HEARING SUMMARY, MARCH 4, 1993 One Witness: Dr. Robert Reischauer Chairman Hamilton opened the hearing by making a brief statement, remarking that the budget process should accomplish three basic purposes: that it should allow ordinary citizens to understand the fiscal actions of the government, that it should promote long term thinking about the endeavors of government, and that it should be honest. Senator Stevens also made an opening statement, declaring that the budget process should be more forward thinking, and help promote long-term planning. He also suggested that forward looking congressional budgets could give the President more guidance in constructing budgets that would have a realistic set of spending goals and priorities. Dr. Robert Reischauer Outlined the historical roles of the budget process. The longer-standing role, he suggested, was to prescribe the general rules and procedures for making budgetary decisions. The more recent role is to focus on questions of deficit reduction, as codified in the Gramm-Rudman-Hollings Act in 1985 and 1987, and the Budget Enforcement Act in 1990. Overall, the budget process gives Congress the capacity to look at budget aggregates and to decide priorities, and these are important functions. The success of the budget process, especially in its more recent role as a vehicle for deficit reduction, is gauged in terms of both fairness and flexibility. The shortcomings of the Gramm-Rudman-Hollings process can be ascribed to the fact that these attributes were seen as lacking. In particular, it failed to identify specific budget participants who were responsible for the deficit, a problem compounded by the fact that most entitlement spending was exempt from its rules. As a result, its rigid strictures tended to penalize discretionary accounts regardless of whether they had already been cut in the effort to reach the deficit target. The Budget Enforcement Act of 1990 was designed to overcome these flaws and, for the most part, it has done so successfully. The Budget Enforcement Act makes it far easier to identify those responsible for departures from the budget agreement, and penalizes only those responsible. Overall, the lesson of these two efforts to control spending and reduce the deficit is that the budget process is far better at enforcing policy decisions already made than it is at requiring Congress to make policy decisions to implement a non-specific requirement to reduce the deficit. Emphasizing that the process is more useful for some purposes than others, he gave a brief description of some proposed reforms, as well as their pros and cons. Biennial budgeting is deceptively attractive as a possible reform. It posits that Congress could structure the process so that it would need to make budgetary decisions every other year rather than annually. The complexity and volatility of Federal budgeting, however, is likely to reduce or eliminate potential workload savings. The President's role in the budget process is one that needs to be examined carefully because of balance of power concerns. A joint budget resolution might help involve the President more fully in the budget process, but it might simply create a new avenue for conflict. The line-item veto or statutory alternatives would involve the President in the management of budgetary details. Although often discussed as a mechanism for deficit reduction, the experience of States with such mechanisms is that it is would surely become a mechanism for enforcing presidential spending priorities at the expense of Congress. Reforming coverage of the budget and the information it contains might be helpful, but some proposals, such as separate capital or trust fund budgets, would move the Federal Government away from the unified budget, and thus distort the general design. Questions and Answers Hamilton: Is the budget process too complex, and is it too easily manipulated? Reischauer: It is complex, but that is unavoidable. Much of the complexity stems from Congress adding controls to a relatively simple process originally established under the 1974 Budget Act. It would be somewhat naive to assume that a budget process which attempts to control a budget the size of the Federal Government's could be simple. Stated that he wouldn't want to comment on the possibility of an overall restructuring of the process for simplification. On the second part of the question, suggested that CBO has generally not been criticized for deliberate inaccuracies. Stevens: What about the scoring of the Social Security tax increase in President's Clinton's economic plan as a spending decrease? This has been attributed by some to CBO. Reischauer: The effect is based on prior [not current] CBO estimates, but the categorization as a spending decrease originated with the President. Stevens: Suggested that the rules of the budget process had been described as being made to be disobeyed by those who know them, and asked what could change this to make the rules work better. Reischauer: Asserted that both the Congressional Budget Act and the Budget Enforcement Act are working well under adverse circumstances. Stevens: What about the difference between budget authority and outlays? Does this present particular enforcement problems? Reischauer: Yes, particularly concerning the allocations to defense accounts since these often have slower spendout rates. Stevens: Does this have an effect in the differences between House and Senate enforcement procedures? Reischauer: Yes. Controlling both budget authority and outlays may be a case of too much restraint. Pointed out that the Senate has the authority to change this point of order if it wants. Also took this opportunity to speak about Congress being virtually unique as a legislative body because it had established and maintained information agencies with far greater independence and autonomy than other legislatures. Spratt: I take it from your statement that you are not in favor of biennial budgeting? Reischauer: Especially not under current circumstances, which require a more continuous involvement in budgeting than a biennial cycle contemplates. Spratt: What about collapsing the authorization and appropriations processes? Reischauer: Stated that he did not think it was appropriate to comment on that. Spratt: Have Gramm-Rudman-Hollings and the Budget Enforcement Act been helpful overall? Reischauer: Yes. Both because they've done some positive good, and because they've constrained Congress from making the problem worse. Spratt: Commented on the fact that the process was still missing a mechanism for controlling entitlements. Reischauer: Agreed, and suggested that this was partly attributable to the fact that Members and the public both desired stability and predictability of entitlement payments. Even so, much of the deficit can be attributed to entitlement programs. Spratt: What about the possibility of an entitlement cap? Reischauer: Entitlement programs are generally constructed in ways that don't lend themselves to across the board cuts. A simple cap could not be easily implemented. If cuts based on specific contingencies could be written into the law, that system would be more effective. But if this could be done, it might make more sense to simply carry through with the cuts than to make them contingencies. Dreier: Agreed that the problem of entitlements and their contribution was the biggest challenge for the budget process. Reischauer: Especially in the area of health. Dreier: What about other entitlements like agricultural subsides? Reischauer: Agricultural programs do not comprise a significant portion of spending. They tend to be more comparable in dollar terms to annual increases in health entitlements than to total health entitlements. Allard: Remarked that he would like to see greater simplicity in the process. Can you name two things that would help? Reischauer: Asserted that it is probably not possible in the present circumstances to have a process that is truly simple. Allard: Is the process truly under the control of Congress? Reischauer: Yes, but the President is necessarily involved. Allard: What about the States? Do they serve as possible models for simplicity? Reischauer: No. The idea that State budget processes are simple is a myth. The structures and controls are often at least as complex as the Federal process. Additionally, States are not isolated enough to engage in fiscal policy separately, so attempts to do so (such as deficit spending) would not be effective. Reid: Are there better ways to insulate CBO politically? Reischauer: That's not necessary. Reid: Was the Budget Enforcement Act successful, or was it deceptive? Reischauer: Remarked that it was a success. The increase of the deficit over 1990 projections was primarily attributable to the economy not improving sufficiently and to errors in making estimates, not to congressional intent. Obey: Took issue with some of the statements in Reischauer's testimony. What about the idea that politics make a better constraint than the budget resolution; that the budget resolution's numbers and controls only present the illusion that Congress is controlling the process, spending, the deficit, etc. Reischauer: The state of the economy demonstrates that to be the case. Asserted, however, that the budget resolution is itself an expression of political will, and the extent to which it was an illusion showed that political will was as well. Emerson: What is your impression of a joint budget resolution? Reischauer: There are pros and cons to it. It would involve the President in early, direct negotiations with Congress on the budget, but there would be the possibility of stalemate. Domenici: What if a joint budget resolution were to default to the previous year's numbers if the President and Congress failed to agree? Reischauer: This probably wouldn't make all that much difference. Historically, the President and Congress haven't had major disagreements over aggregates, just the details of revenues or spending. Domenici: The Congressional Budget Act established an interesting balance of power within Congress: the Budget Committees have high visibility, but relatively little authority. Added that the Senate's enforcement of the budget resolution uses both budget authority and outlays because the spendout rate is important, as demonstrated by a number of cases in the early 1980's. Obey: Agreed that there were cases in the early 1980's when the lack of controls over outlays allowed budget authority (designated in the budget resolution) for slow spending programs to be spent instead on fast spending programs, providing an illusion of budgetary control while increasing current spending without effecting budget totals. Domenici: The budget resolution is therefore not necessarily the authoritative vehicle for the Clinton economic plan because it deals in aggregates. Reischauer: Yes, it leaves the details to be settled later. Domenici: Reconciliation is also a weaker mechanism for control than its reputation would seem to indicate. Remarked that he would like to see CBO do a study of reconciliation, including authorizations, the effect of extraneous provisions, and the extent to which out-year effects have canceled out first year savings. Boren: What was the fastest or earliest enactment of reconciliation? Reischauer: Stated that he did not know for certain off hand, probably 1981. Boren: So the reconciliation process could be used to press for fast enactment of the Clinton economic plan? Reischauer: Yes. Boren: Would it be possible to have periodic updates of projections to monitor the effects of congressional actions? Reischauer: Those projections required now demand tremendous efforts in terms of necessary resources. Norton: Remarked that she liked the distinction made in Reischauer's statement about the process not being good at forcing undefined policy actions. |