Budget Discipline

The Hon. Bill Frenzel on behalf of himself and The Hon. Tim Penny, as Co-Chairmen of The Committee for a Responsible Federal Budget

Mr. Chairman and Members of the Committee,

Thank you for giving me the opportunity to testify again today on the subject of Budget Discipline. I do so for myself and the Hon. Tim Penny, and for the Committee for a Responsible Federal Budget, which we co-chair.

No law, process, provision or formula can actually control fiscal policy, nor stop the Congress from spending if it seriously wants to do so. Congress can only be restrained by the Constitution. The record is replete with Congress’ less-than- successful efforts to control its own spending, from debt limitation statutes, to the Budget Act itself, and to other fancier embellishments like Gramm-Rudman.

Each of these had some early, modest success. Eventually, Congress found ways to get around them all. Of all of these restraints, the most successful, and the most durable budget control mechanisms have been Discretionary Spending Caps and PAYGO, and so I recommend that the Congress extend these two primary control features as early as possible this year, and I congratulate this Committee for its good work in pursuit of this elusive goal.

Spending Caps and PAYGO are imperfect instruments, and as noted earlier, they cannot force Congress to do, or not to do, anything. However, when the spending limits are agreed to by the President and the Congress, they are the most effective Budget enforcement mechanism the Congress has discovered yet.

Because their effectiveness wanes with age, they need to be reviewed and renewed every couple of years.

First used after the Budget Enforcement Act of 1990, they have a pretty good record of keeping spending within the levels set by Congress in its Budget Resolution. They were revised in 1993, and again in 1997. Because the 1997 changes obviously needed further adjustment, this Committee, and I, have recommended since 1998 that you adopt new discretionary spending limits early in each Budget cycle.

After the initial high Caps set for FY 1991, Discretionary Spending remained well below the inflation rate through the 90s. In the last two Budget years, FY ’00 and ’01, when the limits were pretty well ignored, Discretionary Spending increased at rates more than several times the rate of inflation.

In the case of terrorism, and our war against it, it is good thing to waive such limits when necessary in real emergencies, but it is also a good idea to reestablish them, as soon as possible, to preserve the priorities, old and new, which Congress agrees to when it passes, or modifies, its Budget Resolution. The Caps should have been reset at the end of last year, but now is a very good time to set the Caps again.

I am occasionally asked why we need PAYGO in addition to the Caps. My answer is that the urge to spend follows the path of least resistance. If Discretionary Spending is capped, and entitlements are not, it is not hard to guess what kinds of new, and changed, spending programs we will have. In addition, Discretionary Spending programs are more easily dealt with in a Budget sense since they can occasionally, admittedly not often, be reduced or even zeroed, while entitlements are forever.

For those who are nervous about inhibiting urges to cut taxes, it is well to remember that when the President and the Congress want to exceed the caps, they find a way to do so. When tax cuts are the right policy, they will find a way to accomplish them, too.

Caps and PAYGO are not straightjackets. They are signboards to remind Congress what its priorities were when it passed its Budget Resolution. In true emergencies when Congress and the President need to spend more, or to provide more tax cuts for economic incentive, it is always appropriate to reassess the priorities, and alter the limitations.

Except for my own, there is no level of federal spending which just right. The right level politically is the one on which the President and the Congress agree.

That is where the Caps should be. We think Congress should reset them regularly, perhaps as often as biennially, even if it may mean generally higher levels of spending. They must conform to political reality, or they will be ignored. A simple majority should be able to make changes as long as the votes are recorded. The transparency of free debate and clear-cut votes will have what we believe is a sobering affect on the Congress.

As you know, Mr. Chairman, our Committee supports a binding Budget Resolution, passed by Congress and signed by the President. One important feature of such a process is a regular opportunity for, and an expectation of, agreement between the two branches of government on spending limits.

Even without a Joint Budget Resolution, Congress could automatically send a bill setting caps to the President when it passes its Budget Resolution, just as it used to do with Debt Ceiling bills under the old “Gephardt” procedure.

In this testimony, however, I really want to focus on the Spending Caps and PAYGO, as being the highest priorities right now, rather than to divert your attention by repeating other wonderful ideas previously presented, such as the Joint Budget Resolution. For the record, my testimony of last July 19 before this distinguished Committee stands, but the twin spending limits are target #1 for today.

The final warning is to repeat that no amount of good law, or good process, or good restraint, can substitute for Congressional commitment and Congressional leadership on this issue. It is not easy to set the priorities. They reduce flexibility, but they do help establish order and discipline. Once they are set, they are, based on history, a helpful, and occasionally powerful, reminder which reinforces the original commitment.

Mr. Chairman, and long-suffering Committee Members, thanks for your time and your interest in this matter. This is a tough Committee on which to serve. It is a political truism that nobody ever tears the cuff-links off of Congressmen who say no. Nevertheless, I suspect that future generations of taxpayers who will be obliged to live with the affects of today’s fiscal policies, may honor the memory of those who occasionally said no.