The Never-Ending Budget Battle

Writing rules to stop Congress from spending is hopeless.

This year, for the first time in modern history, the Senate failed to pass a budget. That sounds dramatic, but last year the House failed at the same task. A few years before that, the House and the Senate each wrote their own budgets, but failed to agree in conference. Each time, the president ended up signing massive omnibus spending bills—at ever-increasing expense to taxpayers.

The budget process is broken, and public interest in reforming it is keen. But changing the budget rules alone is unlikely to fix our fiscal woes. Even properly designed constraints, in order to be effective, would require credible external and internal enforcement backed by public opinion. Good luck with that. 

Nations have gigantic appetites but only finite resources to fulfill them. A functional budget process should help lawmakers set priorities and separate actual needs from mere desires. Our budget process, obviously, isn’t doing that, for several reasons.

First, the budget process fails to provide a clearinghouse for all spending. The federal budget has two basic parts. First is “discretionary” spending, which is subject to the appropriations process every year and includes things such as homeland security, most military spending, and programs like aid to schools. The second is “mandatory” spending, which includes automatic funding for entitlement programs such as Medicare and Social Security that doesn’t have to be reauthorized each year. Mandatory spending is roughly 60 percent of total annual outlays, and is set to explode in size and share of overall spending in the upcoming years. Yet entitlements have proven so difficult to reform that Congress has effectively declared them off the table when it comes to budgetary oversight. 

Second, the budget process is designed with a bias toward higher spending. Nearly a dozen different committees in each body of Congress have the power to propose mandatory spending programs. Lack of coordination over how to use taxpayers’ dollars creates what economists call the “tragedy of the commons,” whereby each committee over-funds its own programs. 

More importantly, the budget process relies on an odd accounting rule—current policy baseline budgeting. Congress is required to start from existing policy baselines to adjust a program’s annual funding. Therefore, if the current policy baseline for a program mandates a 10 percent increase, even a 9 percent increase is considered a “cut.” That’s how we end up with headlines like “Ryan Plan to Cut $4 Trillion,” when the Wisconsin representative’s proposal would actually increase spending by $1.8 trillion over 10 years. 

Lastly, the budget process is extremely complex and difficult to navigate. As a result, politicians often create, preserve, and exploit loopholes to protect programs that benefit their constituents. This is no way to write a budget.

But would changing the process for producing budgets be enough to control our fiscal problems? Unlikely. 

Effective rules can be designed in theory, but in practice rules are designed by individuals with vested interests. Take the Balanced Budget and Emergency Deficit Control Act of 1985, commonly known as Gramm-Rudman-Hollings (GRH). Gramm-Rudman-Hollings reflected a commitment to reduce deficits but failed miserably because its design made it unworkable. It was then replaced by the Balanced Budget and Emergency Deficit Control Reaffirmation Act in 1987 which also failed and was itself replaced three years later by the Budget Enforcement Act (BEA). BEA provisions were mainly ignored and soon replaced by the Balanced Budget Act (BBA) of 1997. When the budget was finally balanced in 1998, lawmakers started to ignore BBA rules until it expired entirely in 2002. (See figure.)

While lawmakers may want, in theory, to control spending, they are unwilling to cut the spending they care about. President Ronald Reagan, for instance, wanted defense spending sheltered from the GRH rules even if it meant he had to agree to spare entitlement spending from any cuts in exchange. Similarly, the Pay-as-You-Go rules put in place by Gramm-Rudman-Hollings were meant to control new mandatory spending while leaving untouched what was already on the books. More recently, the House symbolically passed the Cut, Cap, and Balance Act of 2011, but this plan exempts the sources of our future fiscal imbalance: interest on the debt, Medicare, Social Security, war on terror spending, and veterans’ health care benefits. 

These attempts at discipline failed, in part, because most budget agreements can’t effectively constrain future Congresses from changing the rules or letting them expire. This is why Rochester University and Mercatus Center scholar David Primo has called for constitutional budget reform. “Constitutional budget reform is necessary to tie the hands of Congress,” he says, “since legislators always want to spend more and have demonstrated many times how easy it is to evade or undo statutory or internal chamber rules when they stood in the way of more spending.”

But can new constitutional rules create the needed political consensus to constrain spending? Not likely. As Stan Collender, a partner at Qorvis Communications and a former staffer for the House and Senate Budget Committees, explains in an email, “A balanced budget amendment to the Constitution would be the fiscal policy version of Prohibition because there likely would be widespread evasion. Aside from the legal enforcement issues, there would be endless ways to get around the restriction. Congress could pass a budget that appears balanced by assuming economic growth that is much higher than it actually thinks will occur. It could also divide the budget into capital and operating expenses as almost all states do and then balance the operating budget by transferring spending into the capital budget. And these are just the start.”

The pursuit of budget reform will lead us back to concerns that occupied the classical political economists, such as Adam Smith. As F.A. Hayek wrote in 1948, “Smith’s chief concern was not so much with what man might occasionally achieve when he was at his best but that he should have as little opportunity as possible to do harm when he was at his worst. It is a social system which does not depend for its functioning on our finding good men for running it, or on all men becoming better than they are now, but which makes use of men in all their given variety and complexity, sometimes good and sometimes bad, sometimes intelligent and more often stupid.”

Creating rules to restrain spending is tricky, thanks to a variety of weaknesses in the institutional arrangements of the budget process. Until lawmakers are truly committed to cutting spending, they will design rules that fail to adequately constrain them—and they will find ways to evade even the toughest rules. The bottom line is that until they have no choice, Congress will continue gorging on our tax dollars. 

Contributing Editor Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • CE||

    Here's a rule that would work: stop taking my money.

  • Restoras||

    I think we're gonna have to stop giving it to them.

  • ||

    No. They'll just borrow and print.

  • ChrisO||

    The federal government will inevitably take the lazy man's option of devaluing the dollar rather than cut spending in nominal value.

  • The Ghosts of Past Empires||

    Let 'er rip!

  • Fluffy||

    Yup, it's hopeless.

    I don't see any way to solve this issue.

    A Balanced Budget Amendment will never happen, and will just be evaded if it does happen.

  • Tony||

    It should never happen because it's one of the stupidest ideas anyone has ever had. What happens if the country is invaded?

    Fiscal hysteria is mostly a partisan political device, not something that should be the constant focus of governing. The feared economic consequences of spending too much are almost impossible in our Fed-regulated system, even more so if political leaders were able to actually be fiscally prudent. But they're not because the same people constantly going insane over spending won't allow any tax increases to offset it. That's how you know it's a giant ruse. The simplest and most painless way to reduce the deficit significantly is to let all Bush tax cuts expire. But balancing the budget, of course, is nobody's actual goal. Blowing up the deficit is actually more of the point than balancing the budget is--as it provides the excuse to make all the radical policy changes they want.

  • 16th amendment||

    The balanced budget amendment would have an exception for war. It should also require wars to be reauthorized every 5 years, otherwise the war on terror will go on forever.

    Spending can bankrupt our country, and lower our standard of living. You may not think it could happen but it can. See the movie "Nowhere in Africa" about a Jewish family whose husband was smart enough to see the evil of Hitler and fled to Africa. Maybe you're like the million other people who didn't believe it could happen.

    Also read the Decline and Fall of the Roman Empire which presents the idea that a country can become arrogant and spend itself into decline.

    Just think about it. Do we spend $300B a year on debt payments. How much higher can that go?

    We already spend about $1.5T more than we take in. And I'm sure they'll add more spending during the year. Ending the Bush tax cut would only bring in an extra $500B a year. But look at the dynamic effect. It might be less because economic output could slow down further and thus the rich will make even less. And with all this extra money coming in, liberals will only be tempted to spend it. More new programs, more new programs. I suggest you subscribe to the NTU newsletter to see what crap mostly democrat politicians concoct every week. If they had their way we'd be spending $5T a year.

  • Tony||

    The balanced budget amendment would have an exception for war.

    Of course it would, that's an emergency. You'd probably accept an exemption for natural disasters and other emergencies. What about an economic emergency? Some of those require increased spending, and if revenues plummet (as they have recently), then what?

    Spending can bankrupt our country

    No it can't. The Fed can print money at will.

    Ending the Bush tax cut would only bring in an extra $500B a year.

    Which would pay off $4 trillion worth of debt. Refusing to do it, the least painful option available, is foolish.

    It might be less because economic output could slow down further and thus the rich will make even less.

    This is why it's just more important to boost economic growth than to pay down debt right now. There are risks associated with debt, but it can't be paid down without a strongly growing economy to increase revenues. And how much the rich are making doesn't really matter, it's how much everyone is spending. The rich have a lot of the money in this country but they aren't going to spend it like the middle class will.

  • Sevo||

    Tony|12.14.11 @ 10:49PM|#
    "Spending can bankrupt our country...

    No it can't. The Fed can print money at will."

    Shithead, that's a lie. When a printed dollar is worth $0.00000000000000000000000001, the country is bankrupt no matter how many they print.
    Is that clear, shithead?

  • Sevo||

    More, shithead:
    "Ending the Bush tax cut would only bring in an extra $500B a year.....
    Which would pay off $4 trillion worth of debt."
    Cite, shithead. With *proof*, shithead.

    "Refusing to do it, the least painful option available, is foolish."
    Opinion from shithead; not worth shit.

    "It might be less because economic output could slow down further and thus the rich will make even less.
    This is why it's just more important to boost economic growth than to pay down debt right now...."
    False dichotomy, shithead, and raising taxes cuts economic growth.

  • Tony||

    Cite, shithead. With *proof*, shithead.

    Link

    "Republicans have long opposed raising taxes above current levels, which is why they have fought to preserve the Bush tax cuts at a cost to federal coffers of about $4 trillion over the next decade."

    raising taxes cuts economic growth.

    Cite, shithead.

  • Sevo||

    Tony|12.14.11 @ 11:06PM|#
    "Cite, shithead. With *proof*, shithead.
    Link"

    Can you read, shithead? Did you see the requirement of "proof" shithead? Can you ever post without lying, shithead?

    "raising taxes cuts economic growth.
    Cite, shithead."

    Yes, shithead:
    "Productivity declines as the tax rate increases, as people choose to work less. The higher the tax rate, the more time people spend evading taxes and the less time they spend on more productive activity. So the lower the tax rate, the higher the value of all the goods and services produced."
    http://economics.about.com/cs/.....growth.htm
    Got it, shithead?

  • Red Rocks Rockin||

    "Ending the Bush tax cut would only bring in an extra $500B a year.....
    Which would pay off $4 trillion worth of debt."

    Not when you're running trillion-dollar per year deficits, moron.

    Once again, Tony proves he can't do basic math.

  • Tony||

    Is runaway inflation a more imminent threat than a recession? They have opposite solutions, so the answer matters.

  • Sevo||

    Tony|12.14.11 @ 11:04PM|#
    "Is runaway inflation a more imminent threat than a recession?"

    False dichotomy, shithead. Do you ever post without lying, shithead?

  • Restoras||

    Never fails - a fiscal thread reveals Tony to be completely out of his depth.

  • BigT||

    See republic, Weimar; read The Rise and Fall of the Great Powers by Paul Kennedy for the impact of a poor economy.

    Or simply remain clueless.

  • Xenocles||

    "What happens if the country is invaded?"

    Imagine if you could add a relief valve to the language of the amendment. Something like "except with the approval of two-thirds of both Houses and the President" or "except as pursuant to a Congressional declaration of war, subject to annual renewal." Obviously the language would need to be carefully tailored (mostly so we can be mad when they ignore it) but it could be done.

  • ||

    "What happens if the country is invaded?"

    A decapitation strike takes out Congress.

  • Tony||

    Already the exceptions are being made for a budget policy apparently so important it must be put into the constitution. For the reason that we can't trust the people WE elect to be responsible stewards of the budget. Here's a clue, stop voting for irresponsible people. Yet somehow they're supposed to summon the will to amend the constitution against their own interests?

  • Sevo||

    Tony|12.14.11 @ 10:53PM|#
    "...Here's a clue, stop voting for irresponsible people."

    Here's another clue, shithead: Stop supporting policies that lead to bankruptcy. Even if you don't get to spend other peoples' money to make you feel good, shithead.

  • ||

    Cognitive dissonance should hurt. It really should.

    When Chimpy was in office, the left nearly blew out aneurysms in hysterics about the deficit that Chimpy, Crash Cart, and his pals were racking up by declaring war on various desert shitholes, and giving no-bid contracts to war profiteers. "Eeeeek, the DEFICIT, the DEFICIT!" screamed the left.

    Now that O'Hell is in office, and the same money we don't have (from China, you know that right Tony?) is going to fund bailouts for banks, failing "green tech" startups, and lethargic, union-choked has-been automakers, why, deficits are GOOD!

    Paul Krugman couldn't make enough horrible, doomsday predictions about deficit spending for neocon fantasies pre-2008. And now, he can't gush and jizz enough about deficit spending to prop up companies and industries that should be allowed to crawl under rocks and die their natural, self-inflicted deaths.

    A deficit is not better just because someone else is bouncing the checks, Tony. It really isn't.

  • Sevo||

    "A deficit is not better just because someone else is bouncing the checks, Tony. It really isn't."

    So long as that money-hole lets shithead feel virtuous, there is no limit on other peoples' money that shithead won't justify as 'need'.

  • Tony||

    Bush's debt is part of the debt we're still living with, and his was run up for no practical purpose like injecting growth into a weak economy. It was run up to fight a pointless war based on lies and give welfare to big pharma and billionaires.

    Now after Bush's economic catastrophe, Obama is saddled with his debt and the increased debt that comes with an economic downturn. Which Bush's party won't allow him to do anything about.

  • Sevo||

    Tony|12.14.11 @ 10:56PM|#
    "Bush's debt is part of the debt we're still living with, and his was run up for no practical purpose like injecting growth into a weak economy."
    False dichotomy, shithead.

    "It was run up to fight a pointless war based on lies and give welfare to big pharma and billionaires."
    Yes, and Obama has doubled-down for the same reasons, shithead.

    "Now after Bush's economic catastrophe, Obama is saddled with his debt and the increased debt that comes with an economic downturn."
    False, shithead; Obama is BushX2.

    "Which Bush's party won't allow him to do anything about."
    Right, shithead, Obama only held a super-majority long enough for him to produce a real disaster.
    Do you ever post without lying? You are truly a despicable excuse for humanity.

  • Short Viking||

    So what should the common taxpayer do about it?

  • Vy Golly||

    Write your Congressperson!

  • 16th amendment||

    My congress person is Jackie Speier, but two years ago it was Nancy Pelosi. They'll probably use my letter as toilet paper!

  • Tony||

  • Blacksmithking||

    Why don't we just cut some spending, instead?

    Won't new revenue just be funneled into new spending by Congress?

  • ||

    It will never happen. Obama is just as opposed to raising taxes as the GOP. He knows it would kill the economy which would virtually assure his loss in November. The GOP definitely has the upper hand in this Mexican standoff. I just hope they realize that.

  • Sevo||

    Tony|12.14.11 @ 5:20PM|#
    "Congress can reduce deficits by $7.1 trillion over 10 years--by doing nothing"

    Raising taxes is not 'doing nothing', shithead.

  • Tony||

    It is in this case, since they were temporary tax cuts and will expire if Congress doesn't act to extend them. I know you think semantics trumps budget reality, but that is current law. Given that, you must explain why Bush's tax rates are sacred and must be preserved. Because he was so right about everything?

  • Sevo||

    Tony|12.14.11 @ 10:59PM|#
    "I know you think semantics trumps budget reality,"

    Projection, shithead.

  • ||

    We should amend the Constitution so that if the Congress fails to pass a balanced budget, ALL members of Congress are ineligible to ever run for Congress again.

  • ||

    Nah, just strip them of their citizenship and send them to Guantanamo.

    Hey, serving in Congress is a privilege, not a right!

  • Congress||

    Well, OK, but we just won't pay attention to that amendment either.

  • ||

    The last thing we want to do is force the Congress to actually pay attention to the real world effects of their do-gooderism. That would be crazy.

  • ||

    To repeat what I said in another thread, at least Nero didn't actually fiddle (or play the lyre) while Rome was burning.

  • ||

    The feared economic consequences of spending too much are almost impossible in our Fed-regulated system

    They couldn't hit an elephant at this distance."
    - John Sedgwick

  • ||

    "We'll bury you!" -- Nikita Khrushchev

  • ||

    Thread Winner!! (#1 with a bullet)

  • There is no "we"||

    There's an easy way to balance the budget and cut spending: no government borrowing; no bonds, no T-bills, no loans, no nothing.

    Make the government "cash-and-carry." Every dollar spent has to be collected ahead of time in taxes. Once the American people have to pay out of pocket TODAY for every prison cell, every teacher pension, every hour of police overtime, and every bullet fired on the battlefield, their political priorities will get properly sorted out RIGHT QUICK.

    I'll bet you $10,000.

  • ||

    and no link?

  • Mr. Mark||

    "...writing rules to stop Congress from spending is hopeless."

    True dat.

  • Sevo||

    Tony|12.14.11 @ 5:16PM|#
    "...The feared economic consequences of spending too much are almost impossible in our Fed-regulated system, even more so if political leaders were able to actually be fiscally prudent...."

    Yeah, shithead, you have it right there, and you think that's a possibility.
    Further, *everything* you support is the opposite of that goal.
    What is the color of the sun which your planet orbits, shithead?

  • Tony||

    Well, everything you want done will have to be done by legislators too, so I'm not sure where anguish over the impossibility of responsible legislators gets us.

    We elect them after all. If people just stopped voting for people who can't do math (Republicans), we'd be a lot further along.

  • Restoras||

    Hilarious! Democrats are just as bad at math as the Republicans!

  • Red Rocks Rockin||

    If people just stopped voting for people who can't do math (Republicans), we'd be a lot further along.

    Since when did you become a Republican?

  • Sevo||

    Tony|12.14.11 @ 11:03PM|#
    "Well, everything you want done will have to be done by legislators too..."

    Shithead, read this:
    Tony|12.14.11 @ 5:16PM|#
    "...The feared economic consequences of spending too much are almost impossible in our Fed-regulated system, even more so if political leaders were able to actually be fiscally prudent...."
    You posted that, shithead, I didn't.

  • NotSure||

    Tony you really like to play the Orwell doublespeak, don't you. You openly support politicians who will never stop raising spending levels, yet somehow that is what responsibility is, keep on spending and keep on raising taxes, and magically the economy will grow.

  • Restoras||

    Indeed, becasue to him it's all and only about government control of everything - even the stuff it can't control. Freedom? Liberty? Personal Responsibility? These concepts are anathema to fascists like Tony.

  • Tony||

    Speaking of doublespeak... Personal responsibility of course is code for "fuck off and die poor grandmother, a billionaire's tax cut is more important than you breathing."

  • Bear v. Shark||

    People need to be fed, medicated, educated, clothed, and sheltered, and if we're compassionate we'll help them, but you get no moral credit for forcing other people to do what you think is right. There is great joy in helping people, but no joy in doing it at gunpoint. -Penn Jillette

    Tony|12.15.11 @ 9:36AM|#
    Personal responsibility of course is code for "fuck off and die poor grandmother, a billionaire's tax cut is more important than you breathing."

    Are you really that much of an obtuse meat bag, Tony?

  • Tony||

    Okay, so when do I get to stop paying taxes to support the police, courts, and system of laws that protect your property claim and your freedom from criminal assault?

    It always comes down to the same thing: you think you deserve your 'handouts' but nobody remotely different from you deserves his.

  • Restoras||

    Police, courts, and systems of law are argueably requirements for a republic based on individual freedom.

    Unlimited healthcare is not.

  • Tony||

    If you take as a primary goal of a free society promoting "the right to life" then I fail to see how police are OK and healthcare isn't.

    Unless you're an anarchist then there will be redistribution of wealth via taxation to pay for universal services, like police. So you can't use the "It's MINE!! WAAHH!!" argument.

  • Restoras||

    I'm sorry, but did I make the "WAAHH! IT's MINE!!" arguement? I didn't? Oh, well then, fuck you.

    I do not take the primary goal of a free society as a "right to life". I'm not even sure what that is, but you not so cleverly are attempting to shift the goalposts. In a "free" society the individual member of that society should be "free" to live thier life as they see fit, without undue hindrance from the state or its agents, or other individuals. Hence the need for the items you listed above.

    Universal, unlimited healthcare is not required.

    How is universal, unlimted healthcare a necesary requirement? Do you take "life, liberty, and the pursuit of property" to mean a "healthy life"? I'm pretty sure that is exactly NOT what Locke had in mind.

  • Restoras||

    How is that doublespeak exactly? You and only you are responsible for life and that does include your health. I'm sorry that life is that way but, in fact, life is that way. And what the hell does a "billionaire's tax cut" have to do with anything, aside from being another strawman for you? And why do you constantly need to be reminded that no one can be refused medical treatment? Convenient ommitance? You know Tony, you are a liberal and that's fine, but people would take you far or seriously if you didn't argue from a position of bad faith and constant send forth your legions of straw men.

  • Tony||

    no one can be refused medical treatment

    Yeah, meaning the costs are socialized no matter what you do. Isn't it better to have them socialized in a coherent way rather than forcing bankruptcies?

  • Restoras||

    Socialized and bankruptcies? What do they have to do with each other?

  • Blacksmithing||

    Nice straw man there, Tony. By that line of thought, anything less than 100% taxation on a rich person means that someone dies.

  • ||

    The root of the problem is the income tax. As long as loads of cash continue to flow to Washington , the pols will spend it. Repealing the income tax will put the congress on an healthy diet.

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