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October 8, 2014

Broken Budget Process Exacerbates Debt

This year marks 40 years under the current process, and it’s not yielding good results.

Congress passed a continuing resolution Sept. 30, giving the federal government money to make it a few months longer – just the way it has done with varying success for the five years since it last passed a budget. Yet the budget process itself has been broken since the Nixon administration, leaving Washington unable to consistently create a reasonable plan for how it would spend the nation’s treasure.

This year marks the 40th anniversary of the Congressional Budget and Impoundment Control Act of 1974. The budget act was passed to correct holes in the way the budget was created. But after 40 years, the solution doesn’t appear to have solved anything.

If Washington doesn’t create and stick to a budget, then America’s debt hobbles its future. The Congressional Budget Office (CBO) published a report in August showing the debt spiked under the Obama administration’s “recovery.” In 2007, the federal debt made up 35% of the nation’s Gross Domestic Product. Today, it’s 74%.

The CBO warns the debt is a monolithic liability for the nation, as it could “have serious negative consequences, including … increasing federal spending for interest payments, restraining economic growth in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis.”

In other words, the results of the septic policies that slowed the recovery for years after the 2008 financial crisis will linger in the American economy for generations if the debt isn’t fixed and a budget isn’t passed.

But the federal government can’t simply fire up a laptop, open an Excel spreadsheet and plot a simple budget. The process to create a federal budget is fraught with politics and human failing.

In the 1970s, Congress set a budget, but the president controlled the purse. With a president like Richard Nixon, the results were predictable. Congress appropriated funds, but Nixon disagreed and impounded the funds. As a result, and as a way to take back the constitutionally enumerated duty to form a budget, Congress passed the Congressional Budget Impoundment Control Act. Among its pages, it established the nonpartisan CBO to combat the president’s administrative spin, and set up budget committees in the House and Senate.

And that piece of legislation, with some patches along the way, forms the framework for the system that left us budget-less in recent years.

Congress’ failure is the reason why the budget process must be reformed. James Capretta, a visiting fellow at the American Enterprise Institute, published an essay at National Affairs proposing changes to the way Washington creates its budgets by creating more incentives for lawmakers to actually pass one.

The third rail running through this issue is the government’s redistribution of wealth through welfare and entitlements. Politicians can’t pare down these expenditures without committing political suicide. But the CBO in August said welfare programs would account for 85% of the federal budget’s increase over the next 10 years. For example, for 35 straight months, more than 46 million Americans have received food stamps. Isn’t that assistance supposed to be temporary until the economy recovers?

Capretta said that third rail must be touched to avoid a train wreck later on. “The United States is entering a new era of economic and fiscal policy,” he wrote. “Rapid demographic changes and rising entitlement costs are creating significant pressures that must be addressed soon to avoid the risk of substantial economic dislocation. Reform is coming for the welfare state, in one form or another.”

Furthermore. Congress has little reason to touch entitlement spending currently because, Capretta argues, “If spending rises in the program because of higher enrollment than expected, or higher average benefits than expected per enrollee, nothing in the current budget process can force Congress to enact corrective steps to limit spending.”

This is why Capretta suggests two major changes to the budget process. First, he would limit how much can be spent on “mandatory program spending,” a.k.a. entitlement spending, forcing legislators to deal with those expenditures. Second, he proposes Washington pass a budget like any other piece of legislation that the president signs and “would have the force of law, and both branches would be bound to it.”

Currently, Congress and the president talk past each other over the budget.

“As co-equal branches of government, each has a substantial role over the federal budget, and there is no legal requirement that they ever fully come to an agreement with each other,” Capretta writes. “Indeed, with some exceptions, it can be said that the federal government never truly operates within a budget because the legislative and executive branches rarely agree on one.”

While it’s fraught with political dangers, politicians should take a play from Ronald Reagan. When he wanted to reform Social Security, Reagan made the changes so gradual, they are still being implemented today. No, the budget cannot be fixed in one term, or even two. It will take years of politicians operating with the conviction that America’s budget should reflect the healthy budget of an ordinary household – balanced and implemented.

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