From FY onward, a single cap is in place for all discretionary spending. But the BCA does not specify how spending under the cap should be allocated — that will be up to future budget deliberations. The table below illustrates the effects of the caps on projected outlays of discretionary spending through The spending cuts required by the caps are larger in the out years and, despite what some commentators have noted, would represent only a minimal drag on the economy in the next couple of years while the economy is expected to still be recovering from the recession.
The law also does not preclude additional stimulus — but, unless exempted, discretionary activities would have to be funded under the caps and mandatory programs such as supplemental unemployment assistance and would be subject to statutory pay-as-you-go PAYGO requirements that require offsets in the form of spending cuts or revenue increases. For more detail on the spending caps, click here. The committee must vote on recommendations by November 23, ; a majority of seven is required to report recommendations favorably. If the committee fails to report recommendations, or Congress and the President fail to enact those recommendations into law, the President is required to order a sequestration on January 2, Sequestration operates as proportional, across-the-board reductions in spending in non-exempt programs.
Social Security, Medicaid, Medicare benefits, unemployment insurance, programs for low-income families, and civilian and military retirement programs are exempt.
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Medicare payments to doctors, hospitals and other health care providers are not exempt but are limited to a 2 percent cut. Funding for activities in Iraq and Afghanistan would be exempt from sequestration. By Peter G. Peterson Foundation calculations, the law will reduce the debt to Under both baselines, the BCA reduces the deficit by the same amount. But under the plausible baseline, the level of debt in is higher because the baseline debt in that scenario is higher.
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- Sacred Obsession?
As the figure below illustrates, continuing these policies — as Congress has in the past — would wipe out the debt reduction accomplished by full implementation of the Budget Control Act relative to current law. The demographic trends and health-care cost pressures that are driving up entitlement spending have been with us for many years, and the projections showing that these trends will push federal finances past the breaking point have been widely understood for decades.
But instead of forcing policymakers to confront the problem, the current budget process shifts financial pressures off of the welfare state and onto other portions of the federal budget. It would be far better for the country if elected leaders did not wait for a crisis to act but instead confronted the nation's fiscal problems with foresight and planning. A reformed federal budget process might be able to establish conditions conducive to this kind of political leadership. Changing the process is not a substitute for actual policy changes that will address the nation's budgetary problems, of course.
Ideally, elected leaders would skip right to consideration of the long-term reforms necessary to provide a sustainable safety net consistent with strong economic growth. But in the absence of evidence indicating that serious reforms of the welfare state are around the corner, it is worth considering what kinds of changes in the budget process could encourage the adoption of the right policies.
Before we can think about such changes, however, it is important to understand what events and forces shaped the process we have today and why that process has proven inadequate. The Congressional Budget and Impoundment Control Act generally known as just "the Budget Act" is arguably the most significant piece of budget-process legislation ever enacted in the United States. Passed in the final days of the Nixon administration, it was focused primarily on re-establishing constitutional balance in budgetary decisions. Congress had chafed at President Nixon's assertiveness in a number of areas, but especially with respect to the power of the purse.
Nixon pushed against long-established constitutional boundaries by refusing to obligate funds for programs he considered low priorities, even though Congress had explicitly appropriated funds for these purposes. More than any other reason, Congress passed the Budget Act to rein in this practice of "impoundment. The Constitution stipulates that no funds can be expended by the executive branch absent a clear appropriation by Congress. In the Budget Act, Congress wanted to make explicit in statute what was previously thought to be implied by the Constitution: that if the legislative branch appropriated funds for a designated purpose, then the executive branch had to spend the funds provided, regardless of how the president felt about the usefulness of the expenditure, unless Congress passed a new law explicitly cancelling the appropriation.
The provisions of the Budget Act regulating impoundments quickly resolved the constitutional crisis in Congress's favor, and after President Nixon's resignation on August 9, , impoundments ceased to be considered a subject of national concern. The impoundment provisions are now largely irrelevant to current budget policy, though they were crucial in bringing about the new budget process. The rest of the Budget Act, which was frankly given less thought in , has proven to be of far more lasting significance.
The non-impoundment provisions were also aimed at bolstering the legislative branch's role in spending decisions, especially in relation to the executive branch. But unlike the impoundment provisions, the rest of the Budget Act was focused on budget development, not on the execution of already-appropriated funds.
Crucially, the budget resolutions written by the Budget Committees would be based on projections and cost estimates produced by the independent and nonpartisan CBO, which, unlike the executive branch's Office of Management and Budget, could not be influenced by the policy preferences of the party in power. The congressional budget resolution provides allocations of spending and taxing authority to the various congressional committees with jurisdiction over spending and tax laws.
If one of the committees writes an appropriations bill that causes total spending within its jurisdiction to exceed its allocation, it commits a violation of the budget rules and puts the bill in jeopardy. Members of the House and Senate can raise objections to the further consideration of such bills. This mechanism is especially important in the Senate, where it typically takes 60 Senators to continue debating a bill that violates an allocation provided under the congressional budget resolution. This system of budgetary allocations and enforcement operates differently for entitlement programs and taxes than for discretionary spending.
The committees with jurisdiction over major entitlement programs, like Medicare and Medicaid, receive an allocation that can only be understood relative to a "baseline" of expected costs. These programs run based on complex formula provisions defining what will be paid, under what circumstances, to deliver the benefits promised in the statute.
In practical terms, CBO looks at what the law requires, historical trends, and other factors such as shifting demographics to provide estimates of what the spending on a given entitlement program will be over the coming decade. A similar approach is used to provide a current-law tax baseline.
These baseline estimates for mandatory spending programs and taxes are determined by CBO, along with the Joint Committee on Taxation, and are absolutely critical to the construction of the congressional budget resolution. If the Budget Committees choose not to change mandatory spending or taxes, they allocate the baseline amounts to the respective committees with jurisdiction over these programs the "authorizing committees".
If the allocations are equal to the baseline, then the authorizing committees have no budgetary room to increase spending on these programs or decrease revenues , but they are also not forced to make any changes in these programs to cut expenses or raise taxes. In short, they could comply with the budget by doing nothing. They could also approve budget-neutral bills, meaning that spending increases for one program would be offset with spending reductions in another; likewise, tax cuts would be offset with tax increases. The Budget Committees also have the authority to provide spending and tax allocations that differ from CBO's baseline projections.
Such allocations are often accompanied by "reconciliation instructions," which direct the committees to produce new authorizing legislation that will "reconcile" the programs within their jurisdiction with the allocations provided to them under the congressional budget resolution. With reconciliation, the committees are expected to produce legislation by a certain date that brings spending into line with what is provided in the congressional budget resolution.
If multiple committees are part of a reconciliation instruction, their bills are pulled together into an "omnibus bill" for consideration in the House and Senate. The reconciliation process has played a very large role in the nation's recent economic history, in large part because reconciliation bills enjoy privileged status in the Senate. Debate on them is limited, meaning they cannot be filibustered and therefore can pass with a simple majority rather than the 60 votes often necessary to get other major legislation through the chamber.
The reconciliation procedures provide a current-law roadmap for pursuing entitlement and tax changes in Congress under expedited rules, but it is important to understand how different the budgetary restraints on entitlement programs are from those on discretionary spending. For appropriated accounts like defense, the National Institutes of Health, or the National Park Service, the budget resolution can establish a hard upper limit on the total amount of appropriated spending, and this upper limit is rather easily enforced if the will to do so exists in Congress.
An enforceable budget for entitlement spending is far more elusive because it is based entirely on estimates, both for baseline projections and assessments of what new legislation might do to the baseline forecast. In effect, entitlement spending is never held to a firm budget. If spending rises in the programs because of higher enrollment than expected, or higher average benefits than expected per enrollee, nothing in the current budget process can force Congress to enact corrective steps to limit spending. The money simply comes out of the treasury to cover the costs, and the treasury often has to borrow the necessary funds.
These programs enjoy wide popular support, so Congress is generally reluctant to open them up for amendment anyway. But the budget process makes it very easy for elected leaders to do nothing and allow entitlement spending to rise "naturally" as more people seek benefits, and as the rules governing benefits grow more lenient based on political and interest-group pressures.
Although inflation can also be built into projections for discretionary accounts, it has more often been the case that the default option for appropriated accounts is a freeze or a near-freeze in spending in the budget resolution, or adherence to upper limits previously agreed upon by the Congress and the president.
In successive rounds of bipartisan budget deals going back to at least the budget agreement, both major political parties have found it much easier to apply spending restraint even if it is modest to the discretionary accounts of government rather than entitlement programs. In effect, as budgetary pressures have risen with the growth of entitlement spending since the s, successive Congresses and presidents have found the path of least resistance for budgetary restraint to be placing ever tighter caps on annually appropriated spending programs.
This partially explains why spending on these accounts is now at 6. This inclination to restrain appropriated accounts rather than entitlement programs is also related to the mismatch between the time frames typically contemplated in budgeting and those that are necessary to really address the nation's fiscal imbalances. The fundamental problem is not that the United States may, in any given year, have to borrow a large amount of money due to a temporarily high deficit.
The current budget process is ill-equipped to help policymakers see the real problem or do anything about it. The Budget Act requires Congress to write budget plans addressing only the upcoming fiscal year and the four that follow it. In recent years, both the president and Congress have tended to write budgets that cover ten years rather than the required five. But not even a ten-year budget captures the information necessary to see the fundamental fiscal problem or the positive results that could be produced from genuine structural reforms, which may take years to implement. It is telling that one of the most consequential fiscal corrections of recent decades was enacted entirely apart from the regular budget process.
Bipartisan Committee Outcomes
In , President Reagan and Congress agreed on a long-term framework to close the financing shortfall in Social Security. Among other things, the reform increased the age at which beneficiaries could start drawing full benefits without an early-retirement reduction. This reform was phased in very slowly, starting in , an amazing 17 years after the law was enacted.
The normal budget process therefore showed no benefits to these reforms, even though its long-term effect is significant. Most other significant entitlement reforms won't require a year phase-in schedule. Indeed, our largest entitlement programs will be in the red long before then. Nonetheless, because of the need to give plenty of notice to beneficiaries about upcoming changes in program rules, it is often not possible to achieve significant savings from serious reforms within the typical ten-year window of today's budget process. Moreover, some reforms require complex implementation adjustments, which also can mean years will pass before the most significant budgetary savings become visible.
The resulting budgetary myopia provides a strong bias against reforms like "premium support" in the Medicare program. Premium support would substantially modify Medicare's financing system by harnessing the power of competition and consumer choice to drive quality and efficiency gains in the program. Private insurance plans and the traditional government-administered Medicare benefit would compete against one another by submitting bids for how much they would charge to provide Medicare-covered services.
Restructuring Medicare in this way has the potential to transform the program and greatly improve its long-term financial outlook. The Congressional Budget Office has found that such a reform could yield major savings in Medicare spending without increasing costs for beneficiaries. But it is a complex reform that would require some time to implement and show its effects. Moreover, to avoid disrupting the insurance arrangements of current beneficiaries, most proposals to move in this direction provide for a lengthy transition period.
Today's budget process, then, tends to contribute to rather than mitigate the federal government's budget problems. But, in the absence of the will to transform our entitlement system, an improved budget process offers the best opportunity to build some political momentum for real reform. Several key reforms to the budget process could both make a significant difference and actually stand a chance of enactment even amidst today's partisan divisions.
The first reform would seek to change the way the elected branches interact in the budget process. A key characteristic of a congressional budget resolution is that it is not a law. It is a concurrent resolution, which means it is only relevant for Congress. The parallel budgetary processes of the executive and legislative branches are a reflection of our constitutional structure.
As co-equal branches of government, each has a substantial role over the federal budget, and there is no legal requirement that they ever fully come to an agreement with each other. Indeed, with some exceptions, it can be said that the federal government never truly operates within a budget because the legislative and executive branches rarely agree on one. This structure has practical consequences.
The differences between the two branches are addressed, if at all, only when actual spending or tax legislation that is a product of the budget-resolution framework makes its way all the way through the legislative process and reaches the president's desk. At that point, the president can sign or veto the legislation. Usually, if there is an ongoing disagreement, the anticipation of a veto is enough to bring the entire process to a standstill.
Reforming the Budget Process
This dynamic is an important reason why there are regular, drawn out budget fights between Congress and the president as the fiscal year draws to a close each September The two branches spend most of the year working from different budgetary plans, and then they have to scramble at the last minute to arrive at an ad hoc resolution to the disagreement so that the government can continue operating.
Even if the two branches can cobble together a temporary solution, however, the situation is very different from having in place a budget framework that lasts multiple years and provides financial structure and stability to government finances. The current process does not apply any countervailing pressure to offset the institutional and political tendencies toward budget stalemate that are built directly into our constitutional order.
The idea of joint budget resolutions offers a possible, partial antidote for such budgetary drift, rising entitlement spending, and the endless inertia in our federal budgeting practices. It thus has the potential to facilitate, and perhaps even pressure, the legislative and executive branches into coming to an agreement early in the process on key budgetary aggregates that would govern later decisions by both branches.
There are several ways to facilitate the consideration of joint budget resolutions. The most straightforward option would be to build upon the current process by amending the current Budget Act rules to allow an optional joint-resolution "spin-off" from any congressional budget resolution that was agreed to by both the House and Senate. Congress would not have to pursue a joint resolution, but if it did so then legislation would automatically be sent to the president upon adoption of the congressional budget resolution.
The joint resolution would reflect the key budgetary aggregates agreed upon: total discretionary spending, total mandatory spending, revenues, deficits, and debt. The president could then either approve or veto the legislation.
If the president vetoed the joint budget resolution, the process would revert back to the same one in place today under the Budget Act. Congress could proceed under the terms of the budget resolution, and engagement with the executive branch would be postponed until later in the year, when the spending and tax bills flowing from that budget were transmitted to the president.
If, however, the president agreed to the joint budget resolution and signed it into law, the budget framework contained within it would have the force of law, and both branches would be bound by it. It is critical that a joint budget resolution have the capacity to place an upper limit on mandatory program spending, along with caps on discretionary spending and a floor for revenues. This would ensure that Congress and the president truly engage in budgetary decision-making. There would be clear tradeoffs between the key budget categories: Congress and the president could choose to put more pressure on mandatory spending programs and thus perhaps ease the pressure on discretionary accounts, or vice versa.
In addition, proposals to cut deficit spending with tax hikes would be clearly identified in the budget plan. A joint budget resolution would not make the political disagreements that often divide the two branches of government disappear, so this revised process is not a guarantee of budgetary stability. But neither Congress nor the president wants to be seen as fiscally irresponsible, so there would be some political pressure to participate honestly in coming to an agreement on a budget framework. A joint resolution would also force the two branches to begin coordinating early in the process by reconciling the differing estimates from CBO and OMB in order to come up with an agreeable joint plan.
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The joint budget resolution concept would work only if there were a sensible enforcement system attached to it. The purpose of establishing a budget framework through a joint budget resolution would be to encourage additional legislation that brings programs and taxes into line with the agreed-upon budget totals. In other words, the joint resolution would be a catalyst for a genuine reform agenda, because inaction would no longer be the consequence-free path of least resistance.
Presumably, large changes in entitlement spending and taxes contained in a joint budget resolution would be assigned to the authorizing committees in the form of reconciliation instructions. This would allow fast-track consideration of the reforms implied in the resolution's top-line numbers. But Congress will feel the pressure to act on tough legislative reforms only if the joint budget resolution's limits are enforced even without additional legislation.
Over the past three decades, the two branches have settled on an acceptable and well-understood process for establishing caps on discretionary spending. These caps, first adopted in the budget agreement, place a hard upper limit on spending for programs with annual, discretionary appropriations. If the caps are breached, the executive branch is required to impose across-the-board cuts called a "sequester" on essentially all programs covered by the caps to ensure that total spending stays within the agreed-upon amount.
These caps have been effective at controlling discretionary spending although "emergency" designations have served as an end-run around the caps in certain years.