November 22, 2014

Three Areas of Bipartisan Agreement on Budget Process Reform

Last Thursday, Congressman Reid Ribble invited The Concord Coalition to host a panel of experts on Capitol Hill to talk with congressional staffers gearing up for the annual budget process. Despite the ideological differences on the panel, there was a strong consensus that the process is broken and on ways in which it could be improved.

Gridlock has repeatedly brought our nation to the brink of crisis in the past few years. In October, Congress even temporarily shut down the government and brought the country within days of defaulting on at least some of its financial obligations. According to the GAO, a previous standoff over the debt ceiling cost the Treasury $1.3 billion in FY 2011 alone.

“The political process is the problem,” said Ed Lorenzen, a former aide to Democratic leader Rep. Steny Hoyer and now a senior advisor at the Committee for a Responsible Federal Budget. Lorenzen added that lawmakers “are not willing to make tough choices” that are necessary to resolve the country's long-term fiscal challenges.

Gordon Gray, director of fiscal policy at the American Action Forum and a former aide to Republican Sen. Rob Portman, agreed. He said that while some of the talk about the broken process is an attempt by politicians to absolve themselves of responsibility for gridlock, there are reforms Congress could undertake to mitigate the damage.

1. Adopt Biennial Budgeting

One option our panelists supported was a switch to biennial budgeting, with Congress only passing appropriations legislation every other year. Lorenzen noted that this would allow Congress to conduct more oversight in the off-years. It could also create additional time for long-range fiscal planning.

Robert L. Bixby, executive director of The Concord Coalition, pointed out that Congress is “functionally doing a two-year budget right now” because it passed the Ryan-Murray agreement, which set discretionary spending caps for the next two years. He called this a congressional experiment to see if biennial budgeting can work and pointed out that the change would also mean fewer opportunities for prolonged standoffs over the budget.

Bixby also advocates setting 20-year targets for debt-to-GDP ratios to focus more attention on the impact that current spending and tax policies have on the long-term fiscal outlook.

2. Fix the Debt Limit

Steve Bell, senior director of economic policy at the Bipartisan Policy Center and a former Senate Budget Committee staff director, argued that "it shouldn't take a crisis to get [members of Congress] to do their jobs."

However, he said that if external pressure is needed to get the country on a fiscally sustainable trajectory, the enforcement mechanism must be more rational than the current debt ceiling.

Indeed, it is time to reform the ineffective federal debt limit. It is divorced from tax and spending decisions, and the consequences of a federal default would be extremely severe. Bixby suggested the limit should be tied to an economically relevant indicator like debt as a percentage of the Gross Domestic Product (GDP).

Lorenzen agreed that the debt limit should be reformed, and added that the decision to raise it should be made when decisions on taxes and spending are made -- not afterwards, which is what happens now.

Jim Kessler of Third Way, who was previously the legislative director for Senator Chuck Schumer, said Congress should no longer “put the full faith and credit of the United States on the line” during budget negotiations. The debt limit has helped produce some fiscal accords in the past, including the Budget Control Act and the Gramm-Rudman-Hollings legislation in the 1980s. But he said the government should never come as close to defaulting as it did during the shutdown last fall.

3. Ultimately Address Mandatory Spending Programs

Really addressing the problems requires more, though. Kessler argued that Congress's increasing difficulty with budgeting is the result of lawmakers trying to make up fiscal shortfalls through cuts to an ever-shrinking portion of the budget. More and more of the budget, meanwhile, is essentially on auto-pilot and difficult to adjust.

In 1974, discretionary spending -- which lawmakers approve annually -- accounted for 51 percent of the budget. Today 67 percent of the budget consists of mandatory spending, which is allocated by pre-determined formulas rather than annual appropriations. That figure is projected to reach 77 percent by 2024.

The reluctance of Congress to touch growing mandatory programs like Social Security, Medicare, and Medicaid means that cuts to discretionary programs must be that much bigger. All the panelists agreed that addressing these long-term challenges would alleviate pressure on the appropriations process and that examining ways to include reviews of the auto-pilot programs within the budget process might force Congress to reckon with their growth.

Gray also expressed concern about another category of federal spending that grows automatically: interest payments. He said they currently are “deceptively small” due to unusually low rates but will balloon as the economic recovery continues and rates return to normal. Additional federal borrowing will increase the interest payments as well.

The Congressional Budget Office recently projected that annual interest payments on the national debt would rise from $223 billion in FY 2013 to over $800 billion within the next ten years if nothing is done.

Despite their ideological differences, all the panelists agreed that Congress should examine reforms to the budget process in order to encourage more responsible decision-making. Without an immediate crisis looming, now might be the right time to do so.