ought to reconsider the budget reforms put forth in 2016 by the House Budget Committee, chaired by former Rep. Tom Price, R-Ga. The recommendations focused on solving the debt crisis in the long run by strengthening fiscal rules and implementing spending restraints. In particular, the committee noted the success of new fiscal rules adopted in the European Union.
In those countries, a debt target is set at a sustainable level. An expenditure limit is then imposed to achieve that debt target within a medium-term time frame. Annual budgets are adjusted based on the expenditures limit and the debt target. Guardrails are imposed in the form of deficit and debt brakes; when deficits or debt approach tolerance levels, a more stringent spending limit is imposed.
The Price committee noted the success of European countries, such as Switzerland, that have imposed the new fiscal rules for several decades. These countries reduced debt levels significantly over this period, giving them more flexibility to pursue a discretionary fiscal policy in response to recessions and financial crises. The Swiss rules require a cyclically balanced budget with deficits in periods of recession offset by surplus revenue in periods of expansion. An emergency fund allows them to exceed the spending limit in response to unforeseen events.
The Price committee noted that for decades, the United States has incurred higher levels of debt, which will make it more difficult to impose fiscal rules, and concluded that failure to address the debt crisis with current fiscal rules underscores the need for new fiscal rules that have been proven to be successful in other countries.
Congress must act now, before it’s too late. Failure to do so could have far-reaching and economically destructive repercussions.
[Originally Published at the Washington Examiner]
Barry W. Poulson is Emeritus Professor of Economics at the University of Colorado.
Dr. Merrifield is a professor of economics at The University of Texas at San Antonio, a position he has held since 1987.
