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C. LIMITED OVERALL BUDGET CONSIDERATION
The budget and its fiscal policy implications receive careful consideration by the Congress, in separate and independent actions. Congress does not, however, examine extensively the whole budget with the purpose of passing judgment on whether the totals are satisfactory or whether the relationship of the various parts, one to the other, is satisfactory.
The budget as a whole is reviewed in three contexts. For several years the House and Senate Appropriations Committees have opened each session of Congress with hearings by the full committees on the President's budget recommendations. The Secretary of the Treasury, the Director of the Office of Management and Budget and the Chairman of the Council of Economic Advisers appear before the House and Senate committees to explain and defend the budget and the fiscal policy it embodies. The hearings record is printed. The chairman of the House committee and its ranking minority member have reported their individual evaluations of the budget after completion of the hearings on the floor of the House of Representatives, but the committee does not issue a report with its overall evaluation of the budget
Budget totals, especially receipts, are reviewed by the Ways and Means and Finance Committees at least annually when they act on the public debt limit. (Debt limit bills have been passed in all but two years since 1954, and each of those years was covered by an adjustment in the limit that was designed to carry through more than one fiscal year.) Budget totals are reviewed in this consideration to determine as accurately as possible what the gap between spending and receipts will be. Generally, these committees operate on the judgment that Congress already has made the spending decisions and this is not an appropriate time to force revisions in spending decisions. However, on occasion relatively “tight” limits have been set, or limits have been set only for a short period of time, in order to encourage reduced spending by the executive department.
The Joint Economic Committee holds hearings on the President's economic report, the budget recommendations and the fiscal and monetary policy decisions that must be made with respect to the year at hand. A second review is made after the fiscal year has been completed. The JEC submits a report to the Congress in which it evaluates the executive department's proposed fiscal and monetary policies in view of the economic situation. The report undoubtedly is given serious consideration by some, but it has no direct effect upon congressional decision-making because it is not a part of the legislative program, procedure or requirements.
D. SPLINTERING OF APPROPRIATION PROCESS
As has been suggested, the splintering of spending authority from the Appropriations Committee has been a substantial factor in Congress' loss of overall budgetary control. For example, of the spending estimate in the budget for fiscal year 1974, only 44 percent is associated with the items to be considered in the appropriation bills. Even some of these funds are approved on what for all practical purposes is a pro-forma basis because the authorizing legislation in effect required
the appropriation. “Backdoor” or mandatory spending has evolved in many different forms in the past 50 years. The forms discussed below, however, represent the principal forms this authority has taken in recent years. Generally, the term "backdoor” authority is used to encompass any budget authority which is provided other than through appropriations considered by the Appropriations Committees (or in substance the decision is not made by the Appropriations Committees).
One form of this "backdoor authority” which is handled by legislative committees is "borrowing authority". This is authority to obligate and spend from funds obtained by borrowing from the general public by either the Secretary of the Treasury or by a Federal agency or corporation. For example, authority to borrow from the Treasury and from the public in indefinite amounts has been provided to back up student loan guarantees. This authority remains available indefinitely, and no appropriation limitation is provided for it.
A second type of "backdoor authority” is “contract authority”. This is authority granted to the executive department to enter into contracts involving the direct obligation of Federal funds. Technically this authority requires subsequent action in appropriation bills to liquidate the obligations, but there is little or no real control at this point as obligations incurred under the basic legislation must be met. Numerous examples could be cited where contract authority has been used. One example is the extension of low rent public housing for the fiscal year 1973, which increased annual Federal contract commitments by $150 million. Another example involves the water pollution bill in which, for a 3-year period, $18 billion was provided by contract authority ($11 billion available in the fiscal year 1973).
A third type of "backdoor authority” is represented by “permanent appropriations”. Here direct appropriations are provided in the basic legislation making funds available for a specific period of time either in a definite or an indefinite amount. In this case, also, no further appropriation is required. Interest on the public debt, Social Security benefits, and general revenue sharing are three examples of permanent appropriations. The interest permanent appropriation is indefinite both as to time and amount, while revenue sharing provided a specific amount each year for a 5-year period.
Classified as backdoor spending or “mandatory spending” are payment levels established in basic legislation which constitute a binding obligation on the part of the Federal Government. In these cases, although appropriations are required to finance the program, there is, in fact, little or no discretion in the appropriation process. Public assistance, black lung benefits, veterans benefit payments and general blue collar wage board increases are examples of this type of spending commitment. In practice, commitments of this type are as binding in effect as appropriations, since in most cases court action can be obtained to require payment.
Backdoor or mandatory spending in recent years has proved in practice to be more difficult to control than spending through the regular appropriation process. As shown in Appendix Table 6, in the last five fiscal years, for example, Congress, in its action on appropriation bills, reduced the requests of the administration for new budget authority by approximately $30 billion. However, during this same five-year period, Congress approved in legislative bills other than appropriations bills budget authority which exceeded the budget estimates by slightly over $30 billion.
Some of the items characterized as “backdoor” spending, while showing substantial increases in recent years, have also been accompanied by tax increases of approximately equal amounts. The Social Security and other trust funds so financed, for example, have not led to larger deficits in the long run because they have been accompanied by tax increases. In fact, surpluses in trust funds of this type have in large part accounted for the fact that deficits in the unified budgets in recent years have been much smaller than those in the Federal funds budgets.
E. EFFECT OF UNCONTROLLABLE EXPENDITURES
The budget document refers to categories which are "relatively uncontrollable” under present law. Uncontrollability in this context refers to the inability of the Federal Government to make current adjustments in a program's level of spending.
The uncontrollability of expenditures has grown over time both in terms of absolute amounts and also as a percentage of the total Federal budget. As indicated in Appendix Table 7, relatively uncontrollable budget outlays have grown from $100 billion in the fiscal year 1967 to an estimated $202 billion in the fiscal year 1974. This represents a growth from 63 percent of the total budget in 1967 to 75 percent in 1974.
Programs which are relatively uncontrollable include the social insurance trust funds which cover old age and survivors insurance benefits, medicare payments and unemployment benefits. Uncontrollable programs which are not in trust funds include interest on the public debt, farm price support payments, veterans benefits and pubfic assistance payments.
One of the important reasons accounting for uncontrollability of expenditures in any given year is the extent of budget authority provided in earlier years. Unexpended balances of authority enacted in prior years
to be carried over to the end of the fiscal year 1974, for example, are estimated in the 1974 budget at $306 billion (of which $155 billion represents Federal funds). A summary of obligated and unobligated balances as estimated for the end of fiscal year 1974 is in Appendix Table 8. Much of this total is earmarked for specific uses and is not available for new programs or discretionary use either by the executive department or by the Congress. Of the $306 billion of year-end balances, $119 billion are obligated for specific purposes. The $187 billion not so obligated represent $60 billion of Federal funds and $126 billion of trust funds. The social insurance trust funds and Civil Service retirement and related funds account for $102 billion of this $126 billion. In the case of the Federal funds, the largest unobligated balances are for guaranteed loans and loan insurance (standby, back-up and reserves for losses and debt redemption) and construction and land programs. These two categories account for $38 billion of the $60 billion of unobligated Federal funds from prior years.
The presence of large balances of funds which were committed in prior years in whole, or in part, together with provision for ongoing programs which depend upon claims made upon the Government, make it increasingly difficult for either the executive or the Congress to control budgetary totals. This has suggested to the Joint Study Committee that while it probably is desirable to limit expenditures in any given year it also is desirable to limit budget authority because of the ongoing nature of program commitments. It is only through limitations on the latter authority that it is possible to increase the control over the budget in future years.
F. LACK OF COORDINATION BETWEEN TAX AND EXPENDITURE
While expenditures have been rising rapidly in recent years, revenues have been increasing at a much more modest rate. To a substantial extent this is because taxes have been reduced on several occasions in recent years in order to stimulate economic growth. This was true of the reductions made in 1962, 1964 and 1971. In the 1969 Tax Reform Act, the purpose was more to relieve the very low income groups of tax burdens which had become quite heavy in their cases.
Appendix Table 9 suggests that reductions which have occurred since 1962 have reduced revenues below the level they otherwise would be by approximately $51 billion. This, of course, ignores the impact of the tax reductions in stimulating economic growth. Nevertheless, it is clear that tax revenues have not increased to the same extent as would be true in the absence of these reductions.
A comparison of adjusted gross incomes to the tax on taxable returns, as shown in Appendix Table 10, indicates that from 1952 through 1971 taxes have remained within the range of 12 to 14 percent of adjusted gross income. Thus, the effect of tax reductions has been to approximately offset the higher percentage taxes which otherwise would have occurred because of rising income levels. A similar type of relationship is shown in Appendix Table 11 which shows that from 1951 through 1971 individual income tax collections have represented from 10 percent to 12 percent of personal income for most of the years shown. This again demonstrates that the tax as a percentage of incomes has remained fairly constant during a period when expenditures have been increasing at a faster rate.
Had tax and expenditure policies been considered together throughout this period, it might well be that a closer relationship would have been considered desirable and would have been provided. The review by Congress of tax and expenditure policies on an overall basis is one of the factors the Joint Committee believes is essential. This, of course, is not intended to imply that a balanced budget policy is needed
. at all times, but rather that when a deficit or surplus occurs, it should, to the extent possible, be the result of a planned rather than an unplanned congressional policy.
G. RELATION OF AUTHORIZATION PROCESS TO APPROPRIATION
PROCESS Under the rules of both Houses of Congress, appropriations may not be approved until the Congress has passed a bill authorizing the expenditure and the level of operation of the program. The period of time for which authorizations are valid may be one year or may be for an indefinite number of years.
In recent years, there has been an increase in the amount of programs that have been made subject to authorization on a one-year-ata-time basis. One effect of this has been to delay action on appropriations bills, since they must await action on authorizations, often until after the start of the fiscal year involved and sometimes until after the end of the session of Congress.
Appendix Table 12 shows that 9 of the present 13 annual appropriations bills are affected at least in part by the requirement of annual authorizing legislation. This table also shows that for the 9 bills which required some annual authorization, during the period 1968 through 1971, the dates of passage for the authorizations generally occurred later in the year. On the other hand, as indicated in the table, action on the appropriations bills has been completed in relatively short periods of time after completion of authorization.
Pressure to increase spending has come as a result of the annual authorization process. Program levels are being authorized at higher levels, and although the level of funds made available in the appropriation bills also has increased, appropriated funds have increased at a slower rate than authorization levels. The summary of authorizations and appropriations for 1969 Federal grant-in-aid programs shown in Appendix Table 13, indicates that both the absolute and percentage difference between the two has increased in the five-year period covering fiscal years 1966–1970.
H. BUDGETARY CONTROL THROUGH ESTABLISHMENT OF CEILINGS
Although the establishment of some form of ceiling appears to be the only practical mechanism for Congress to integrate and coordinate its budgetary actions, establish priorities, and maintain effective control, it must be realized that significant problems would be involved in the establishment of an effective ceiling.
The Joint Committee on the Legislative Budget made three unsuccessful attempts (1947–1949) to carry out the objectives of section 138 of the Legislative Reorganization Act of 1946 calling for a legislative budget. Only for fiscal year 1949 was a ceiling (on appropriations) actually established, and it proved ineffective, being exceeded by more than $6 billion. Although it appears that most of the problems experienced during this effort could be avoided by organizational and other improvements, an inherent problem is the critical one of timing. To be effective, ceilings should be established promptly at the outset of the session prior to consideration of other legislative actions affecting the budget. However, the Joint Committee on the Legislative Budget found it difficult to set a spending ceiling and determine program priorities because of the lack of an adequate opportunity to make a detailed review and appraisal of the budget requests. The Joint Study Committee's recommendations deal with this problem.
A major determination to be made is whether ceilings, to be effective, should be applied to new budget authority, spending, or both. To exercise effective control over ultimate outlays, controls should first be established on the granting of new budget authority. Such authority, the seedbed for all expenditures, is granted by Congress not only in appropriation bills, but also in the numerous legislative bills which bypass the usual appropriation process, including legislation providing