Issues in Budget Reform

William G. Gale
William G. Gale The Arjay and Frances Fearing Miller Chair in Federal Economic Policy, Senior Fellow - Economic Studies, Co-Director - Urban-Brookings Tax Policy Center

May 2, 2002

Mr. Chairman and Members of the Committee:

Thank you for giving me the opportunity to discuss issues concerning budget reform. As a long-time advocate of budget reform, whose proposals in this regard are usually greeted with the response that “accounting is boring,” I am pleased to see the Committee focus on these issues.

The importance of budget reform issues is gaining widespread recognition. Part of this trend is due to the large gyrations in budget surpluses over the last several years, and the obvious fact that how the budget is presented has a significant influence on the policies that are chosen. In addition, the Enron scandal has shown that standard private accounting practices may not be the most revealing way to present the financial status of corporations, which naturally leads to questions about whether standard federal accounting practices are the most appropriate way to examine public finances.

The case for budget reform is simple and straightforward. First, the methods used currently to estimate the baseline budget seriously distort the government’s true financial status. Likewise, the methods used to score new programs sometimes distort those costs as well. Second, some relatively simple changes could resolve many of the biggest problems. Third, these changes would likely lead to better and more informed public policies.

My testimony covers several topics, including problems in the formulation of the budget baseline and the scoring of new programs, the debate over whether the official budget window should be reduced from 10 years to five years, and the role of the Congressional Budget Office. It concludes with a series of recommendations for budget reform.