The Congressional Budget Process: A Brief Primer.
Further, the federal government's fiscal position has eroded substantially in recent years and will get much worse in the years ahead as population aging and rising health costs push up spending obligations. The impending and further steep deterioration in the government's fiscal outlook, which is now imminent, has been long anticipated, and yet politicians from both parties continue to rather easily avoid addressing it.
A brief examination of how the current congressional budget process came to look as it does today can serve as a useful starting point for considering what might be done to change current procedures to encourage better budgetary decision-making by political leaders. What follows is a brief overview of the current congressional budget process, focusing on the origins of the two primary laws establishing budgetary procedures for the executive and legislative branches, the role of the congressional budget resolution, the relationship of authorization legislation to appropriations, the appropriations process, continuing resolutions and government shutdowns, budget reconciliation legislation, the Byrd rule in the Senate, the timeline established in the law for the budget process, the introduction of discretionary caps and pay-as-you-go into the process in 1990, the reintroduction of caps and pay-as-you-go in laws enacted in 2010 and 2011, the debt limit, and the major shortcomings of the existing process.
Two Budget Laws for Two Coequal Branches of Government
Under the Constitution, establishing budgetary policy for the federal government is a shared responsibility of the coequal legislative and executive branches of government. Therein lies much of the difficulty. Nothing in the Constitution requires Congress and the president to agree on a budget. Indeed, 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.
As stipulated in the Constitution, only Congress has the power to appropriate funds from the US Treasury for use by the federal government. Further, only Congress has the power to impose taxes to generate revenue for the government. But laws generally require the president's approval to go into effect, so the executive branch is necessarily a part of the decision-making process on taxing and spending. (The rare exception is when Congress, with two-thirds majorities in both houses, supports approval of legislation notwithstanding a presidential veto.) Once a law has been passed that appropriates funds for a public purpose, it is left to the executive branch to spend the funds consistently with the law's requirements.
While Congress is designated as the branch of government with the lead responsibility for making appropriations and imposing taxes, it was the executive branch that was first tasked with writing a comprehensive budget for the entire government. As the size and complexity of the government grew just after the turn of the 20th century, there was a growing understanding that the government's fiscal position was important to the performance of the economy and therefore needed to be tracked. Further, it was also seen as important to have a forecast of what would happen to government deficits and debt in the future based on spending and taxing scenarios.
The Budget and Accounting Act of 1921, the first major legislative initiative to establish a budget process for the federal government, tasked the executive branch with producing a comprehensive budget submission to Congress each year, which, under the law as amended, is expected to be transmitted by Congress by no later than the first Monday in February. (There is no enforcement mechanism to prevent presidents from submitting their budgets past this deadline.) The law also created the Bureau of the Budget in the Treasury Department to help with meeting this requirement and to coordinate budgetary decisions throughout the executive branch. The Bureau of the Budget was moved to the Executive Office of the President in 1939 and renamed the Office of Management and Budget (OMB) in 1970. The 1921 law also created the General Accounting Office, later renamed the Government Accountability Office (GAO), to provide oversight of executive branch spending and accounting practices (Christensen 2012).
The president's budget submission to Congress is best understood as a proposal or request. It is in no way binding on Congress, which is free to make taxing and spending decisions that are entirely inconsistent with the president's budget.
The 1921 law worked in the sense that the executive branch became the focal point for providing a comprehensive assessment of the government's financial status. As expertise grew in the Treasury Department and elsewhere over budgetary matters, Congress came to rely on the estimates and data provided by the executive branch to make its decisions. Over time, this reliance created an uneasy sense in Congress that it was too dependent on information provided by executive agencies to make its budgetary decisions.
The desire for more independence in Congress became acute during Richard Nixon's presidency. House and Senate members of both parties strongly objected to President Nixon's aggressive use of "impoundments" to nullify congressional appropriations. The desire to rein in these impoundments, which many in Congress considered unconstitutional, was a principal reason Congress passed the Congressional Budget and Impoundment Control Act of 1974 just before Nixon resigned from office.
In addition to ending unilateral impoundment authority, the 1974 law also set out to establish in Congress a new process for creating a federal budget framework that would serve as a counter to the president's annual budget submission. The law created the Congressional Budget Office (CBO) as an agency in the legislative branch to give Congress the analytical support it would need to independently write multiyear budget plans.
The CBO director is appointed by the bipartisan leadership in Congress and is not accountable to the president. The CBO is free to use whatever methods and data it finds appropriate in producing its estimates. It has made Congress much less dependent on the executive branch for analytical support when making decisions.
The Budget Resolution
In addition to the CBO, the 1974 law also created the House and Senate Budget Committees and gave them the responsibility for writing a congressional budget resolution each year. The budget resolution is akin to Congress' response to the president's budget submission, but it is not like the executive branch budget in many ways. The president's budget provides detailed line-item budgetary estimates for every program and office in the entire federal government. The budget resolution is required by law to provide only much more aggregated data over a five-year period. (Congress has often chosen to provide 10-year estimates in budget resolutions, although that is not a requirement.)
Government spending is divided into 20 major functions, as shown in Figure 1, and the resolution specifies levels of budget authority and outlays for each of them. Budget authority refers to the amounts provided by Congress for that function. Outlays reflect the actual expenditure of funds under that function in a given year. Some outlays each year are expenditures stemming from budget authority provided in prior years. The budget resolution also includes projections of expected revenue, deficits or surpluses, and federal debt.
The CBO provides significant analytical support in producing these estimates. In general, the Budget Committees rely on the CBO's economic forecast and assumptions when producing the estimates included in the resolution. The CBO creates its own set of assumptions three times each year, which often differ in important ways from the administration's economic forecast.
Figure 1. Budget Functions in Congressional Budget Resolutions 050 National Defense 550 Health 150 International Affairs 570 Medicare 250 General Science, Space, and Technology 600 Income Security 270 Energy 650 Social Security 300 Natural Resources and the Environment 700 Veterans Benefits and Services 350 Agriculture 750 Administration of Justice 370 Commerce and Housing Credit 800 General Government 400 Transportation 900 Net Interest 450 Community and Regional Development 920 Allowances 500 Education, Training, Employment, and Social Services 950 Undistributed Offsetting Receipts Source: US House of Representatives Committee on the Budget 2015.
The purpose of the budget resolution is to establish an overall budget framework that guides spending and taxing decisions during that session of Congress. The Budget Committees in the House and Senate start by producing separate versions of the resolution each year, for passage in their respective chambers. Once the resolution is passed by both houses, a conference committee made up of selected members from the House and Senate Budget Committees negotiates a compromise resolution, in the form of a conference report, which is then passed by both the House and Senate.
The budget resolution is an internal congressional instrument; it is not a law, and it is not sent to the president for his approval or veto. The power of a budget resolution comes only from its influence over the future decisions made in that session of Congress on spending and taxes--decisions that do directly affect legislation sent to the president for approval or veto.
The budget resolution does not provide a detailed plan for the budget. Rather, it provides a high-level overview of budgetary aggregates that are enforced by creating barriers to consideration of legislation that would violate the top-line estimates it contains.
The budget resolution's aggregate estimates are used to create "allocations" to the key committees with jurisdiction over spending programs and taxes. For instance, implicit in the resolution's spending data by function is a total amount of appropriation authority for the House and Senate Appropriations Committees. The budget resolution allows the appropriations committees to spend up to this limit--called a "302(a) allocation" for the section in the law designating its inclusion in budget resolutions--and no more.
If the appropriations committee in the House or Senate brought a bill to the floor for consideration that would cause total spending from the committee to exceed its allocation, it would violate the budget rules and put the legislation in jeopardy. An individual House or Senate member could object to the further consideration of such a bill because it violated the terms of the budget resolution. This is especially important in the Senate, where, in general, it takes 60 senators to override objections to bills that have been found to violate a budgetary allocation provided under a budget resolution.
In passing the 1974 law, Congress was explicit in wanting to make sure the budget resolution could not be bottled up by a determined minority. The law provides for time-limited debate on budget resolutions in both the House and Senate. In the House, debate is limited to 10 hours on a budget resolution reported by the House Budget Committee and to five hours on a conference agreement with the Senate. In the Senate, debate is limited to 50 hours on a resolution reported out by the Budget Committee and to 10 hours on a conference agreement with the House (US House of Representatives Committee on the Budget 2015).
The rule on limited debate for budget resolutions is particularly relevant in the Senate, where the normal practice is that legislation and resolutions are subject to unlimited debate. Thus, a determined minority can debate a measure endlessly--a filibuster. It takes a supermajority of 60 votes in the Senate to close off debate on non-privileged legislation. With debate limited, a budget resolution can pass with a simple majority in the Senate, which is usually 51 votes instead of 60. As such, a budget resolution can pass in the Senate even if the minority party votes in unison against it.
Time limits on debate are less relevant in the House because the chamber usually places time limits on consideration of all legislation, and the House, by majority vote, can pass special rules that are applicable to the consideration of specific pieces of legislation.
Although the figures in budget resolutions are displayed by budget function, the actual importance of the resolution is in the numbers implied in those functional totals (along with aggregate estimates of revenues, deficits, and debt). From the spending estimates by function, it is possible to calculate implied levels of discretionary and mandatory spending. The House and Senate Appropriations Committees make decisions annually on how to allocate discretionary spending across government programs. There is no requirement that the committees fund these programs at all, which is why the programs are labeled discretionary.
The designation of mandatory is assigned to spending authority with a permanent appropriation or to programs that provide benefits to citizens based on statutory eligibility rules. These benefits, or entitlements, cannot be revoked without changing the underlying law that created them. Mandatory spending occurs automatically and is not subject to the annual appropriations decisions by Congress. Some of the larger mandatory spending programs are Social Security, Medicare, Medicaid, Supplemental Security Income, and pension benefits for retired federal workers.
Figure 2 provides an overview of the key features of a congressional budget resolution. The aggregate amount of discretionary spending assumed in the resolution is translated into an allocation of discretionary spending authority, which is assigned to the appropriations committees. For mandatory programs, the resolution allocates spending authority to the committees with jurisdiction over the laws that created them. If the resolution assumes spending on these programs will differ from what is expected to occur under current law (either higher or lower spending), the committee can be instructed to report "reconciliation" legislation closing the gap (discussed below). Regardless, these committees cannot report legislation exceeding their allocations without running afoul of the budget resolution.
The budget resolution can affect the federal budget by making it easier to pass some bills and harder to pass others. But this influence on outcomes is only as strong as the political coalition in Congress willing to enforce the constraints imposed in a budget resolution.
The bottom line is that budget resolutions create 60-vote hurdles in the Senate against consideration of bills that would violate their terms. Consequently if there are at least 41 senators who are willing to block bills that violate the budget resolution, they can do so. But if a measure is so popular that it commands the support of at least 60 senators, then the budget resolution will not stand in the way of its passage.
The Relationship of Authorization Legislation to Appropriations
The Constitution gives Congress the power to appropriate funds for the government's use. The House and Senate have established internal rules to divide this responsibility into a two-step legis-lative process. Both chambers have long-standing rules against approving appropriations that have not previously been authorized in law. Further, both chambers have established committees with jurisdiction over subject matter areas of governmental responsibility that are charged with generating authorization legislation that creates federal agencies and programs.
Authorizing laws will typically include suggestions for funding amounts for the agencies and programs these laws define and guide. The appropriations committees decide how much actual funding should be provided to the various authorized offices and programs. The House and Senate have rules against "legislating on appropriations" bills to prevent the appropriations committees from writing authorizations directly into their funding bills (Heniff Jr. 2012).
As an example, in the House, the Energy and Commerce Committee has jurisdiction over the nation's public health programs, including the Centers for Disease Control and Prevention. The committee (working with its counterpart in the Senate, the Health, Education, Labor and Pensions Committee) generates legislation establishing the agencies and programs within this overall public health mission, and then the appropriations committees in the House and Senate decide how much should be spent on these agencies and programs in the annual appropriations process.
The two-step authorization-appropriations process is conspicuously on display with the annual authorization bill for the Department of Defense and then the appropriation bill that usually follows close behind it. By practice, the House and Senate Armed Services Committees typically pass a large authorization bill for each upcoming fiscal year. The committees try to do this in advance of consideration of the appropriations bill so that decisions in the authorization process define the boundaries for appropriations action. There have been many instances when the appropriations committees have chosen to fund agencies in ways that differ from the authorization process.
Although Congress has chosen to establish the two-step authorization-appropriations process for funding government agencies and programs, nothing in the Constitution requires adherence to this convention. Consequently, if Congress passes an appropriation for an activity that has no authorization, the funding is valid and will be spent by the executive branch. Further, appropriations legislation can and often does carry provisions that are more authorizing in nature, and those provisions are as valid as any other laws enacted by Congress.
The rules against funding programs without an authorization can be enforced only if House and Senate members raise objections when violations occur. These rules are often ignored, however, because many agencies and programs that enjoy strong bipartisan support in Congress nonetheless have authorizations that have expired, including the State Department and the FBI. The CBO estimates that about one-fourth of all discretionary appropriations each year are for agencies and programs with no current authorization (Hall 2016).
The authorizing committees in Congress can create spending authority for programs and agencies separate from the appropriation process. This kind of spending authority comes in several different forms. The Medicare law is permanent and provides automatic and indefinite spending authority, without the need for a reauthorization or an annual appropriations. (The exception is that Medicare's administrative costs are, for the most part, considered discretionary and subject to the annual appropriations process.) Other programs have mandatory funding too, but only for the period covered by the law authorizing the funding (e.g., the Children's Health Insurance Program).
Further, some agencies have received partial funding to cover their operating costs through authorizing laws creating fees that add to their discretionary spending authority. The Food and Drug Administration (FDA) is authorized by law to charge user fees to help cover the costs of processing applications for new drugs and other products. The fees this law generates increase the size of the FDA's available budget by creating additional discretionary spending authority without the need for a higher appropriation from Congress. The law creating these user fees covers a specified number of years and thus needs to be reauthorized periodically for the agency to continue to receive these funds.
The Appropriations Process
The 1974 Budget Act anticipates that Congress would proceed with appropriations bills after the House and Senate have agreed on a budget resolution. Although the budget resolution includes an assumed aggregate allocation of discretionary appropriations and suballocations across budget functions, the appropriations committees are not bound to the suballocations. They are constrained only by the aggregate amount of discretionary spending authority that the resolution allows.
The first step in the appropriations process is for the full committees in the House and Senate to subdivide their discretionary spending authority among the 12 appropriations subcommittees. These suballocations are called 302 (b)s, for the section in the Budget Act identifying this step in the process. As soon as these allocations occur, the subcommittees can begin drafting bills that will be marked up in the subcommittee and the full committee before being considered in the full House and Senate.
The appropriations subcommittees have evolved organically in Congress based on history and many idiosyncratic factors (see Figure 3). They do not line up with the budget functions of the budget resolution or even with the portfolios of the federal agencies they fund. For instance, the FDA continues to be included in the subcommittee with jurisdiction over agriculture programs, even though the FDA is housed in the Department of Health and Human Services.
Unlike reconciliation bills, appropriations bills are not subject to time limits on debate. In other words, they can be filibustered. This is the primary reason that actual and threatened government shutdowns have become commonplace. As political polarization has deepened, both parties have committed themselves to using all means necessary to gain advantage, which has meant that the appropriations process is susceptible to becoming ensnared in the heated political standoffs that now regularly occur to the point that no funding is provided to keep the government open.
Figure 3. Appropriations Subcommittees Agriculture, Rural Development, Food and Drug Interior, Environment, and Related Agencies Administration, and Related Agencies Commerce, Justice, Science, and Related Agencies Labor, Health and Human Services, Education, and Related Agencies Defense Legislative Branch Energy and Water Development and Related Military Construction, Veterans Affairs, and Related Agencies Agencies Financial Services and General Government State, Foreign Operations, and Related Programs Homeland Security Transportation, Housing and Urban Development, and Related Agencies Source: US House of Representatives Committee on Appropriations.
Continuing Resolutions and Government Shutdowns
Congress is frequently unable to pass appropriations legislation to keep the government open before the new fiscal year begins on October 1. In those cases, the typical practice is to pass a continuing resolution (CR), which keeps government agencies and programs funded at the level provided in the previous fiscal year while Congress finishes work on funding for the new fiscal year. Congress will sometimes apply a uniform percentage reduction or increase to the level that was provided in the previous fiscal year. Usually, CRs are time limited and expire on a date written into them. For instance, Congress passed a CR that was signed into law providing appropriations for the entire federal government from October 1, 2017, through December 8, 2017.
In recent years, Congress has been sometimes unable to pass a CR to keep the government open without a regular appropriations bill. In those instances, many agencies and programs that rely on annual appropriations to remain operational must shut down.
President Carter's attorney general, Benjamin Civiletti, issued two legal memoranda interpreting what the executive branch must do in the case of a hiatus in appropriations (Nicks 2013). Those opinions form the basis of periodic guidance issued to the agencies on how to shut down operations. Federal agencies prepare detailed shutdown plans consistent with this general guidance. Among other things, the rules allow the government to expend resources to ensure a shutdown is orderly, and the executive branch is obligated to continue providing essential public services.
In practice, many federal employees must continue to report to work during a shutdown even though the government does not have a proper appropriation to pay them. (There is, of course, the full expectation that the workers will be paid once an appropriation is made.) Based on the shutdown in 2013, approximately 850,000 of the government's 2.1 million employees (excluding the Postal Service) would be furloughed during a shutdown (Committee for a Responsible Federal Budget 2018). The government is not required to provide back pay to furloughed workers, although that has been the practice.
Over the past four decades, there have been many minor interruptions in appropriations and a few lengthy shutdowns. In 1995-96, Congress and President Bill Clinton were unable to agree on the terms of keeping the government open, leading to two separate shutdowns lasting a total of 26 days. In 2013, there was a 16-day shutdown due a standoff over continued funding for the Affordable Care Act (ACA) (Committee for a Responsible Federal Budget 2018).
The budget resolution's significance is enhanced because of the potential for it to set in motion a budget reconciliation bill. Like a budget resolution, a reconciliation bill cannot be filibustered in the Senate. The 1974 Budget Act specifies that reconciliation bills are to be debated for no more than 20 hours when the bill is first considered in the Senate and only for 10 hours when the Senate takes up a conference agreement on a reconciliation bill that has been worked out with the House. Debate in the House on reconciliation legislation is not specified in law; consequently, it is governed by rules passed in advance of consideration of the legislation that specify the length of the debate and allowable amendments (US House of Representatives Committee on the Budget 2015).
The limit on debate for reconciliation bills in the Senate is a critically important feature of the congressional budget process because it allows bills to be sent to the president for enactment without necessarily needing any votes from the minority party in either the House or the Senate. The limit on Senate debate provides more certainly of reaching a final vote and has thus made its use very attractive even in years when the goal was to pass the legislation with support from members of both parties.
In some years, however, and especially recently, the majority's ability to pass legislation on its own using reconciliation was seen as instrumental in moving forward with an agenda. In 1993, the Democratic majority in Congress and the Clinton administration used reconciliation to pass a budget and tax plan without any Republican votes. In 2010, the Obama administration worked with Democratic leaders to pass a reconciliation bill that was instrumental in clearing the way for passage of the ACA. And in 2017, Republicans controlling Congress used reconciliation to pass a major tax cut and tax reform plan without the support of any Democratic members of the House or Senate.
Some of the most important pieces of domestic legislation over the past four decades have been passed using the reconciliation procedure, including the major laws noted in Figure 4.
Budget reconciliation legislation gets its name from the purpose the 1974 Budget Act assigns to it, which is to "reconcile" current law with the budgetary aggregates contained in the budget resolution. So, for instance, a budget resolution might call for a reduction in spending on the Medicare program over a coming five-year period. The budget resolution has the option of coupling this reduction with an instruction to the committee with jurisdiction over the Medicare program--the Finance Committee in the Senate--to report out a bill that, if enacted, would reconcile Medicare spending with the amounts contained in the resolution. The resolution typically sets a date by which the committees are to report out their reconciliation bills. Often that single budget resolution will instruct multiple committees to produce reconciliation bills. In those instances, the legislation produced by the various committees is combined into an "omnibus" reconciliation bill for consideration by the full House or Senate.
It is not a requirement that a budget resolution call for a reconciliation bill for every program that is assumed in the resolution to spend less, or more, than is projected to occur under current law. The resolution can target a subset of federal spending with assumed changes in the resolution to be included in a reconciliation bill.
The law does not require that budget reconciliation bills reduce projected deficits (or further increase projected surpluses), although deficit reduction was the main purpose of the bills passed during the 1980s and 1990s. The reconciliation process can be used to lower projected federal revenue for years covered by the budget resolution or to increase spending. Reconciliation bills passed in 1997, 2001, 2003, and 2017 cut taxes over the ensuring 10-year periods after their enactment. Although reconciliation bills can increase projected deficits during the years covered by a budget resolution, they cannot increase projected deficits beyond that period (as discussed below).
Figure 4. Selected Major Laws Passed Using the Reconciliation Procedure Year 1981 Reagan First-Year Spending Cuts 1987 Bipartisan Budget Agreement 1990 Bipartisan Budget Agreement 1993 Clinton Budget Plan 1996 Welfare Reform 1997 Clinton-Republican Balanced Budget Plan and Tax Cut 2001 Bush Tax Cuts 2003 Bush Tax Cuts 2010 Second Component of Affordable Care Act 2017 Corporate and Individual Tax Reform Source: Author.
The Byrd Rule
The first real use of the reconciliation procedure occurred in the final year of the Carter administration. Beginning in 1981, the Reagan administration recognized the tool's power and began using it regularly to drive budgetary changes through Congress. Reconciliation bills of various sizes passed each year in Congress from 1981 to 1987.
As reconciliation became a regular part of the legislative process, concern grew in the Senate that the procedure was being abused. Members of Congress and senators were attaching non-budgetary policy matters to the reconciliation bills because they knew the legislation had a high probability of becoming law. Senate traditionalists argued this was an abuse because reconciliation was never supposed to be used for legislation that was not primarily concerned with taxes or spending.
To address the problem, the Senate agreed in the Consolidated Omnibus Budget Reconciliation Act of 1985 to amend the reconciliation process rules with the original version of what has become known as the Byrd rule, named after its primary author, Sen. Robert C. Byrd (D-WV). The rule was modified and extended on several occasions and then codified as part of the Budget Act with amendments enacted in 1990 (Heniff Jr. 2010).
The essence of the Byrd rule is to create a procedural mechanism for removing non-budget-related provisions from a reconciliation bill when it is considered by the full Senate. The rule states a senator may object to including in a reconciliation bill any provision that is found to be in violation of the rule's terms. In general, it is permissible to include in reconciliation provisions altering key aspects of spending and tax programs with the clear aim of changing their budgetary effects. It is not permissible to change laws that are more regulatory in nature or provisions that are primarily non-budgetary but have incidental effects on the budget. The Byrd rule also barred inclusion of changes to the Social Security program in reconciliation bills. Any provision found to violate the Byrd rule will be dropped from a reconciliation bill if challenged by a senator unless at least 60 senators vote to keep the provision notwithstanding the Byrd rule violation.
The Byrd rule's provisions also prevent reconciliation bills from increasing federal deficits for the years beyond those covered in the budget resolution. This has been particularly relevant during consideration of the tax bills passed in 2001, 2003, and 2017, all of which cut taxes. The authors of these tax measures were forced to sunset many of their key provisions to prevent an estimate from the CBO indicating that they would increase deficits beyond the 10-year periods covered by the budget resolutions that set them in motion.
The advent of the Byrd rule substantially altered the legislative dynamics around reconciliation bills. Interpreting the application of the general rule to specific cases has been left by Senate leaders to the chief Senate parliamentarian, who must comb through reconciliation bills scheduled to hit the Senate floor to determine which individual provisions violate the rule. In turn, the authors of reconciliation bills try to do everything they can to write around the Byrd rule and to convince the parliamentarian that they have been successful.
The prospect of violating the Byrd rule was consequential in the health care debate of 2017. Republicans were limited in the legislation they could assemble because many of the ACA provisions that they wanted to alter or repeal were regulatory, not budgetary, in nature. Consequently, they could not draft a bill using the reconciliation procedure that could get past the Byrd rule while still altering key insurance regulations of the ACA. For instance, many Republicans wanted to change the ACA rule that strictly limits what insurers can charge customers based on variations in their age and health status, particularly for customers experiencing a break in their coverage. Provisions that would have altered the ACA in this way were not allowable under the Byrd rule and were therefore left out of the repeal-and-replace bills Republicans assembled for consideration in the Senate.
The Byrd rule also came into play during consideration of the recently enacted tax legislation, which was passed using the reconciliation process. The final conference report on the legislation originally passed the House with three provisions (including the provision stating the intended title for the law) that were subsequently found by the parliamentarian to violate the Byrd rule. These provisions were stricken from the conference agreement when it was considered in the Senate, necessitating another vote in the House to approve the final version (Van den Berg 2017).
The Budget Timeline
Figure 5 presents an overview of the congressional budget timeline as it is envisioned in current law. This timeline bears little resemblance to the actual budget process over the past two decades.
The process begins each year with the submission of the president's budget to Congress, scheduled to occur on the first Monday in February. After the budget is received, many committees in Congress hold a series of hearings on the plan, including the Appropriations and Budget Committees and often the Senate Finance and House Ways and Means Committees.
The CBO issues an analysis of the president's budget, using its own numbers and assumptions, usually in March. This independent assessment of the president's proposal is accompanied by new projections from the CBO of what would occur under current law over the coming 10-year period. This new "baseline" projection is often used as the starting point for the House and Senate Budget Committees to begin work on the budget resolution.
The 1974 Budget Act calls on the Budget Committees to finish action on a consensus budget resolution by April 15. Once both the House and Senate agree to a budget resolution, the appropriations process may commence. In the House, if there is no agreed-upon budget resolution by May 15, the appropriations process is permitted to begin anyway. In some cases, when a budget resolution has not been completed in a timely way, the House will pass a separate resolution establishing just a ceiling on overall appropriations, which also allows the House appropriations process to begin with a guidepost on overall spending. This resolution then gets set aside when a budget resolution is agreed to by the full House and Senate. The law calls on the House to pass all 12 appropriations bills by June 30.
Further, if the budget resolution calls for a reconciliation bill, it is supposed to be passed by both the House and Senate by June 15. In practice, Congress typically considers reconciliation bills much later in the year, including after the start of the new fiscal year on October 1. The budget resolution is allowed to set a timeline for consideration of reconciliation bills, and there is no requirement that those dates conform to the timeline stated in the Budget Act.
Over the summer, both the OMB and the CBO provide updated budget forecasts. The OMB releases a mid-session review providing updated estimates of the president's budget proposals. The law requires this update to be released by July 15. The CBO provides an updated baseline forecast of federal spending and taxes, typically in August.
This timeline was written with the fall expectation that Congress would complete the entire budget process for an upcoming fiscal year before that new fiscal year commences on October 1. The last time Congress passed and the president signed all appropriations bills before October 1 was 1996 (Ritz 2016).
There is no enforcement of the timeline set out in the 1974 Budget Act. If Congress misses its deadlines, nothing happens. In recent years, virtually none of the deadlines have been met. In 2017, not a single appropriations bill had passed the full House or Senate before the new fiscal year began on October 1.
Discretionary Caps and Pay-As-You-Go
In 1985, as federal deficits swelled with the Reagan defense buildup and tax cuts, Congress was faced with raising the statutory limit on federal borrowing. Sens. Phil Gramm (R-TX), Warren Rudman (R-NH), and Fritz Hollings (D-SC) devised a plan that they attached to a debt limit increase in an attempt to force Congress to deal more effectively with rising budget deficits. The legislation, known as Gramm-Rudman-Hollings, triggered automatic cuts in spending--called a sequester--when federal deficits exceeded thresholds established in the law.
This initial effort at using automatic budget enforcement ultimately failed for two reasons. First, in 1986 the Supreme Court ruled that the enforcement of the automatic cuts in Gramm-Rudman-Hollings was unconstitutional because that power was handed to the comptroller general of the United States, who is an appointed official in the legislation branch of government. (He runs the GAO.) The Court stated that applying across-the-board reductions to federal spending is an executive function that must be carried out by the executive branch (Levinson 1987).
The second reason it failed was because it tied spending reductions to missing targets for federal deficits, which are highly uncertain and subject to large revisions. In 1987, Congress fixed the problem cited by the Supreme Court by moving the authority to impose across-the-board cuts from the comptroller general to the director of the OMB. Even so, this new, revised version of Gramm-Rudman-Hollings also failed because its aggressive deficit-reduction targets proved to be well beyond the reach of Congress, especially as the economy slowed. The automatic cuts that would have been triggered by the law far exceeded the levels Congress was willing to tolerate.
Despite the failure of both versions of Gramm-Rudman-Hollings, these efforts paved the way for later reforms that have been more enduring. In 1990, President George H. W. Bush negotiated a five-year deficit-reduction agreement with the Democratic majorities in Congress, codified in the 1990 Omnibus Budget Reconciliation Act. The 1990 law is still the largest deficit-reduction package ever passed by Congress (Committee for a Responsible Federal Budget 2013). The 1990 budget agreement changed the purpose of the sequester to enforcing a deficit-cutting agreement rather than achieving deficit reduction that Congress was unable to produce through other legislation.
The first use of the sequester in the 1990 deal was enforcing aggregate spending limits on appropriated accounts (with separate caps for defense, nondefense, and international affairs spending). If actual appropriations provided by Congress exceeded these "caps," a sequester would cut appropriated spending by a uniform percentage to eliminate the spending breach.
The second use was enforcing the agreement's pay-as-you-go principle. During the five years covered by the budget agreement (1991-95), all legislation that affected taxes or entitlement spending was tracked and placed on a running scorecard. If, on net, legislation of this kind increased the budget deficit over the coming year, then a sequester of selected entitlement programs would eliminate the breach. Put another way, the budget agreement created the expectation than any further legislation lowering taxes on increasing entitlement spending would have to be offset with tax increases or entitlement spending cuts (hence "pay-as-you-go"). Failure to comply with this requirement would trigger a sequester to eliminate the breach.
Many important entitlement programs were exempted from the pay-as-you-go sequester, including Social Security and most programs providing benefits to low-income households. Consequently, most of the savings from a sequester enforcing pay-as-you-go would have to come from reducing payments to medical service providers under Medicare. (These reductions were capped at 2 percent of overall Medicare spending.)
The discretionary caps and pay-as-you-go procedures generally worked as expected in the 1990 agreement, and the procedures were extended beyond 1995 in budget laws passed in 1993 and 1997. Minor sequesters were overridden in a couple of instances and enforced once, but generally sequesters were not required because the caps and pay-as-you-go process were largely there to enforce budget plans that both parties had agreed to follow.
The 1990 agreement covered the period 1991 to 1995, and the budget agreement of 1997 covered the years 1997 through 2002. Both agreements were passed with large numbers of votes from both parties in Congress. In 1993, President Bill Clinton and the Democratic majority passed a budget plan without Republican support, but that plan did not raise the caps on discretionary spending from 1990, and Republicans were not interested in violating the restrictions of pay-as-you-go during that period.
The most common route around the caps and pay-as-you-go has been emergency designations. Rather frequently from 1991 to 2002, when the caps or pay-as-you-go were seen as restricting necessary adjustments in spending or tax policy, such as a large supplemental appropriations for unforeseen catastrophes, Congress and the president found ways around the budget enforcement provisions through emergency designations and other tactics. After 2002, both the caps on discretionary spending and the pay-as-you-go procedure were allowed to expire.
Reinstatement of Budget Enforcement: The 2010 Statutory Pay-As-You-Go Law and 2011 Budget Control Act
In early 2010, the Democratic majorities in Congress reinstated the pay-as-you-go procedure permanently. No Republicans voted for the legislation. The new law built on the sequester procedures in place from 1991 to 2002. There are now two rolling "PAYGO scorecards" covering five and 10 years. The upper limit on cuts to medical service providers under Medicare has been raised under the law to 4 percent of total Medicare spending (Keith 2010).
In 2011, President Barack Obama engaged in an extended negotiation over budget matters with House Speaker John Boehner. They were unable to reach an agreement on how to reduce projected budget deficits, but their talks eventually led to the enactment of the Budget Control Act of 2011, which, among other things, reinstated caps on appropriated spending, with automatic sequesters used to enforce them.
The 2011 law also called for a joint commission of key House and Senate members to develop a multiyear deficit-reduction plan. If the commission failed to produce a plan that passed in Congress, then additional cuts would be applied to discretionary appropriations and some entitlement programs (particularly Medicare). The commission did fail to produce a plan that could pass in Congress, so the additional cuts also went into effect. In total, the Budget Control Act was projected to reduce future deficits by $2.1 trillion over 10 years.
However, it has been clear for some time that the discretionary caps now in place under the provisions of the 2011 law, lowered to account for the additional cuts required by the joint commission's failure, are far below the levels both Congress and the president find acceptable. In 2012, Congress and the president agreed to ease the cuts in appropriated spending for 2013. In 2013, they agreed to raise the caps on discretionary spending for 2014 and 2015. In the 2015 Bipartisan Budget Act, they raised the caps for 2016 and 2017 (Driessen and Labonte 2015). This year, Congress and President Trump raised the caps for 2018 and 2019, too, by approximately $150 billion per year. As shown in Figure 6, the actual amount of discretionary spending has far exceeded the amounts contemplated in the 2011 law, and there is little prospect of staying within the caps over the period 2020-21 now that the caps for 2018-19 have been raised by such substantial amounts.
Figure 6. Budget Control Act Caps and Discretionary Caps (in $ Billion) 2012 2013 2014 2015 2016 2017 2018 Caps at Enactment 106 950 973 994 1015 1040 1065 with Sequester Adjusted Caps 1062 1002 1012 1013 1066 1070 1208 Difference 0 +52 +39 +19 +51 +30 +143 (*) 2109 2020 2021 Caps at Enactment 1092 1120 1146 with Sequester Adjusted Caps 1244 1118 1146 Difference +152 (*) -2 0 Note: (*) Preliminary estimates. Source: Driessen and Lynch 2017; Everett and Bresnahan 2018.
Although the 2011 law brought back the discretionary caps, the context today is different than from 1991 to 2002. Now, there is no bipartisan consensus on an overall budget framework. The 2011 law was intended to provide an incentive to reach such an agreement, especially on taxes and entitlements, but it has not worked yet. Consequently, the law on the books places caps on discretionary spending that are far below the levels Congress and the president find acceptable. Both parties want the caps raised; it is just a question of how high they will go and whether the parties can agree on other spending reforms to offset the effects of higher appropriations on defense and domestic programs.
The pay-as-you-go procedure also has not worked as well as it did from 1991 to 2002. Again, the reason is the absence of a broader agreement between the parties on the budget. Republicans did not support the 2010 law and have campaigned in recent elections on cutting taxes and reversing much of the spending that was put in place during the Obama administration. Consequently, after the 2016 election, with Republicans in control of Congress and the administration, GOP leaders did not feel compelled to comply with pay-as-you-go.
The recently enacted tax bill reduced federal revenues by $1.5 trillion over 10 years and would have triggered a sequester under the law. But the Republicans successfully pushed to remove the revenue effects of the tax law from the pay-as-you-go scorecard in subsequent legislation. In the end, Democratic leaders agreed to take this step to prevent large cuts in the Medicare program.
The Debt Limit
Congress has always placed some kind of limitation on the federal debt instruments that the Treasury Department can sell to raise money for the government. For most of the nation's history, Congress controlled the allowable purposes for which borrowed money could be used, in addition to specifying the exact nature of the debt instruments that were to be sold in the market. Beginning in the early part of the 20th century, Congress gradually began to loosen control over federally issued debt, eventually settling on an aggregate limit on total debt as the only control. The "debt limit" has been raised numerous times in recent decades as federal deficits and growing debt have become accepted as unavoidable features of modern governmental finance (Austin 2015).
The debt limit places an absolute ceiling on the total amount of funds that the federal government can borrow, including debt issued to accounts within the government. When the government reaches this limitation, it can no longer issue more debt in public markets. The Treasury secretary has limited authority to use "extraordinary measures" when the government is nearing this limitation to create additional room for meeting financial obligations. Among other things, the secretary can slow the issuance of new debt to governmentally owned accounts, such as retirement funds for federal workers.
In recent years, the debt limit has become wrapped up in several ongoing political disagreements between the parties over budget priorities, raising the prospect that a political standoff might cause the federal government to default on its obligations because of its inability to borrow above the limit set in law. No default has occurred, but there have been repeated instances of the government coming close to not having sufficient funds to meet all its obligations, including in 2011 (CNN 2011).
Shortcomings of the Current Process
The congressional budget process is not working well in the current economic and political environment.
The 1974 Budget Act was passed in an era 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 (Congressional Budget Office 2017b). The rest of the budget was spent automatically on entitlement programs and interest on the national debt. In 2016, appropriated accounts constituted only 31 percent of total spending (Congressional Budget Office 2017b). The federal budget has shifted dramatically toward providing entitlement benefits.
Addressing the growing fiscal pressure from entitlements requires a different kind of policymaking process than does control of appropriated accounts. Much of the spending on entitlements is associated with Social Security and Medicare--programs that are financed through trust funds and, partially in the case of Medicare, payroll taxes. Making quick and abrupt changes in these programs is not possible or advisable because workers have made decisions about their retirement plans based on existing rules. Further, with Medicare and Medicaid, the programs interact in complex ways with the operational characteristics of the overall health system. With these large entitlement programs, significant changes in program design affecting the beneficiaries can only be implemented gradually. This means that, if there is a desire to slow spending growth, changes need to be enacted sooner rather than later so that there can be a long transition period before they go fully into effect.
Today's budget process does not facilitate policymaking with a long-term focus. There is great attention on decisions that might alter the current deficit by $25 or $50 billion per year, which is important. But Congress spends very little time focused on the even more important question of what needs to be done to prevent budget deficits from climbing above 5 percent of GDP annually (which will occur starting in 2021) or total federal debt from exceeding 100 percent of GDP (which will occur in 2033 under current projections) (Congressional Budget Office 2017a).
Further, the current budget process reinforces the worse inclinations of the political parties during this period of intense polarization. The budget resolution and reconciliation processes provide a pathway for a party in control of both Congress and the White House to pass legislation without needing any votes from the other party. This is a tempting prospect when Republicans and Democrats have such deep differences over the basic direction of economic policy.
As Yuval Levin has noted, starting with the Republican takeover of Congress in 1995 (after 40 years of continuous control of the House by Democrats), both parties have taken on the view that they are one or two elections away from being able to impose their will unilaterally without having to compromise with the other side. Consequently, it has become increasingly difficult for the parties to set aside ideological ambitions to come to an agreement on multiyear budget frameworks that can survive past the next election (McArdle 2017).
It is also not easy under the current process for Congress and the president to agree on the budget even if they wanted to. The 1921 and 1974 budget laws reflect our constitutional structure, which gives both elected branches of the government substantial roles in the process. Yet, nothing in the law today provides a ready vehicle for establishing a joint legislative-executive agreement on a budget framework. It can be done, as in 1990, but only through ad hoc negotiations that essentially circumvent the normal process. The absence of a ready legislative vehicle that would force negotiation and compromise between the legislative and executive branches means it is that much harder to achieve budgetary stability in a volatile political atmosphere (Capretta 2015).
At the moment, neither party has the will or the inclination to address the nation's significant fiscal challenges on its own. It is going to require bipartisan cooperation to take the steps necessary to slow the rise of federal debt over the long run. Today's budget process is not facilitating that kind of cooperation or focus on the long term.
Changing the budget process would not guarantee better budgetary outcomes. Today's deep political divisions may prevent compromise no matter what process is put in place. But 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 make it easier for them to forge an agreement that would last.
By James C. Capretta
About the Author
James C. Capretta is a resident fellow and holds the Milton Friedman Chair at the American Enterprise Institute.
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Arthur C. Brooks, President; Michael R. Strain, Director of Economic Policy Studies; Stan Veuger, Editor, AEI Economic Perspectives
AEI Economic Perspectives is a publication of the American Enterprise Institute (AEI), a nonpartisan, not-for-profit, 501 (c) (3) educational organization. The views expressed in AEI publications are those of the authors. AEI does not take institutional positions on any issues.
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|Author:||Capretta, James C.|
|Publication:||AEI Paper & Studies|
|Date:||Feb 1, 2018|
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