Picking the Wrong Fights
Philip Wallach writes on how Congress wastes time and energy while debt looms
The bulk of this blog’s content has been focused on the procedural - makes sense, given the name. However, why should we care about the process per se? There are several reasons, but the largest concern the obstacles put in front of dealing with the United States’ mounting sovereign debt. If the political mechanisms that facilitate fiscal policy are malfunctioning, how are we to effectively manage the present and plan for the future?
Philip Wallach, Senior Fellow at AEI and author of Why Congress, with previous work at Brookings, recently published a paper examining this question, with a focus on explaining why Congressional procedures prevent sound fiscal policy. The consequence is, of course, an unsustainable debt trajectory.
It didn’t have to be this way. FY2000 was one of the best in living memory. We had a surplus (can you imagine?), in large part as a result of the dividends of the post-Cold War boom, but also a general consensus on the Hill around maintaining fiscal sustainability.
As a powerful example:
In April 2001, Federal Reserve Chairman Alan Greenspan, feted as the maestro of economic good times, worried that the near-term retirement of America’s national debt would lead future surpluses to crowd out private investment. … Americans were in danger of saving too much. He needn’t have worried.
In the 2+ decades since, our debt-GDP ratio has gone from 30 to 100%. Across the political spectrum, we have all been aware of this. Of course, policy responses differ between the parties, and the post-2010 GOP was particularly hawkish on spending (at least while in opposition), but the debt is generally considered to be a problem. Regardless of what politicians say, the current process has still utterly failed to remedy fiscal imbalance.
Wallach’s key argument is the following:
The problem is not, as some conservatives contend, that lawmakers have failed to heed the advice of would-be cutters. Rather, the current system channels criticism of debt accumulation into fights over discretionary spending, which now represents less than a third of total federal spending. …
If we want a different outcome, we will need a new structure for our fiscal politics.
Deficit spending is now normalized. There is not necessarily anything problematic with running deficits. However:
Serious problems arise only when a country persistently runs a primary deficit, which leads to ever-rising debt-service costs. That is the situation Americans now face.
Wallach breaks the swelling debt into two components:
Growth in Entitlement Spending
Deficit-Expanding Enactments (i.e. unplanned discretionary spending)
Regarding the former, although healthcare costs have been less than were anticipated two decades ago, entitlements remain a serious problem in the future, if only for our inverting demographic pyramid. Healthcare savings are welcome, but they have not:
… averted the solvency troubles awaiting entitlement programs in the early 2030s because of their trust fund–based structures.
If entitlements are not reformed in some way by the time we have to pay the piper:
… [inevitable] indiscriminate cuts would be among the least popular policy choices imaginable, so politicians will have an enormous incentive to tackle these programs’ financing—at least when the fateful deadlines loom…
With respect to the latter, discretionary spending over the past 20 years has been chaotic. The War on Terror (incl. two associated invasions), the Great Recession, COVID, Ukraine War, etc. All of the above have been major unexpected jolts to annual spending. As our geopolitical footing get shakier, there will undoubtedly be more exigent spending in the foreseeable future:
… it is naive for [policymakers] to think expenditures scheduled in current law will be the only ones incurred. … lawmakers will, almost certainly, choose to take on trillions of dollars of additional commitments along the way in response to various exigencies.
So, if we maintain the status quo, not only are mandatory programs unsustainable, but there does not exist a lot of latitude for discretionary spending.
Statutes like the Fiscal Responsibility Act (FRA) may help in some ways, but if things go smoothly, it will bring our debt-GDP down from 119% to 115% over the next decade. Not exactly decisive.
Wallach puts it clearly:
The debt burden will not conveniently evaporate … Saving $2 trillion or $3 trillion over a decade [as per the FRA] is nothing to sneeze at—yet how much unplanned-for spending should we realistically expect over the same period?
Such is the current outlook. That, however, is not really the thrust of Wallach’s paper. Why is this the current outlook? In large part political will, sure, but also the way budgeting has been structured.
Per Wallach, there are 3 components:
Budgeting itself.
Annual appropriations.
Debt-ceiling fights.
First, the process obviously doesn’t work, even in the mundane sense of ignoring the statutory requirements. Let us assume that readers know the basics at this point. The author is plain about it:
… the single-chamber resolutions deemed substitutes for official budgets generally do little to confront spending that falls outside the appropriations process—that is, the large and growing majority of federal spending. … When Congress has passed budget resolutions recently, it has almost always done so because the majority desires to access the budget-reconciliation process, which allows tax and spending laws to bypass the Senate’s filibuster.
Never even remotely what was intended in 1974.
Second, remember that the crux of the overall budget process is the 12 appropriations bills, which Congress does eventually manage to pass every year. This is a more of a bug than a feature:
There is an old joke in Congress that there are really three parties: Democrats, Republicans, and appropriators. Even in today’s polarized environment, this joke retains some truth; deals can be contrived partially because appropriators and their staff are quite skilled at working with their counterparts across the aisle to find mutually acceptable spending levels.
A significant reason why appropriations are passed at all is appropriators’ skill in jury-rigging procedural workarounds. The now-common omnibus (or, this year, “minibus”) spending bills are an example. The continuing resolutions that give time for these negotiations are another.
Of course, the annual appropriations are not the main driver of sovereign debt. With increasing frequency, the debt ceiling is a point of leverage in discretionary spending, despite the primary role entitlements play in us hitting the debt ceiling in the first place.
Wallach proposes that even taking into account the fruits of debt-ceiling negotiations (Budget Control Act, FRA etc), these amount to squabbles over change, and desperate plays for any leverage given the state of the normal appropriations process. A major distraction at best, a dire economic threat at worst.
The fact that only a minority of Congress are actually willing to risk a default means that the debt ceiling:
… is not a credible best alternative to a negotiated agreement, so the threat to not raise the debt ceiling does not in fact provide much leverage.
… the debt-ceiling fights have still failed to put the nation on a sustainable trajectory. The [BCA and FRA] focused almost entirely on discretionary spending levels.
Legislators relying on the debt ceiling are wrong to assume:
… that they can fashion solutions commensurate with the problem by simply repeating their maneuver every few years
The Congressional Budget Act was borne out of a spirit of responsibility and willingness to change the system. Regardless of the flaws with their predecessors’ efforts, Wallach thinks that:
Lawmakers must recover that spirit today.
The paper wraps up with some suggestions.
Enact statutory requirements for fiscal discipline.
The most well-known example in this category has been balanced-budget amendments, which many US states have. However, there are other options, such as:
… the Responsible Budget Targets Act, which is based on Switzerland’s debt brake. This law would put in place a series of increasingly stringent budget targets over 15 years that would automatically adjust based on realized results, finally achieving structural primary balance.
Renovate the budget process.
In other words, overhaul the CBA, and force Congress to transcend discretionary spending scraps. Wallach has a couple of ideas for starters:
The bipartisan Fiscal State of the Nation Act would bring the nation’s comptroller general before a joint meeting of Congress each year …
Both chambers’ budget committees could be supercharged by adding new powers or perhaps including leadership directly in their proceedings.
Simply smooth out the process.
Mundane stuff that is nonetheless very consequential.
Clarifying budget baseline rules, making budget resolutions easier to enforce, changing the treatment of changes to entitlement spending, and discouraging gimmicks ….
Circumvent the whole thing.
A bipartisan fiscal commission is a potential answer here.
It’s unfortunate, but most of our fiscal woes stem from political sclerosis. The thing is:
… that political problems are real problems. They demand political solutions, which are precisely what the political system is failing to deliver.
In the same vein as the upcoming Part III in our Price of Budgetary Uncertainty series, Wallach finishes with a hard truth:
If lawmakers cannot pick the right budget fights, the US will be doomed to economic infirmity and political disintegration. Our position is much worse today than it was a generation ago, but there is still time.