Budget Process Changes or Trigger Mechanisms Can Not Substitute for Political Will

Blog Post
Thursday, November 30, 2017

There is no shortage of proposals in Congress and in academia for improving the federal budget process. Given that the process has remained essentially unchanged since 1974, it may well be overdue for a facelift. Many of these proposals, such as biennial budgeting, could refocus lawmakers’ attention on long-term thinking. Others would create long-term fiscal targets and automatic mechanisms to enforce them.

These reforms could represent a positive step for the federal budget process but ultimately they cannot substitute for political will to make difficult decisions.

A prime example of this reality is the Pay-As-You-Go (PAYGO) rules adopted by Congress in various forms over the past three decades. They require that any legislation that lowers revenues or expands mandatory spending be offset with revenue increases or mandatory spending cuts. Violations are supposed to be enforced through automatic cuts in other programs. While PAYGO is an important standard that should be adhered to, in practice this component of the budget process has regularly been waived for major deficit-increasing legislation.

Other times, procedural mechanisms to enforce fiscal discipline take the form of legislative “triggers” included in individual pieces of legislation rather than as permanent fixtures of the budget process. An example occurred in 2011, when President Obama and Congress sought to enact a “grand bargain” via the Budget Control Act (BCA). In exchange for raising the federal debt limit, the legislation reduced discretionary spending over ten years by more than $900 billion.

The bill also created a bipartisan Joint Select Committee on Deficit Reduction (also known as “the Super Committee”) tasked with finding another $1.2 trillion to $1.5 trillion in savings. If the committee failed, discretionary spending programs would be capped at a level $1.2 trillion below what was projected at the time. This was to be enforced by an automatic, across-the-board cut known as “sequestration.”

The theory behind sequestration was that the cuts would be so painful that lawmakers would rather avoid them by making politically difficult policy changes to taxes and large mandatory spending programs such as Social Security and Medicare. But this theory proved wrong.

First, policymakers allowed the cuts to go into effect in March 2013. Then in subsequent years, as the cuts grew deeper and more painful, policymakers simply raised spending above the sequester level, offsetting the increased spending by relying primarily on budget gimmicks and extensions of the sequester to later years.

A similar situation occurred with the now-repealed Medicare Sustainable Growth Rate (SGR). In 1997 policymakers adopted the SGR: a formula that attempted to restrain the growth of payments to doctors. When physician payments grew faster than the formula, however, lawmakers routinely postponed the required cuts in what became known as the “doc fix.” While some doc fixes were offset, many of these offsets included budget gimmicks that did not amount to real savings.

By 2015, the delayed cuts had compounded to the point where complying with the SGR would have required Medicare spending to be reduced by almost one quarter. This was so unrealistic that Congress finally repealed it with only partial offsets.

The lesson is clear: It is ultimately up to policymakers to set policy, and no amount of procedural changes can make them do anything they lack the political will to do on their own.