Choosing the Nation's Fiscal Future (2010) / Chapter Skim
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10 Fiscal Stewardship: A Budget Process for the Long Term
10 Fiscal Stewardship: A Budget Process for the Long Term
Pages 187-208
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From page 187... ...
The committee has concluded that the federal government's current budget process does little to facilitate the actions needed to address the nation's fiscal challenge and would do little to preserve any hard-won gains achieved by those actions. Any budget is a plan for the fiscal future, but the way the federal government currently formulates its budget is weighted toward the past.
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From page 188... ...
Today's voters must be convinced to make sacrifices in current consumption and promised government benefits in order to reduce the probability of a future crisis and to improve the living standards of the next and future generations. Rather than facing the proverbial wolf at the door, taking on the nation's long-term fiscal challenge is, as once suggested by Charles Schultze (former chair of the Council of Economic Advisers)
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From page 189... ...
And history suggests that political leaders rarely step forward to lead such an effort as long as there are no obvious and compelling economic or political consequences today of current policies. If the historical pattern holds, it presents a bleak prospect for meeting the current challenge, because, as the committee's analysis shows, waiting for a crisis will cause unprecedented economic and political harm to the nation.
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From page 190... ...
These examples illustrate how leaders can confront politically charged fiscal challenges (see Light, 1995)
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From page 191... ...
Far-sighted and strong budget rules can also help leaders take on both near- and long-term deficits by providing fiscal targets and restraints. BUDGET REFORM FOR RESPONSIBLE STEWARDSHIP The long-term fiscal outlook depicted in this report argues for a new way to use the budget to institutionalize a long-term perspective and pro
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From page 192... ...
It contains nothing that requires changes in major drivers of the long-term fiscal outlook -- Medicare, Medicaid, Social Security, and tax policy. Moreover, the current process sets no explicit fiscal goals or targets for long-term deficits or debt.
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From page 193... ...
More broadly, new and more prominent information about the longterm implications of current and proposed policies -- with appropriate caveats about the uncertainties that surround any such projections -- could be used by the public to assess whether a proposed budget meets the tests of fiscal prudence presented in this report, to assess the long-term implications of pending budget proposals, and to hold leaders accountable for the long-term consequences of their budget choices. Information alone cannot be expected to change ingrained practices.
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From page 194... ...
As a first step, OMB and CBO could readily integrate presentation of their long-term fiscal outlooks with their near-term budgetary baselines by updating and publishing long-term projections in their initial and midyear budget reports. It would also be very valuable if the long-term impact of the President's budget policies became a regular section of the main budget volume, with long-term projections included in that volume's Summary Tables.
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From page 195... ...
FISCAL STEWARDSHIP BOX 10-2 Australia's Experience with Long-Term Budgeting Australia is one of the leaders in long-term budgeting. The figure immediately below shows how the long-term budget outlook improved in Australia between the first intergenerational report made in 2002 (IGR1)
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From page 196... ...
Accrual Accounting The federal budget mostly relies on cash accounting to estimate the amount and timing of program costs. That accounting is generally the most appropriate measure to capture the current-year effects of federal fiscal policy on the economy and on the borrowing needs of the Treasury.
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From page 197... ...
In both countries, earlier fiscal and economic crises made fiscal goals important, and leaders risked criticism if their fiscal outcomes fell short. In the United States, Congress last set overarching fiscal goals under the 1985 Gramm-Rudman-Hollings Act, which prescribed declining deficit targets for the federal budget.
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From page 198... ...
A practical question is how to integrate such long-term fiscal goals into a budget process that is predominately focused on the near term. The longterm outlook is the starting point for formulating alternative fiscal policy targets that would create a more sustainable fiscal future.
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From page 199... ...
Medium- and long-term fiscal targets could be established in the annual congressional budget resolution and then used to assess both the President's budget and the congressional policy actions. The budget resolution and accompanying committee reports would have to explicitly address the nature of the policy actions that Congress will take to achieve the debt target over the next 10 and 20 years.
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From page 200... ...
Taken together, these reforms would establish a budget regime in which the President and Congress share political accountability for presenting and enacting budgets that take greater account of the implications of today's policies for the federal government's long-term fiscal outlook. Although reforms such as providing better information and setting fiscal goals can increase attention to these issues, the commitment of elected officials will be critical to bringing about definitive actions to deal with the nation's fiscal challenge.
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From page 201... ...
Although political leaders may choose to ignore fiscal goals in the future, they should nonetheless at least be held accountable in some public way for doing so. The existence of a budget enforcement regime that specifies specific sanctions for shortfalls may have an independent effect on the fiscal policy decisions of policy makers.
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From page 202... ...
In addition, the fiscal goals articulated by the President and Congress can be reinforced as they have in the past by discretionary spending caps and PAYGO rules that constrain the Congress from adopting new spending and revenue provisions that would jeopardize its targets. PAYGO would require offsetting legislated changes to increase entitlement spending or reduce taxes that would increase the deficit or reduce the surplus with changes that would reduce spending or increase revenues.
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From page 203... ...
Although some entitlement programs employ trust funds that do have limitations, in most cases those limits only become a real constraint years after the programs are known to impose a net burden on the budget.1 There are many approaches to promote periodic review of the major drivers of the fiscal challenge, three of which are frequently mentioned: sunsets, benchmarks, and triggers. • With sunsets, Congress would set legislated dates for specified major entitlements and tax expenditures, but excluding such pro grams as Social Security and federal pensions, which represent very long-term commitments.
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From page 204... ...
must accomplish two seemingly conflicting goals: to be sufficiently punitive and unpalatable to force Congress and the President to achieve fiscal actions through the regular process; and to be sufficiently realistic and feasible to be regarded as credible if the target is not met through the regular process. In 2008 a bipartisan coalition of budget experts embraced hard triggers for Social Security and Medicare (Brookings-Heritage Fiscal Seminar, 2008)
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From page 205... ...
For instance, many would argue that cuts to doctors' fees for Medicare have substantive effects on the availability of care for the elderly that should be debated on their merits as they occur rather than being subject to triggers. Consideration of the Long-Term Costs of New Policies Meeting debt targets will require the President and Congress to more carefully consider the long-term cost implications of new spending and revenue proposals.
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From page 206... ...
Rather, the committee concludes that reforms to the budget process are needed now to help hold leaders accountable and to support responsible action. Just as in the battle to curb cigarette smoking, information, public framing, expert studies, and political entrepreneurs will all be important in elevating the priority devoted to meeting the nation's fiscal challenge.
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From page 207... ...
2. If the trigger concept is extended to tax expenditures, there would be particular chal lenges, including the several years' lag before data on revenue losses become available and the large number of exogenous factors that affect tax expenditure revenue losses, including changes in tax rates and other tax expenditures.
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