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March 16, 2004

The Honorable Baron Hill
United States House of Representatives
Washington, DC 20515

Dear Representative Hill,

The Concord Coalition strongly supports the Blue Dog Coalition's call for a tough new budget enforcement law. We are particularly pleased that the budget enforcement plan you and your fellow Blue Dogs have put forward would restore statutory caps for discretionary spending and the original pay-as-you-go (paygo) requirement for entitlement expansions and tax cuts. These two budget enforcement mechanisms were effective in past bipartisan efforts to bring deficits under control. Unfortunately, they were allowed to expire in 2002 - just when the budget was plunging back into deficit. Renewing discretionary spending caps and paygo would be the fastest way to address growing concern over the rapidly deteriorating budget outlook.

Recent reports from the Congressional Budget Office (CBO) help to demonstrate the importance of your efforts. For the first time since March 1997, CBO's 10-year baseline shows a deficit in every year. Moreover, these deficits persist even with the assumption of a healthy economy. According to CBO, cyclical factors related to the economy will cease to be a drain on the budget by 2005. There should be no wishful thinking that we will “grow our way” back to budget balance. Deficits are back for as far as the eye can see and they are likely to persist unless Congress and the President take specific steps to rein them in.

Unfortunately, quite the opposite has been happening in recent years. The political consensus that once existed in support of the balanced budget goal has broken down. Rather than setting priorities and making hard choices, Congress and the President have simultaneously increased spending and cut taxes - with little or no regard for how it all adds up. It is worth noting in this regard, that the huge $5.6 trillion surplus projected just three years ago did not simply disappear. According to CBO estimates, legislation and its associated interest costs consumed $5.1 trillion of that projected surplus. Economic and technical factors reduced it by another $3.4 trillion - meaning that over the same timeframe, 2002 to 2011, we now have a projected deficit of $2.9 trillion instead of a projected $5.6 trillion surplus. This is a particularly ominous development when looming just beyond the current 5-year budget window are the huge retirement and health care costs of the coming senior boom. The time to get the budget under control is now.

To be clear, budget process alone will not reverse recent trends. No matter how tightly budget laws are drawn, they will not work without the political will to make hard choices. However, budget rules and discipline can raise the hurdles and make it more difficult to toss fiscal probity aside. Mechanisms such as your budget enforcement plan recommends will help Congress manage the political pressures inherent in our competitive electoral system in which the rewards for reducing taxes and delivering services are more immediate and direct than the distant, diffuse and indirect rewards for prudent financial stewardship.

Statutory caps on discretionary spending helped hold spending flat from 1991 to 1996 and restrained its growth between 1996 and 2000 - even though the caps were frequently evaded in these later years through the use of dubious “emergency” designations. The Blue Dog plan wisely addresses this problem by imposing tighter restrictions on such exceptions.

The pay-as-you-go rule required anyone proposing major initiatives on either tax cuts or entitlements to answer the question: “How do you pay for it?” Renewing the discipline imposed by forcing an answer to this simple question is perhaps the most important thing politicians can do in the short-term to restore fiscal sanity in Washington. Various methods have been proposed for renewing paygo. Some would exempt tax cuts and others would exempt policies assumed in the budget resolution. The Blue Dog plan follows the best approach, which is to reinstate paygo in its original and successful form.

Applying paygo to spending only would turn the rule into an entitlement cap rather than a budget-wide restraint on deficits. Entitlement caps are a legitimate subject for discussion but they should not be confused with, or substituted for, paygo. Depending upon the circumstances, a tax cut can be every bit as fiscally irresponsible as a spending increase. Spending and tax decisions both have consequences for the budget. There is no good reason to exempt either from fiscal scrutiny. Moreover, exempting tax cuts from paygo would encourage an expansion of so-called “tax entitlements” where benefits are funneled through the tax code rather than by direct spending - an approach generally thought to be far less efficient.

Limiting paygo to those policies not assumed in the budget resolution provides little incentive for fiscal discipline. It essentially allows Congress to enact fiscally irresponsible policies by simply assuming them in the budget resolution. That is a loophole much too tempting to permit - even if proposed in good faith.

Restoring a sense of fiscal discipline will be a very difficult challenge. It will be virtually impossible without the type of enforcement mechanisms established in the Blue Dogs' budget enforcement plan. There are too many claims on too few dollars to declare that formal budgetary restraints are no longer necessary. And while it cannot be said that either discretionary spending caps or paygo worked very well after 1998 when surpluses emerged, it is clear that protecting a surplus is not something we'll need to worry about in the near future. Sadly, the task at hand is to bring the deficit back under control. The track record for caps and paygo in times of big deficits is one of success.

Ideally, a new bipartisan balanced budget plan should be agreed upon and enacted along with the sort of enforcement mechanisms provided in your bill. It does not appear likely, however, that such a plan will be forthcoming in the near future. But the fact that more needs to be done is not an excuse for doing nothing. With the statutory spending caps and paygo now expired and deficits on the rise, the choice for policymakers is whether to reclaim a measure of fiscal discipline through the budget process while a more substantive plan is negotiated - or to sit by while deficits drift higher in the absence of any procedural hurdles designed to rein them in.

In Concord's view the choice is clear. We believe that renewing caps and paygo is the best step that can be taken immediately to stop digging the fiscal hole deeper. The Concord Coalition commends you and your fellow Blue Dogs for proposing this very credible plan to restore fiscal discipline to the budget process.

Sincerely,

Robert L. Bixby
Executive Director
The Concord Coalition