Federal budgeting is an annual process that devotes most of its attention to the upcoming fiscal year — the budget year. That makes the current budget process ill-suited for managing the nation’s long-term fiscal affairs.
While budget process reform alone cannot substitute for political agreement about fiscal policies and priorities, there are many reforms that would help encourage long-term fiscal sustainability. Areas of reforms include:
Below is a more detailed look at the areas of budget process reform.
Although the president’s Office of Management and Budget, the Congressional Budget Office, and the Government Accountability Office publish information about the long-term budget outlook, that information has little effect on the annual budget process. The president is only required to estimate the budgetary impact of the administration’s proposed policies for the budget year and subsequent four years. Official estimates of the budgetary impact of congressional action — the only ones that truly matter in legislative debate — only cover a 10-year period at most. That discourages policy reforms that would create short-term political and budgetary costs but would improve the long-term outlook. The 10-year window also hides the long-term costs of policies that may look manageable in the shorter term.
Process reforms that require more information about the long-term budget outlook could help to overcome the current, short-term focus. Some reforms include:
Although policymakers generally acknowledge that the current projections of rising debt are unsustainable, they do not agree on the appropriate target for our long-term debt. Without such a consensus, it is more difficult to agree on the revenue and spending levels that would achieve a better long-term fiscal outlook.
To encourage lawmakers’ focus on improving the budget’s long-term outlook, the budget process could require Congress and the president to establish statutory medium-term and long-term targets for the national debt, as the Peterson-Pew Commission on Budget Reform has recommended. Once agreement is achieved, subsequent president’s budgets and congressional budget resolutions could also be required to include policies for reaching those targets and reporting on a regular basis about their progress toward achieving those goals.
Alternatively, policymakers could agree that the budget should be balanced over the business cycle (that is, run surpluses when the economy is growing and allow deficits when the economy is weak). If the budget stayed in balance, debt as a percent of GDP would decline over time.
Any targets should be set at levels that would be reasonably attainable and flexible enough to allow for unanticipated circumstances, such as economic downturns, national emergencies, and major disasters. That means that targets should be designed to rein in deficits and debt gradually to avoid sudden impacts on the economy and to allow for gradual policy changes that would give Americans time to adjust to resulting changes. Policymakers would also be free to adjust the goals through subsequent budget legislation.
Once policymakers reach agreement about levels of revenue, spending, deficits and debt, they could use budget enforcement provisions to help keep fiscal policies on the agreed-upon path.
Other Frequently-Mentioned Budget Process Reform Options
The annual budget process would almost certainly benefit from reform. But fundamental problem is not the budget process itself, rather a lack of political will to make difficult choices. Without changes in policy, deficits are projected to rise to unsustainable levels in coming decades due to the aging of the population, rising healthcare costs, and an inefficient tax code. Solving these problems will take political leadership from both parties.
For more about options to reform the budget process, see: