Testimony

The Biennial Budget Act of 1996

By Stephen Moore
June 24, 1996
Subcommittee on Financial Management and Accountability
Committee on Governmental Affairs
United States Senate

Thank you for the opportunity to testify before the Government Affairs committee to discuss the imperative for budget process reform, including the adoption of a biennial budget.

I fully support the concept of moving to two-year budgeting in Congress. The evidence suggests that biennial budgeting would modestly improve the efficiency of how Congress spends the taxpayers’ money and thus contribute at the margin to the critical goal of achieving a balanced budget. Perhaps the more valuable contribution of the specific biennial budget proposal sponsored by Senator Thompson is that Congress could substantially reduce the amount of time it spends in session.

Shortening the legislative calendar would help foster a change in the culture of governmental activism in congress. We need to return to the original concept of Congress envisioned by our founding fathers of a part-time citizen’s legislature, where serving in Washington was viewed as a short-term stint of public service, not a full-time career.

The case for a biennial budget, must begin with a discussion of the urgent need for an overhaul of our chaotic congressional budget process. It is my conclusion that the process by which we make fiscal decisions in Washington—the rules of the game—can substantially determine budget outcomes. A fundamental imbalance exists in the current rules. For more than twenty years, forces that favor more spending have consistently prevailed over forces that favor fiscal restraint.

Last year I authored a book entitled: Government: America’s Number 1 Growth Industry. Regrettably, that is exactly what the federal enterprise has become—our fastest growing industry. I attach for the record a chapter of that book on the complete loss of control of federal spending in recent decades.

How can we repair the damage and end to the pro-spending bias in our budget rules? A top priority for this Congress should be the enactment of a new budget act. The 1974 Budget Reform and Impoundment Control Act is a failure. One of the purposes of the 1974 Budget Act was to eliminate deficit spending. But here is the actual legacy of that legislation: in the twenty years prior to the Budget Act, the budget deficit averaged just 1 percent of GDP and $30 billion in 1994 dollars. In the twenty years since the enactment of the 1974 Act, the average budget deficit has been $170 billion per year, and 3.5 percent of GDP. We have accumulated more than $4 trillion of debt since 1976. By any objective standard, the budget process has not worked better under the 1974 act—it has worked much worse.

The 1974 Budget Act cannot be fixed. Tinkering won’t do the job. The 104th Congress ought to drive a stake through the heart of the current system and start over.

What should be the key components of a new budget act? They are well known to the members of this committee so I will not long dwell on them, but merely present a list.

1) A Constitutional Amendment outlawing Deficit Spending

Deficit spending is an unconscionable form of fiscal child abuse. The destruction of our nation’s once firmly held moral rule against deficit spending requires us to amend out Constitution and command Congress to do what it used to feel honor-bound to do—that is, balance the budget.

2) An Enforceable Legislative Balanced Budget Requirement

Don’t wait for a balanced budget amendment. Act now. The most urgent reform for this Congress is to pass a legislative balanced budget law that enforces the deficit targets established in the House Budget Resolution. What I have in mind is a new Gramm-Rudman formula that establishes iron-clad enforceable deficit targets through automatic spending cuts. We are, regrettably already seeing the GOP Congress retreat from the historic balanced budget path enacted last year, because the commitment lacks enforcement.

It is instructive to note that government spending in the five years prior to the Gramm-Rudman law grew at a rate of 8.7 percent, but slowed to only 3.2 percent in the five years it was in effect.

3) A Supermajority Requirement to Raise Taxes

Requiring a three-fifths or two-thirds majority in both the House and Senate to pass a tax increase would allow Congress to pass tax hikes in cases of national emergency, but would make it very difficult for Uncle Sam to continue its annual ritual of peacetime tax hikes. Several states, including Arizona, California, and Oklahoma, have enacted such measures; they have stopped tax increases dead in their tracks.

4) National Referendum on all tax increases.

A populist budget reform that is sweeping through the states is the requirement that any tax increase must be ratified by a popular vote of the people in the next election. This gives the taxpayers veto power over the legislature’s efforts to raise taxes. Congress should be forced to take its case to the people, when it wants to take more dollars out of our paychecks. Minority leader Dick Gephardt has suggested this reform as part of his 10 percent tax plan.

5) Dynamic Scoring of Tax Law Changes

The 1986 capital gains tax rate increase has raised roughly $100 billion less revenue than the Joint Tax Committee estimated when the law was enacted. Capital gains realizations are less than half the level expected. Why these gigantic forecasting errors? Congress still uses faulty static analysis to measure the revenue impact of tax rate changes—a scoring technique that assumes little change in behavior to tax changes and almost no overall economic impact of new tax laws. We know the procedures are wrong. But we still use them.Dynamic scoring will yield more accurate tax revenue estimates, and thus encourage better policy.

6) An End to Baseline Budgeting

When the School Lunch Program is going to increase by 4.5 percent per year, that is a budget increase, not a budget “cut.” Baseline budgeting is a fraud. Lee Iaccoca once stated that if business used baseline budgeting the way Congress does, “they’d throw us in jail.” Congress should be required to use this year’s actual spending total as the baseline for the next year’s budget. If we spend more than the current year, we are increasing the budget, if we spend less, we are cutting it.

7) A Statute of Limitation on all Spending Programs

It has been said that the closest thing to immortality on this earth is a federal government program. Congress doesn’t know how to end programs—even years and years after their mission has been accomplished. (Hopefully, this Congress will prove this statement wrong!) A five-year sunset provision should apply to every spending program in the budget—entitlements and discretionary programs.

The last component of a new budget act should be the adoption of a two-year budget cycle—the subject under discussion this morning.

In ten of the past fifteen years Congress has proven itself incapable of completing its annual budget responsibilities on time. Sadly, this was routinely true of the Democratic Congresses of the 1980s. It is now true of the new Republican Congress. This chronic budget tardiness has resulted in routine reliance on eleventh hour catch-all spending bills. This is no way to run a $1.6 trillion enterprise.

Congress should adopt a biennial budgeting system whereby each new Congress would enact all appropriations and authorizations in the first year of the two year legislative cycle. Necessary changes in spending and taxes could be enacted during the second year of the cycle through emergency supplemental appropriations and revenue bills.

This budgeting approach—though by no means a fiscal panacea— would have several advantages for fiscal policy over the current system. These include:

1) it will discourage inflated budgets in election years. Politics almost always dictates that spending levels are-inflated in election years. The Republicans have been as guilty of this practice as the Democrats. Notice that Senate and House Republicans agreed to $10 to $15 billion of extra appropriated spending for fiscal 1997 in order to accommodate a blizzard of pork-barrel spending demands. This irresponsible practice would be discouraged under a biennial budget, because budgets would always be constructed in non- election years while binding Congress in election years.

In fact, one provision that should be added to the Biennial Budget Act is a required supermajority vote to enact any supplemental appropriation. This would help ensure that only emergency supplemental spending would be approved—not unjustifiable election- eve spending.

2) It will bind Congress to honor deficit reduction promises. Under annual budgeting, lawmakers frequently pass budgets with ambitious long-term spending reduction promises. Congress is forever pledging to cut spending in the “out-years” for which the current budget does not apply. Biennial budgeting doubles the length of spending restraint commitments. Congress could breach these promises only by formally cancelling agreed upon spending targets.

3) It will improve management and procurement within federal agencies. With two-year budget commitments, federal departments and agencies would be given greater lead time to absorb budget cuts in ways that would not disrupt services to taxpayers. The Defense Department in particular would benefit as two-year budgeting would improve long-term procurement planning. Multiyear contracts for weapons systems, for example, are more economical and more feasible under two-year budgets.

Each of these practical fiscal advantages are subsidiary to the primary benefit of the Biennial Budgeting Act of 1996. And that is the provision that would require Congress to adjourn sine die by July 31 of the second year of the budget process—absent an emergency. We do not want a biennial budget for the purpose of freeing up Congress’s time and resources so that it can engage in new and expanded forms of legislative meddling. My reservation with biennial budgeting in the past has been that Congress, freed from the time-consuming constraints of the budget, would discover new methods of mischief. Idle hands on Capitol Hill are the devil’s workshop.

Yet by commanding the House and Senate to adjourn for the second half of the second year, we might start a process of fundamentally change the culture of Capitol Hill. Americans want a true citizens legislature. They want their elected officials to spend more time at home in the district with the people they represent. The point bears repeating: Legislating ought to be a part-time job, not a full-time career.

This cultural change in Washington can make a tremendous difference in the quality of legislation that Congress enacts. Consider, for example, a recent analysis by Barbara Anderson of Citizens for Limited Taxation in Boston, which contrasted the state legislature in Massachusetts to the legislature in New Hampshire.

In New Hampshire legislators get paid $100 a day when they are in session. They adjourn in July. When they are home in their districts, they help with constituent services while working at their normal jobs.

In Massachusetts legislators get paid nearly $50,000 a year and are normally in session almost year round.

In New Hampshire legislators don’t have offices, they have lockers.

In Massachusetts legislators have plush offices.

In New Hampshire the 294 men and 128 women in the legislature come from all walks of life. 179 are retired; 24 in real
estate; 22 are government employees; 17 are in the military; 16 are homemakers; 11 are small business owners; 10 are in law enforcement; 8 are in construction; and another 8 are teachers. Only 7 of are lawyers!

In Massachusetts the majority of those who serve in Boston identify their profession as “legislator.” About half are lawyers by
trade.

Does the different culture of public service impact policy outcomes? Absolutely. Anderson reports that New Hampshire, with its “part-time” legislature, has the lowest tax burden in the nation. The full-time legislators in Massachusetts enact year after year budgets with the seventh highest tax and spending burden among the 50 states. Now I don’t know whether the culture of small government in New Hampshire has created a part time legislature, or whether it is the other way around. I suspect that both reinforce each other in a positive way.

I am certainly not suggesting that a biennial budget will produce dramatic fiscal outcomes. But the evidence is at least suggestive that a part-time legislature, as envisioned by this bill, is more judicious in spending the taxpayer’s money and more responsive to the citizens that elect them to the privilege of serving in high office.

That is why I applaud your efforts to make these long overdue changes a reality.