Why the Budget Process Isn’t the Budget Problem

Let’s get one thing straight. The problem isn’t the budget process. The problem is the problem: Americans want more in services and from the federal government than they are willing to send to Washington in taxes, to paraphrase Doug Elmendorf, director of the Congressional Budget Office. Successful changes to the federal budget process—the creation of the Congressional Budget Office in 1974, the spending caps and pay-as-you-go rules of the 1990 budget deal—worked because politicians first agreed on what they wanted to do and then crafted rules to enforce that agreement.

The challenge is not to fine tune the obviously dysfunctional budget process. The challenge is to rethink the budget process and the presentation of the budget so that it is more likely to produce a durable consensus among a significant number of Democrats and Republicans and promote better public understanding of the fiscal choices the nation faces.

Easier said than done, for sure. But here are a few ideas.

ONE: Fiscal policy could learn something from monetary policy. Central banks, as Eric Leeper of Indiana University once put it, have moved from monetary mystique to a culture of clarity. The Federal Reserve’s 19 policymakers annually reaffirm the Fed’s statement of long-run goals and strategy: keep inflation around 2 percent over the long run and do what it can to steer the economy so unemployment falls between 5.2 percent and 5.8 percent. It tracks its progress towards those objectives—and so do the press, economists and the markets.

There is no similar shared understanding about the long-run goals of fiscal policy. There is an occasional flurry of interest in amending the Constitution to require a balanced budget, but that isn’t prudent policy in all circumstances (see the recent recession, for instance) and writing escape clauses threatens to turn the amendment into something resembling a section of the tax code.

Agreeing on the aims of fiscal policy would be difficult, particularly given today’s partisan polarization. But even debating a joint resolution of Congress that establishes some goals might be useful. The objective might be to use the budget of the United States in the short-run to dampen economic fluctuations (letting the deficit swell in bad times as more people collect unemployment benefits) and to increase the pace at which productivity and living standards increase in the long run. The latter would help weigh the benefits and costs of various proposals to cut spending: Cutting education spending today clearly does more harm to future generations than reducing fees paid to hospitals that care for Medicare beneficiaries. It’s not only how much future deficits are reduced, but how they are reduced that matters.

TWO: End the pretense that there is a clear sharp line between spending and tax breaks. Antipathy toward spending and affection for lower taxes has produced a confusing and misleading budget; it gives Congress every excuse to find a way to spend through the tax code. The late economist David Bradford once joked that Congress could wipe out the defense budget and replace it with a Weapons Supply Tax Credit. Arms makers would save enough on taxes to cover whatever the government would have paid them, and the government could say that through “targeted tax relief,” taxes had been slashed without jeopardizing national security. But the same labor, energy and materials would have been taken by the government to make weapons.

“The budget process,” my Brookings colleague Alice Rivlin, a veteran of decades of budgeting, wrote recently, “cannot help Congress set priorities, especially for the longer run, unless it includes all spending—including spending in the tax code—and all revenues.”

Take higher education: Neither Congress nor any of the rest of us really grasps how the government subsidizes college-going because some pieces show up as spending (Pell grants) and others as tax breaks (such as the 529 college savings plans). And no place in the budget volumes adds this up.

THREE: Presidential candidates often contribute to widespread public misunderstanding by making promises they can’t possibly keep or talking mainly about the goodies—more spending, lower taxes—and not about how to pay for them.

Some of this is inevitable. The political conventional wisdom is that being too specific as a candidate forces a politician to rule out options that, as president, he or she would otherwise adopt. (Remember George H.W. Bush’s “Read my lips. No new taxes.”)

But wouldn’t it be helpful if candidates were pressured to build their campaign budgets against common baseline, perhaps a Congressional Budget Office 10-year projection of current budget policies—and then were pressured to submit their plans to scrutiny by a non-partisan, even-handed set of number crunchers? This would give candidates an incentive to avoid outlandish promises and might just help the public understand that whatever the right target for deficits and debt, cutting foreign aid—roughly 1 percent of all federal spending—isn’t going to get us there.