Time to Junk the Budget Process

The Budget Reform and Impoundment Control Act of 1974 had two goals: to prevent Richard Nixon from blocking the disbursement of appropriated funds, and to establish a budgeting process whereby Congress could assert long-term control over the relationship between government spending and taxation. The Act established Budget Committees, mandated annual budget resolutions, and created a Congressional Budget Office to provide cost estimates for legislative proposals.

The budget process cultivates and perpetuates the idea that smaller deficits are better than large ones. The platonic ideal is “balance” – that total spending and total tax revenue should be equal, in which case the federal government need not issue new debt. This goal is never achieved, except on very rare and always-transient occasions. But it sets a standard that tax cuts should be offset, at least in part, by spending reductions.

That standard now leads to the grotesque bill just enacted, in the following way. In his first term, back in 2017, Trump pushed massive tax cuts through Congress. But because the “out-year” projected revenue losses were huge, those cuts were “sunset” after eight years – meaning that if nothing further were done, they would expire at the end of 2025. Of course, this was make-believe.  Everyone knew – and markets expected – that there would be another tax bill in 2025, as has transpired, mostly extending and making permanent the tax law currently in effect.

According to the budget process, however, extending current tax law is scored as another tax cut – requiring yet another offset through spending cuts. Since the Pentagon is sacred and Medicare and Social Security are, for now, off the table, the remaining large items – surprise surprise – target the poor and the very elderly. These were therefore severely cut.

There was never any policy reason to cut food assistance (SNAP) or Medicaid.  They are efficient programs providing nutrition and health care to the most vulnerable Americans. They are popular and widely used in “red” states – Medicaid supports many rural hospitals, which may now be forced to close, and pays for millions in nursing homes, now threatened. They bear none of the stigma that was once associated with “welfare” – before Clinton “reformed” that. The only reason they were cut was to satisfy the arcane demands of the budget process.

The beast of deficit reduction is never sated.  One faction in Congress held out for even more severe cuts, before falling in line at the last minute. This group consists largely of provincial politicians, brought up on the budget-balancing of towns, cities and states, which must match operating expenses to expected taxes. They have never understood – or tried to understand – why the federal government is different, and faces no similar practical constraint. But what were they promised in return for their votes on this bill? Very likely, that the next time the cuts will extend to Medicare and to Social Security – the last remaining bulwarks of middle-class security in the United States.

Worse, the perspective of this group was reinforced by Democrats – including two past Treasury secretaries, Robert Rubin and Lawrence Summers. Writing in The New York Times, they trumpeted the brief surpluses of the Clinton years, not mentioning that those surpluses led to the end-of-boom in 2000 and the recession of 2001 – a phenomenon once known to economists as “fiscal drag.”

Hakeem Jeffries, the House minority leader, was caught in a similar bind. In his epic eight hour speech, he passionately decried the vicious cuts, stating correctly that they will result in tens of thousands of early deaths. But he also denounced the supposed $4 trillion addition to the “national debt.” One talking point was vivid and heartbreaking. The other was based on vague nonsense about burdens and interest rates. Yet the vague nonsense was the driving force behind the ritual savagery of the chopping block.

How to fix this problem? It would not be easy. Bad ideas and rigid procedures are hard to kill. The end result could be worse. But if that 1974 act were repealed, the mandate for full employment and reasonable price stability would remain. That would be a better guide to policy than the budget.