Improving Budget Rules and Processes to Achieve Policy Outcomes in the 118th Congress
Matthew Dickerson proposes many quick-ish fixes
Before the current Congress commenced and when he was at Heritage, Matthew Dickerson (now at EPIC) wrote a policy brief outlining some relatively straightforward reforms to the budget process, with an eye on restraining spending.
These suggestions are not intended to be a comprehensive overhaul of the process:
Reformers of the budget process should recognize that modifications that are overly prescriptive, such as the 1974 Budget Act, are unlikely to be durable. Rather than focusing on the exact steps that future Congresses would be expected to follow, today’s policymakers should be provided additional information and incentives that respond to the unsustainability and harmful effects of current federal spending levels.
Rather, he suggests three types of fixes:
Increasing transparency and accountability
Scoring more accurately in cost estimates
Control the growth of spending via new rules
To improve transparency and accountability, Dickerson singles out the CBO and Joint Committee on Taxation (JCT), the main bodies which provide the projections upon which Congress relies in their legislating.
In brief, Congress should:
Require the CBO and the JCT to publish detailed descriptions of how they produce cost estimates, including the assumptions and data inputs.
Require the CBO and the JCT to conduct sensitivity analysis, including describing their confidence of cost estimates, the potential range of outcomes, and factors that contribute to uncertainty in the estimate.
Conduct oversight led by the Budget Committees, such as by producing a regular report assessing the capabilities and activities of the congressional scorekeepers, including reviewing the models, staffing, initiatives, research, and other strengths and weaknesses of the CBO and the JCT.
Require the CBO to provide additional information on the Spending Projections by Budget Account spreadsheets, including historical funding levels, and indicate the relevant House and Senate authorizing committees of jurisdiction and the appropriations subcommittees of jurisdiction.
Due to a loophole, the CBO is not required to provide formal cost estimates on the 12 regular appropriations bills. However:
The CBO has disclosed that it “provides detailed reports” on the account-level budget authority, outlays, and the changes in mandatory programs, known as CHIMPs, in appropriations bills. But these reports are not made publicly available, nor are they made widely available to Members of Congress and their staff.
Dickerson also identifies several other areas in which CBO could improve transparency. They could be required to provide cost estimates about the long-term (ideally 10-year window) impacts of legislation, and to score temporary legislation as if it were made permanent.
On Congress’ part, they could adopt rules ensuring that there is enough time to actually read through the spending bills under consideration. Perhaps more importantly, they should ensure that the budget resolution is followed. For example:
Section 308(b) of the Congressional Budget Act requires the CBO to issue monthly reports on the progress of congressional action on legislation and their fiscal impacts, including a comparison to the levels set forth in the budget resolution. The House and Senate Budget Committees are also required to make this information available to Members of their respective chambers. In recent years, scorekeeping reports are made widely available only infrequently. This reporting should be modernized and updated.
That’s transparency, but Congress could also benefit from more accurate scoring. Dickerson suggests a few ways to do this:
Use dynamic scoring:
Congress should mandate that the CBO and the JCT incorporate predicted macroeconomic effects into cost estimates for major legislation. … Cost estimates for major legislation should incorporate the budgetary effects of changes in economic output, employment, capital stock, tax revenues, sources of financing new outlays, total debt of the federal government, international trade, and international capital flows resulting from the legislation.
Incorporate the impact of spending and taxation:
The Bureau of Economic Analysis at the Department of Commerce describes economic activity using national income and product accounts (NIPAs), which make up the GDP. … In the cost estimates for legislation that would affect direct spending, the CBO should describe how the legislation would affect NIPAs.
Incorporate debt service in cost estimates:
With rising interest rates and a growing national debt, the cost of servicing debt will become an increasingly larger share of the federal budget. … Cost estimates produced by the CBO should be required to include the projected debt services costs that would be attributable to the legislation.
Use fair-value scoring of credit programs:
The Federal Credit Reform Act of 1990 (FCRA) dictates how these credit assistance programs are counted for purposes of budget scorekeeping. The FCRA method discounts the cost of loans using the interest rates of Treasury securities. This understates the actual costs to taxpayers because it fails to take into account market risks.
In contrast, fair-value accounting would take into account the market risk of the cost of credit assistance. … Fair-value accounting should replace FCRA as the method for scoring federal credit and insurance programs.
Finally, Dickerson offers some ideas for automatically controlling spending growth.
CUTGO:
[The current] PAYGO rules require that tax cuts or spending increases that increase deficits be offset with higher taxes or spending reductions. … These PAYGO rules should be replaced with cut-as-you-go (CUTGO) rules. CUTGO rules would require that all new spending be offset with reductions to other spending.
Prohibit higher spending during periods of inflation:
Congress needs to be better informed about the inflationary effects of legislation and be prohibited from making the problem worse.
Congress should deem it out of order to consider bills that increase spending during periods of high inflation.
Remove bias in the baseline for higher spending:
The CBO generally describes its baseline estimates of future spending and revenues as reflecting current law. However, several deviations from the current-law standard result in the baseline making it easier for Congress to increase spending in future legislation. Congress should reverse these biases that promote higher spending, and make the baseline more closely reflect current law.
Account for the costs of transfers from the general fund to trust funds:
Trust funds finance the two biggest programs in the federal budget: Social Security and Medicare. Surface transportation programs are financed by the Highway Trust Fund. Due to outdated designs, all three of these programs spend more than they collect in tax revenues, depleting their trust fund balances. … For purposes of scoring and budget enforcement, transfers from the General Fund to any trust fund should be counted as new budget authority and outlays.
Reconciliation that does not expand government:
The budget reconciliation process was created by the 1974 Congressional Budget Act to provide a fast-tracked process to amend laws so that actual spending and revenues would align with Congress’s budget plans. … It should be deemed out of order in the House and the Senate for any title of a reconciliation bill to increase outlays in any fiscal year.
The above is just a summary of Dickerson’s main points. However, there is much detail in the proposals that we have had to leave out in this post. For the nitty-gritty of each point, please check out the full paper here.