The official federal budget process was established in 1974 by the Congressional Budget and Impoundment Control Act. In practice, the process prescribed by the law has never been followed to the letter, and in recent years it’s been abandoned almost entirely. The broken budget process has resulted in policymakers applying quick fixes to avert artificial crises such as government shutdowns instead of making strategic long-term decisions.
After the president has submitted his proposed budget each year, the first step for Congress is to draft and adopt a concurrent budget resolution. If adopted by a majority vote in both chambers, the budget sets instructions that guide Congress in spending and taxing decisions throughout the year. The resolution establishes how much revenue needs to be raised and how much should be spent overall, but congressional committees determine how those targets will be met.
This step has been the most neglected part of the budget process over the past 25 years. During that period, only four budget resolutions were passed on time. And in six of the past eight years, Congress failed to pass a budget resolution at all.
Congress is also supposed to enact 12 annual appropriations bills that, with the president’s signature, fund “discretionary” spending programs for both national defense and domestic areas such as law enforcement, the judicial system, environmental protection, education, medical research and transportation. The House is supposed to begin passing these bills in May or June, after which the Senate considers them.
Total spending levels in appropriations bills are supposed to conform to those set by the budget resolution. But in years when lawmakers have failed to pass a budget resolution on time, Congress often appropriates without operating under such a resolution. Yet no matter how Congress appropriates, it almost always fails to do so on time; only twice in the past 25 years have all appropriations bills been completed on time. And since 2009, only a single appropriations bill has been passed on time.
If Congress fails to pass, or the president refuses to sign, all 12 appropriations bills by Oct. 1, when the next fiscal year starts, lawmakers have two options: Let the government shut down or pass a “continuing resolution,” which generally continues to fund discretionary programs at the previous year’s levels for a certain period of time. Congress usually passes a continuing resolution, but that does not always happen. The most recent government shutdown occurred in 2013 and lasted for 16 days.
Despite taking up the lion’s share of the budget process, discretionary spending actually comprises less than one third of the federal budget. Taxes and spending on entitlement programs like Social Security, Medicare and Medicaid are known as “mandatory spending.” Spending for these programs are set by formulas that require legislation to adjust. If no legislative action is taken, these programs continue operating on autopilot. This is where the largest amounts of money can be saved; changes in entitlement programs as well as tax laws are crucial for reducing the large federal deficits projected for the years ahead.
Such changes can be fast-tracked through an important vehicle known as reconciliation. The reconciliation process is an optional procedure that was intended to allow Congress to consider deficit reduction legislation that brings overall tax and spending levels in line with the budget resolution. It is particularly important in the Senate, where reconciliation bills cannot be filibustered and are protected by points of order that restrict the amendments that can be offered. Unfortunately, more often than not, reconciliation has been used primarily as a tool to pass partisan legislation that fails to meet the Senate’s typical 60-vote threshold, rather than expedite hard choices that need to be made.
Moreover, despite the availability of reconciliation, nothing in the budget process actually requires Congress to review the current-law budget outlook beyond the next 10 years, much less take corrective action. Instead, the current process, even if followed to the letter, encourages short-term thinking by focusing on a 5-year or 10-year window. Yet, as analysts from all sides generally agree, our unsustainable fiscal path results from commitments that extend far into the future.
A 5-year or 10-year budget window may have been adequate back when most federal spending was appropriated annually. It is insufficient when most of the budget consists of entitlement programs set on a rising autopilot.
Given both this reality and the infrequency with which the formal budget process is followed, many options for reform have been proposed. One promising idea is biennial budgeting, which would create a 2-year budget cycle that would only need to occur once per Congress. Other reform ideas have centered around finding ways to incorporate taxes and mandatory spending into the annual budget process so that they are subject to more scrutiny.
Policymakers can disagree about the merits of these various changes to the budget process. But the one thing not up for debate: The current process is broken and requires major reform.