Making better budget decisions easier: Some changes suggested by behavioral research

Judged by the objectives of federal budgeting—economic stability, efficiency, and equity—the current federal budget process is broken. Deficits, and an increasing future tax burden implied by the growth of U.S. debt, threaten both short- and long-term stability. “Government efficiency” has become a reliable crutch for stand-up comics. Poverty abides. Meanwhile, Congress often fails to adopt a budget resolution or to complete appropriations before the start of the fiscal year.

Many proposals to modify the budget process and improve budget outcomes are already on the reform agenda. This paper applies some relatively recent findings from behavioral research to the reform effort and suggests a set of proposals based on this research. We note the systematic cognitive limitations of human decision makers and seek to identify modifications in the decision process that have succeeded elsewhere in aligning decisions more closely with long-term well-being. Generally, we aim at changes in the decision framework that would make better decisions easier for both policymakers and the electorate. Using insights from behavioral research, we recommend reforms that would:

  • Add a long-term constraint to the budget process.
  • Cash out the cost of mandatory spending as it accrues.
  • Increase the salience of the cost of tax expenditures.
  • Increase the use of performance information in decisions.
  • Create legislative speed bumps to slow fiscal errors.

Most of our recommendations would increase the flow of relevant information so that it is salient at critical points of the budget process. We focus specifically on changes that would enable legislators and constituents to integrate more easily the long-term budget constraint into their decisions, observe the relevant, controllable costs of mandatory spending and tax expenditures, assess the likely beneficial effects and trade-offs of budget choices, and slow the enactment of policies that would conflict sharply with fiscal and economic stability.

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