A Real Budget for the Federal Government

Published May 14, 2015


House and Senate Republicans have passed their budget plan for the year — called a budget resolution. This is no small achievement. Congress hadn’t adopted a budget plan since 2009.

But the congressional budget resolution is far from the final word on the federal budget this year. The Obama administration is strongly opposed to many of the plan’s key features. In the end, there probably won’t be anything like a “budget” agreed to by the president and Congress. Rather, there will be a series of discrete decisions and compromises made to keep the government running, with very little regard to any larger fiscal framework.

That’s the normal state of affairs for the federal government in the 21st century. The primary reason is deep and unbridgeable differences between the two parties over the right direction for tax and spending policy. But the current federal budget process doesn’t help either. It’s time to change that process to give Congress and the president at least a pathway for reaching agreement on an actual budget if and when they ever want to.

Congress created the modern federal budget process just over four decades ago when it passed, and President Nixon signed, the Congressional Budget and Impoundment Control Act of 1974. It is one of the most important budgetary laws in the nation’s history.

Congress was motivated by the desire to rein in Nixon’s aggressive impoundment of appropriated funds, but it also wanted to create a congressional process that would rival the annual submission of the president’s budget. The impoundment provisions of the Budget Act haven’t been relevant since the day Nixon resigned. The rest of the law, however, has proved to be highly consequential.

The Budget Act’s most important changes were institutional in nature. The law established the House and Senate Budget Committees and the Congressional Budget Office, giving Congress the capacity to write budget plans with its own numbers and assumptions.

The Budget Act was certainly a milestone achievement, but years of experience have also exposed its deficiencies.

Congress has the ability to develop multiyear fiscal plans in the form of congressional budget resolutions, but the law didn’t provide a mechanism for bridging differences between the two branches on fiscal policy. Budget resolutions never become laws because they aren’t presented to the president for signature or veto. Rather, they are congressional planning documents that govern the consideration of budgetary bills, especially appropriation measures. They do not bind the executive branch.

In our constitutional system, both the executive and legislative branches play large roles in budgetary decisions. No funds can be spent from the treasury absent an appropriation by Congress, and no appropriation bill passed by Congress can become law without a president’s approval (except in the rare case of a successful override of a presidential veto). So it generally takes agreement from both branches to put in place an actual tax and spending plan for the federal government.

Congress is now readying a series of appropriation bills consistent with the recently passed budget resolution. But President Obama has made it clear that he disagrees with the funding levels in the congressional budget framework, which means he probably won’t agree to the first versions of these measures. As in past years, the two branches are likely to proceed on the presumption that their respective budget plans are operative when in reality the federal government has no plan at all. The result will be the usual standoff, perhaps including threats of a government shutdown, followed by an ad hoc compromise that will leave no one satisfied and, more importantly, won’t be based on any kind of sustainable fiscal plan.

Meanwhile, the fiscal challenges facing the country — rising levels of debt, inadequate funding for national security threats, anti-growth tax policies, and the long-term growth of entitlement spending — continue with no solutions in sight.

It’s not that budget agreements are impossible. Several important ones have been reached over the years. In 1990, 1997, and, to some degree, 2011, Congress and the president negotiated full or partial budget plans with enough specificity that they could be enshrined in laws that bound both branches for a period of time, or until a new agreement superseded them. But these deals came about through ad hoc negotiations that occurred outside of the normal process.

One way to improve the budget process would be to allow these kinds of executive-legislative agreements to occur as a regular feature at the beginning of the annual budget process. That could be done by giving Congress the authority to turn the congressional budget resolution into a joint resolution that is presented to the president for approval or veto.

The contents and enforcement of a joint resolution on the budget would be critical. The key components would be aggregate spending limits and a presumed level of taxation, deficits, and debt. For this to work and be binding, the joint resolution would need to impose discipline on entitlement spending in addition to discretionary appropriations, with enforceable limits that would cut spending if the programs were to exceed the approved levels. As with existing sequester mechanisms, exemptions and program adjustments could limit the effect of automatic spending cuts on certain programs, but these exemptions should be much more limited than the exemptions that apply when a sequester is triggered under today’s pay-as-you-go enforcement system.

Approval of a joint budget resolution could also automatically trigger an increase in the debt limit — perhaps providing another incentive for compromise and agreement on an overall plan.

The key point about a joint resolution is that it would represent a real budget for both political branches of the federal government, one with actual consequences. It would provide a vehicle for direct legislative-executive engagement early in the budget process instead of at the very end, and thus also force reconciliation of the competing estimates from the Congressional Budget Office and the executive branch’s Office of Management and Budget. It would also focus the public debate on what’s important in a budget plan — taxes, spending, deficits, and debt — rather than on the many side issues that are of little consequence to overall fiscal policy.

Of course, if politicians don’t want to reach an agreement on the budget, they won’t, no matter the process. Moreover, nothing would require Congress to send a joint resolution to the president. In the absence of a joint agreement on the budget, the current parallel budget processes would continue as they do today.

But, in the event that Congress and the president wanted to negotiate a budget plan, a joint resolution would allow that to happen as a feature of the regular process. The result could be the adoption, at least from time to time, of actual “budgets” for the federal government, agreed to by both the president and Congress.

The availability of the joint budget resolution as an option would improve accountability too. The two branches would find it harder to point fingers at each other for fiscal failures. If Congress had strong views on what a budget should look like, it could send a plan to the president. And if the president didn’t like what Congress had sent, he could veto it and propose an alternative. The real differences between the two branches (and perhaps also the two major political parties) would be made more evident to the electorate.

The legislative and executive branches are co-equal in our constitutional structure. Neither branch can unilaterally impose its will on budgetary decisions. What’s missing from our federal budget process is the opportunity for the two branches to find agreement, however infrequently that might occur. The Budget Act should be updated to provide this pathway for compromise.

James C. Capretta, a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute, is the author of “The Budget Act at Forty: Time for Budget Process Reform,” from the Mercatus Center at George Mason University. Mr. Capretta served as a staff member of the Senate Budget Committee from 1990 to 2001.

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