As Congress begins work
on the Fiscal Year 2007 budget resolution, The Concord Coalition offers the
following checklist for a responsible budget.

As Congress begins work
on the Fiscal Year 2007 budget resolution, The Concord Coalition offers the
following checklist for a responsible budget.

 Establish a meaningful deficit reduction target. The goal of
cutting the deficit in half by 2009 is inadequate relative to the fiscal
challenges we face. Policymakers should return to the goal of balancing the
budget within the ten-year budget window.

Budget for costs of policies likely to be approved over
the five-year budget window.
Congress should acknowledge the future costs of funding its policies over the
entire period covered by the budget resolution such as continued military
operations in Iraq and Afghanistan and extension of politically popular policies
scheduled to expire.

Reject the administration’s proposal to include permanent
extension of certain expiring tax cuts in the baseline. The decision whether
to remove the legislated sunsets for the tax cuts is a policy decision. It
should be made through the legislative process, not by budget scorekeepers.

Apply budget discipline to all parts of the budget and make the
tradeoffs necessary to reduce the deficit. The budget resolution is the one
place where Congress can debate competing claims and priorities. Such a debate
must examine all aspects of the budget.

Offset all new revenue reductions or spending increases.
Congress must have the courage of its convictions. If deficit reduction is a
priority, Congress should reinforce its rhetoric with offsets for new spending
or additional tax cuts.

Provide another spending reconciliation bill to achieve savings
in entitlement programs. The explosion in entitlement spending that looms
on the horizon is the single biggest threat to our nation’s fiscal health.
Including entitlement savings as a regular part of the annual budget process
would be an important first step in addressing our long-term challenges.

Reject reconciliation protections for legislation that would
increase the deficit. The procedural protections for reconciliation
legislation are intended to help Congress take actions that are responsible but
politically difficult, not irresponsible but politically popular.

Defer legislative action on new tax cuts or the extension of
expiring tax cuts until the long-term fiscal challenges arising from the baby
boom retirement are addressed. Legislation with lasting impact on revenues,
such as removing the sunset on tax cuts, must be considered within the context
of future spending obligations.

Establish discretionary spending targets that realistically
restrain spending. Recent budget resolutions have relied on large
unspecified savings in out-year discretionary spending that require cuts deeper
than any future Congress is likely to enact. While spending restraint is
important, a budget plan should not rest on the assumption that a future
Congress and a future President will somehow defy previous experience by
enacting draconian domestic spending cuts.

Adopt strong budget enforcement rules, including discretionary
spending caps, and “pay-as-you-go” rules for tax cuts and entitlement increases.
Pay-as-you-go rules for all tax and entitlement legislation and spending caps
for appropriations are proven tools for fiscal discipline and should be part of
the budget resolution.

THE BUDGET
RESOLUTION CHECKLIST

Congress begins the fiscal year 2007 budget process with a familiar dilemma. The
short-term deficit is substantial, the long-term outlook is even worse, and the
only realistic options for dealing with the problem are spending cuts or tax
increases that politicians would like to avoid —
particularly in an election year.

Given these circumstances, it would be all too easy for
Congress to adopt a budget resolution that simply ignores the looming fiscal
problems. Doing so, however, would be an abdication of responsibility. The
deeply ingrained mismatch between current spending and tax policies will not go
away if it is ignored. In fact, it will get worse. And while it is unreasonable
to expect that Congress will deal with this problem in any one budget
resolution, it is not unreasonable to expect Congress to adopt an honest budget
resolution that faces up to the challenge and takes at least some realistic
steps to deal with it. The budget resolution must show some resolve.

Aside from providing a short-term fiscal blueprint, the
budget resolution sets the tone for future actions. A budget resolution that
pretends there are no sacrifices to be made —
that we can keep doing everything we’re currently doing and promise to do in the
future — would set a false tone of
fiscal security.

As Congress begins work
on the fiscal year 2007 budget resolution, The Concord Coalition offers the
following checklist for a responsible budget.

 Establish a meaningful deficit
reduction goal

Analysts of diverse ideological perspectives and
nonpartisan officials at the Congressional Budget Office (CBO) and the
Government Accountability Office (GAO) have all warned that current fiscal
policy is unsustainable over the long-term. Establishing deficit reduction as an
official goal is a positive first step in addressing this problem. It focuses
attention on proposals to reduce the deficit and keeps at least some pressure on
policymakers to avoid actions that would jeopardize the goal through increased
spending or lower revenues. However, the administration’s goal of cutting the
deficit in half by 2009 is inadequate relative to the fiscal challenges we
face. The goal is too modest and the time frame is too limited.

Policymakers should return to the bipartisan balanced
budget consensus of the 1990’s. Achieving a balanced budget within the ten-year
budget window is an achievable goal. In fact, the CBO projects that the budget
would return to surplus by 2012 under current law. While the CBO baseline
leaves out the costs of several policies Congress is likely to enact,
establishing a goal of balancing the budget within the ten-year window would
require policymakers to make tradeoffs and consider offsets for the costs of
these policies.

This goal would also help overcome the myopic approach to
budgeting, which has encouraged lawmakers to ignore the looming financial
crisis. Setting a path to balance the budget over the next ten years is
particularly important given that the annual costs of providing Social Security
benefits may begin to exceed dedicated revenues within the next decade,
eliminating the revenue windfall from excess payroll taxes, and the costs of
Medicare and Medicaid will begin to increase rapidly. Achieving a balanced
budget within ten years would lower government borrowing from the financial
markets and provide a much needed boost in national savings at precisely the
right time to help the budget and the economy meet the challenges of an aging
population.

Budget for the full cost of
polices likely to be approved over
the five-year budget window

Recent budget resolutions have achieved substantial
“deficit reduction” on paper by assuming a revenue windfall from the Alternative
Minimum Tax (AMT) and leaving out funding for military activities in Iraq and
Afghanistan. These maneuvers provide a misleading picture of the budget outlook
in future years and make the budget resolution appear much more fiscally
responsible than it actually is. A realistic projection of the likely deficit
under the budget resolution must include the full cost of extending policies
supported by Congress as well as likely future costs of military operations in
Iraq and Afghanistan.

The budget resolution adopted last year took a very small
step toward greater transparency in budgeting by allocating some funding for
military operations for one year, but assumed no spending in subsequent years.
The budget resolution should incorporate reasonable projections of future costs,
which could be adjusted as circumstances warrant, instead of assuming that there
will be no costs at all after 2007. The ongoing costs of operations have become
relatively stable and can be reasonably predicted, since the military has to
plan its troop rotations a number of years in advance. Furthermore, an
increasing proportion of supplemental requests are for procurement to repair and
replace equipment, which are relatively predictable.

Similarly, there is little justification for leaving out
the costs of extending the AMT “fix” throughout the budget period. It is
unrealistic to assume that AMT relief will be allowed to expire given that there
is broad bipartisan support for continued AMT relief in Congress. Moreover,
those costs are easily quantifiable. According to CBO, extending AMT relief
would add $218 billion to the deficit over the next five years — $56 billion in
2009 alone.

If the budget resolution assumes the extension of
politically popular provisions such as deductibility of state and local sales
taxes and the hold-harmless provision for the Medicare physician payment
formula, it should include the costs of extending those provisions throughout
the budget window instead of assuming that Congress would allow them to expire
next year.

Reject the administration’s
proposal to change baseline rules to assume permanent extension of certain
expiring tax cuts in the baseline

The administration has proposed a change in baseline rules to
assume the extension of certain tax cuts as if the expiration dates (or
“sunsets”) on those tax cuts do not exist.
As explained by CBO, the
baseline provides “a neutral benchmark against which to measure the
effects of proposed changes in tax and spending policies.”[1]
This benchmark is used in applying budget enforcement rules such as the
limitations on the size of tax cuts allowed by the budget resolution. If
permanent extension of tax cuts were assumed in the baseline, those costs would
not be subject to the tradeoffs between competing priorities that are applied to
all other tax and spending proposals. In addition, including tax cuts in the
baseline would effectively exclude extensions from pay-as-you-go rules if
Congress were to reinstate these rules.

This is very different from the
treatment of entitlements. The baseline assumes the extension of entitlement
programs because, unlike tax cuts, the costs of extending entitlement programs
are scored and subject to budget discipline at the time they are enacted. The
tax cuts enacted in 2001 and 2003 are expiring because Congress included a
sunset provision when they were initially enacted to limit the official cost.
This was done to circumvent budgetary limits in place at the time.The cost of
the tax cuts would have been several hundred billion dollars higher over that
period if the tax bills had not included sunsets. Those additional costs were
not subject to budget limits when the tax cuts were originally enacted. Making
tax cuts permanent without considering their budgetary impact over the
long-term and exempting their costs from budget enforcement would mean that
those costs would never be subject to budget discipline.

The decision whether to remove the legislated sunsets for the
tax cuts is a policy decision and should be treated as such. New legislation is
required to prevent the tax cuts from expiring at various times between now and
2011. The revenue loss from any such legislation should be weighed against other
competing initiatives that Congress and the President may wish to undertake
— not simply assumed into the baseline.

Apply budget discipline to all
parts of the budget and make the tradeoffs necessary to reduce the deficit

The budget resolution is the one place where Congress can
conduct a debate about competing claims and priorities. Such a debate must
examine all aspects of the budget. The burden of deficit reduction should be
distributed fairly and equitably. It is neither fiscally responsible nor
politically viable to make cutbacks in limited areas of the budget in the name
of deficit reduction while exempting most of the budget from any discipline. As
long as large parts of government spending are exempt from scrutiny and every
tax cut is untouchable and substantially more expensive than proposed spending
cuts, developing a credible plan to balance the budget will be impossible.

Relying almost entirely on reductions in domestic
appropriations for deficit reduction is woefully inadequate to controlling the
deficit. A responsible budget must examine all areas of the budget for savings,
including appropriations for defense and homeland security, entitlement spending
and revenues.

Dealing with our fiscal challenges will require Congress to
set priorities and make compromises among competing needs. We can’t have it
all. It is not fiscally viable to fight two wars, fund homeland security,
rebuild the Gulf Coast, maintain full promised benefit levels for entitlement
programs and keep cutting taxes. Congress should set aside proposals that would
increase the deficit, put everything on the table and negotiate the necessary
trade-offs.

Offset all new revenue
reductions or spending increases

The first step in bringing the deficit under control is to
stop digging the hole deeper. Rhetoric about deficit reduction will lack
credibility if Congress continues to treat rising debt as a viable alternative
to spending cuts or tax increases. Budgets are about making choices. If
Congress decides that new or expanded spending initiatives or new or extended
tax relief is a priority, it must also decide which spending reductions or tax
increases will be made to offset the costs of these initiatives.

A plan intended to reduce the deficit should not create new
entitlements that are not fully financed or offset, no matter how attractive
they may seem. Similarly, while low taxes may be a laudable policy goal,
including tax cuts in a budget plan will reduce revenues and require offsets to
prevent an increase in the deficit. Politically convenient rhetoric to the
contrary, tax cuts do not pay for themselves.

Provide for another spending
reconciliation bill to achieve savings in entitlement programs

No credible, sustainable, deficit reduction strategy is
complete without a plan to address the growing costs of entitlement spending.
Last year, Congress took a modest step in this regard by utilizing the
reconciliation process to address entitlements for the first time in eight
years. Reconciliation bills making changes in entitlement programs were a
regular part of the legislative process prior to the surplus era. Now that the
surplus era has been replaced with large structural deficits, Congress should
return to this norm.

Congress should give serious consideration to the
entitlement savings proposals contained in the President’s budget and explore
other options for entitlement savings. While the mandatory savings in the
President’s budget are relatively modest in comparison to the rapid growth
projected in mandatory spending, dealing with the growth in entitlement spending
will require a concerted, ongoing effort. Making entitlement savings a regular
part of the annual budget process would represent an important development in
the effort to address long-term fiscal challenges.

Reject reconciliation
protections for legislation that would increase the deficit

The budget reconciliation process provides special
procedural protections to facilitate the passage of legislation. Most notably, a
reconciliation bill is the only piece of legislation that cannot be filibustered
on the Senate floor, making it easier to pass by a majority vote. These
protections are intended to help Congress take actions that are responsible but
politically difficult, not irresponsible but politically popular.

In recent years, Congress began to use the reconciliation
process to facilitate the passage of tax cuts, which increase deficits. This is
exactly the opposite way reconciliation was intended to be used. It was a bad
precedent to set in a period of surpluses, and is even worse now that the budget
is back into deficit. If this practice continues, it may be used in the future
not only to cut taxes further but also to expand popular entitlement programs
such as the Medicare prescription drug benefit.

Defer legislative action on new
tax cuts or extension of expiring tax cuts until the long-term fiscal challenges
arising from the baby boom retirement are addressed

Legislation with a lasting impact on revenues, such as
removing the sunset on the tax cuts enacted in 2001 and 2003, must be considered
within the context of future spending obligations. Projected entitlement
benefits far exceed the revenues dedicated to pay for them over the long-term.
Unless Congress enacts major reforms slowing the growth of entitlement spending,
revenues will need to increase well above current levels to meet these
obligations.

According to projections by the Government Accountability
Office (GAO), the combination of allowing the growth of these entitlement
programs to continue unchecked and making tax cuts permanent will result in a
deficit of 10 percent of GDP by 2024.[2]
The costs of Social Security, Medicare and Medicaid would consume all federal
revenues by 2039 under this GAO simulation, and the deficit would reach 22.8
percent of GDP.While the higher revenues from allowing the tax cuts to expire
would fall far short of closing this long-term fiscal gap, it makes no sense to
make the gap worse by locking in permanently lower revenues before
restraining the growth of entitlement spending.

In light of the costs associated with the baby boomers’
retirement and health care costs, Congress should defer action on extending the
tax cuts until reforms controlling the growth of entitlement spending are
enacted. Doing the opposite puts the cart before the horse.

Establish discretionary
spending levels that realistically restrain spending

Recent budgets have relied on large unspecified savings in
discretionary spending in future years that will require deeper cuts than
Congresses is likely to enact. It is all too easy to offset specific tax cuts
and spending increases in other areas by assuming unspecified savings in
non-defense discretionary spending. It is much more difficult to turn these
assumptions into reality by finding specific reductions to achieve those
savings. For example, the budget’s request for non-defense,
non-homeland security discretionary budget authority for fiscal year 2007 is
nearly $10 billion higher than the budget resolution adopted last year assumed.[3]

Recent experience has shown that Congress can limit
discretionary appropriations only with extraordinary difficulty. A budget plan
should not rest on the assumption that a future Congress and a future President
will somehow defy previous experience by enacting heroic domestic spending cuts.

Domestic discretionary spending has steadily remained at
about 3.5 percent of GDP since the late 1980’s and has never been below 3
percent of GDP since the statistic was first recorded in 1962. It has grown from
3.4 to 3.8 percent of GDP since 2001. Any savings assumed in the budget
resolution from holding non-defense discretionary spending well below historical
averages are not likely to be realized. Meanwhile, the spending increases and
tax cuts included in the budget resolution and enacted into law with the promise
of future savings in discretionary spending will remain in place.

Adopt strong budget enforcement
rules, including discretionary spending caps and
“pay-as-you-go” rules for tax cuts and entitlement increases

Although process alone will never be able to solve the
nation’s fiscal problems, enforcement mechanisms can bring greater
accountability to the budget process and help provide Members of Congress with
the political cover to make the tough choices necessary to reduce the deficit.
Pay-as-you-go (paygo) rules for all tax and entitlement legislation and spending
caps for appropriations are proven tools for fiscal discipline and should be
part of the budget resolution. By helping to constrain fiscal policy, these
budget enforcement mechanisms made a direct contribution to the more favorable
budget outlook that developed by the end of the 1990s.

The statutory enforcement mechanism of the 1990 Budget
Enforcement Act expired in 2002. Since the budget resolution is not signed into
law, it cannot reinstate statutory paygo rules enforced by sequestration. The
budget resolution can, however, establish paygo as part of House and Senate
rules by creating a point of order prohibiting tax or entitlement legislation
that would increase the deficit.

The current paygo rule in the Senate, which only applies to
those policies not assumed in the budget resolution, provides little incentive
for fiscal discipline. It essentially allows Congress to enact fiscally
irresponsible policies by simply assuming them in the budget resolution. That is
a loophole much too tempting to permit – even if proposed in good faith.

To be meaningful, a paygo rule should apply to all
legislation that would increase the deficit, whether it is from increased
spending or decreased revenues. Since spending and tax decisions both have
consequences for the budget, there is no good reason to exempt either from
enforcement rules. Exempting the revenue side of the budget from enforcement
undermines the effectiveness of the budget mechanisms and makes them more
difficult to sell politically. Moreover, exempting tax cuts from paygo
encourages an expansion of so-called “tax entitlements” where benefits are
funneled through the tax code rather than by direct spending.

Share this page