The structural roots of U.S. budget dysfunction: How it is creating a deficit for the government

By James C. Capretta

James C. Capretta is a RealClearPolicy Contributor and holds the Milton Friedman chair at the American Enterprise Institute

It is evident that the current federal budget process is not working. This week, Congress is racing to approve a massive, budget-busting appropriations bill for the entire federal government—nearly six months after the fiscal year began. Threats of government shutdowns and debt defaults are now commonplace. Meanwhile, federal deficits and debt are soaring, and neither party is paying much attention to the problem.

What is the cause of this ignorance?

Political polarization is pushing the parties away from compromise and toward more ideological positions on the budget. It takes 60 votes to pass appropriations bills in the Senate, which means the parties need to cooperate for the process to run smoothly and for bills to pass on time. However, the budget reconciliation process allows tax and entitlement bills to pass with majority votes in the Senate. With budget reconciliation, it is possible for one party to enact important budgetary legislation without any votes from the other side, as Republicans did with the tax bill late last year. Consequently, both parties believe they are one or two elections away from being able to use the budget reconciliation process to put much of their agenda into law without needing votes from their political opponents. This expectation makes them much less cooperative when they are out of power.

Structural flaws in the system

Beyond the current political mood, there are structural factors that make it difficult for political leaders to address the country’s fiscal challenges effectively. Under the Constitution, writing a budget for the federal government is a shared responsibility of the coequal legislative and executive branches. Most other advanced economies are governed by parliamentary bodies that combine executive and legislative functions. In these countries, the party or governing coalition that writes the laws also controls the executive agencies. Compromise takes place among the factions making up the majority.

In the U.S., the Constitution purposely divides power between two elected branches of government and pits them against each other to prevent unchecked power, including over budgetary matters.

Furthermore, nothing in the Constitution requires Congress and the president to agree on a budget. The government can and does function even when there is strong disagreement between the branches over the basic direction of budgetary policy. During these periods, some pressing problems can go unaddressed for years because of lack of agreement about how to proceed. It is more the exception than the rule when the federal government operates under anything resembling an enforceable budget plan that both Congress and the president have agreed to in full.

The budget development process

There are two laws governing the budget processes in the two elected branches. The Budget and Accounting Act of 1921 created the institutions and rules for the executive branch. This includes the requirement for the president to produce and transmit a budget request annually to Congress. The Congressional Budget and Impoundment Control Act of 1974 established a parallel process for the legislative branch. It also created the Congressional Budget Office to produce budget projections and cost estimates outside of the control of the executive branch.

Under the current process, it is hard for Congress and the president to agree on a multi-year budget plan, even if they want to. The absence of a ready legislative vehicle that forces negotiation and compromise between the legislative and executive branches makes budgetary stability harder to achieve in a volatile political atmosphere.

Today’s budget process was constructed when discretionary spending was a much more significant aspect of the overall budget. In 1970, Congress allocated 61 percent of total federal spending through the annual appropriations process. The rest of the budget was spent automatically on entitlement programs and interest on the national debt. In 2016, spending on appropriated accounts was only 31% of the total budget. Federal spending has shifted dramatically over the past half-century toward providing entitlement benefits.

The need for a reform

The Social Security and Medicare programs have $49 trillion in unfunded liabilities over the next 75 years. The scale of the problem is immense, yet policymakers have ignored it for years. Not even today’s budget process is forcing them to grapple with it. Instead, Congress is focused on producing twelve appropriations bills each year, which are important for running the government but of much less consequence to the nation’s fiscal and economic health.

Reforming entitlements requires a long-term focus. It is not possible to change the spending trajectory of Social Security, Medicare, or Medicaid quickly. To slow spending in 20 years, reforms need to be enacted very soon, allowing time to phase them in slowly to avoid abrupt changes for current beneficiaries. The nation’s budgetary problems are too big for either party to tackle on their own. Bipartisan cooperation is necessary to slow the rise of federal debt over the long run.

Of course, changing the budget process would not guarantee better budgetary outcomes. Today’s political divisions are so deep that compromise seems unlikely, no matter what is done to encourage cooperation. However, if there were ever an inclination among political leaders in Congress and in the administration to reduce long-term deficits, a better budget process might help.

Congress should refocus the budget process on reducing the government’s massive unfunded obligations for entitlement programs and facilitating durable budgetary agreements between the executive and legislative branches. Such reforms might help bring more stability and certainty to the government’s finances.

Orignal Source: RealClearPolicy