The Biennial Budget Act of 1996

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Thank you for the opportunity to testify before the GovernmentAffairs committee to discuss the imperative for budget processreform, including the adoption of a biennial budget.

I fully support the concept of moving to two-year budgeting inCongress. The evidence suggests that biennial budgeting wouldmodestly improve the efficiency of how Congress spends thetaxpayers' money and thus contribute at the margin to the criticalgoal of achieving a balanced budget. Perhaps the more valuablecontribution of the specific biennial budget proposal sponsored bySenator Thompson is that Congress could substantially reduce theamount of time it spends in session.

Shortening the legislative calendar would help foster a changein the culture of governmental activism in congress. We need toreturn to the original concept of Congress envisioned by ourfounding fathers of a part-time citizen's legislature, whereserving in Washington was viewed as a short-term stint of publicservice, not a full-time career.

The case for a biennial budget, must begin with a discussion ofthe urgent need for an overhaul of our chaotic congressional budgetprocess. It is my conclusion that the process by which we makefiscal decisions in Washington--the rules of the game--cansubstantially determine budget outcomes. A fundamental imbalanceexists in the current rules. For more than twenty years, forcesthat favor more spending have consistently prevailed over forcesthat favor fiscal restraint.

Last year I authored a book entitled: Government: America'sNumber 1 Growth Industry. Regrettably, that is exactly whatthe federal enterprise has become--our fastest growing industry. Iattach for the record a chapter of that book on the complete lossof control of federal spending in recent decades.

How can we repair the damage and end to the pro-spending bias inour budget rules? A top priority for this Congress should be theenactment of a new budget act. The 1974 Budget Reform andImpoundment Control Act is a failure. One of the purposes of the1974 Budget Act was to eliminate deficit spending. But here is theactual legacy of that legislation: in the twenty years prior to theBudget Act, the budget deficit averaged just 1 percent of GDP and$30 billion in 1994 dollars. In the twenty years since theenactment of the 1974 Act, the average budget deficit has been $170billion per year, and 3.5 percent of GDP. We have accumulated morethan $4 trillion of debt since 1976. By any objective standard, thebudget process has not worked better under the 1974 act--it hasworked 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 thecurrent system and start over.

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

1) A Constitutional Amendment outlawing Deficit Spending

Deficit spending is an unconscionable form of fiscal childabuse. The destruction of our nation's once firmly held moral ruleagainst deficit spending requires us to amend out Constitution andcommand Congress to do what it used to feel honor-bound to do--thatis, balance the budget.

2) An Enforceable Legislative Balanced Budget Requirement

Don't wait for a balanced budget amendment. Act now. The mosturgent reform for this Congress is to pass a legislative balancedbudget law that enforces the deficit targets established in theHouse Budget Resolution. What I have in mind is a new Gramm-Rudmanformula that establishes iron-clad enforceable deficit targetsthrough automatic spending cuts. We are, regrettably already seeingthe GOP Congress retreat from the historic balanced budget pathenacted last year, because the commitment lacks enforcement.

It is instructive to note that government spending in the fiveyears 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 ineffect.

3) A Supermajority Requirement to Raise Taxes

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

4) National Referendum on all tax increases.

A populist budget reform that is sweeping through the states isthe requirement that any tax increase must be ratified by a popularvote of the people in the next election. This gives the taxpayersveto power over the legislature's efforts to raise taxes. Congressshould be forced to take its case to the people, when it wants totake more dollars out of our paychecks. Minority leader DickGephardt has suggested this reform as part of his 10 percent taxplan.

5) Dynamic Scoring of Tax Law Changes

The 1986 capital gains tax rate increase has raised roughly $100billion less revenue than the Joint Tax Committee estimated whenthe law was enacted. Capital gains realizations are less than halfthe level expected. Why these gigantic forecasting errors? Congressstill uses faulty static analysis to measure the revenue impact oftax rate changes--a scoring technique that assumes little change inbehavior to tax changes and almost no overall economic impact ofnew tax laws. We know the procedures are wrong. But we still usethem.Dynamic scoring will yield more accurate tax revenueestimates, and thus encourage better policy.

6) An End to Baseline Budgeting

When the School Lunch Program is going to increase by 4.5percent per year, that is a budget increase, not a budget "cut."Baseline budgeting is a fraud. Lee Iaccoca once stated that ifbusiness used baseline budgeting the way Congress does, "they'dthrow us in jail." Congress should be required to use this year'sactual spending total as the baseline for the next year's budget.If we spend more than the current year, we are increasing thebudget, 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 thisearth is a federal government program. Congress doesn't know how toend programs--even years and years after their mission has beenaccomplished. (Hopefully, this Congress will prove this statementwrong!) A five-year sunset provision should apply to every spendingprogram in the budget--entitlements and discretionary programs.

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

In ten of the past fifteen years Congress has proven itselfincapable of completing its annual budget responsibilities on time.Sadly, this was routinely true of the Democratic Congresses of the1980s. It is now true of the new Republican Congress. This chronicbudget tardiness has resulted in routine reliance on eleventh hourcatch-all spending bills. This is no way to run a $1.6 trillionenterprise.

Congress should adopt a biennial budgeting system whereby eachnew Congress would enact all appropriations and authorizations inthe first year of the two year legislative cycle. Necessary changesin spending and taxes could be enacted during the second year ofthe cycle through emergency supplemental appropriations and revenuebills.

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

1) it will discourage inflated budgets in election years.Politics almost always dictates that spending levels are-inflatedin election years. The Republicans have been as guilty of thispractice as the Democrats. Notice that Senate and House Republicansagreed to $10 to $15 billion of extra appropriated spending forfiscal 1997 in order to accommodate a blizzard of pork-barrelspending demands. This irresponsible practice would be discouragedunder a biennial budget, because budgets would always beconstructed in non- election years while binding Congress inelection years.

In fact, one provision that should be added to the BiennialBudget Act is a required supermajority vote to enact anysupplemental appropriation. This would help ensure that onlyemergency supplemental spending would be approved--notunjustifiable election- eve spending.

2) It will bind Congress to honor deficit reduction promises.Under annual budgeting, lawmakers frequently pass budgets withambitious long-term spending reduction promises. Congress isforever pledging to cut spending in the "out-years" for which thecurrent budget does not apply. Biennial budgeting doubles thelength of spending restraint commitments. Congress could breachthese promises only by formally cancelling agreed upon spendingtargets.

3) It will improve management and procurement within federalagencies. With two-year budget commitments, federal departments andagencies would be given greater lead time to absorb budget cuts inways that would not disrupt services to taxpayers. The DefenseDepartment in particular would benefit as two-year budgeting wouldimprove long-term procurement planning. Multiyear contracts forweapons systems, for example, are more economical and more feasibleunder two-year budgets.

Each of these practical fiscal advantages are subsidiary to theprimary benefit of the Biennial Budgeting Act of 1996. And that isthe provision that would require Congress to adjourn sine die byJuly 31 of the second year of the budget process--absent anemergency. We do not want a biennial budget for the purpose offreeing up Congress's time and resources so that it can engage innew and expanded forms of legislative meddling. My reservation withbiennial budgeting in the past has been that Congress, freed fromthe time-consuming constraints of the budget, would discover newmethods of mischief. Idle hands on Capitol Hill are the devil'sworkshop.

Yet by commanding the House and Senate to adjourn for the secondhalf of the second year, we might start a process of fundamentallychange the culture of Capitol Hill. Americans want a true citizenslegislature. They want their elected officials to spend more timeat home in the district with the people they represent. The pointbears repeating: Legislating ought to be a part-time job, not afull-time career.

This cultural change in Washington can make a tremendousdifference in the quality of legislation that Congress enacts.Consider, for example, a recent analysis by Barbara Anderson ofCitizens for Limited Taxation in Boston, which contrasted the statelegislature in Massachusetts to the legislature in NewHampshire.

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

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

In New Hampshire legislators don't have offices, they havelockers.

In Massachusetts legislators have plush offices.

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

In Massachusetts the majority of those who serve in Bostonidentify their profession as "legislator." About half are lawyersby
trade.

Does the different culture of public service impact policyoutcomes? 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 yearbudgets with the seventh highest tax and spending burden among the50 states. Now I don't know whether the culture of small governmentin New Hampshire has created a part time legislature, or whether itis the other way around. I suspect that both reinforce each otherin a positive way.

I am certainly not suggesting that a biennial budget willproduce dramatic fiscal outcomes. But the evidence is at leastsuggestive that a part-time legislature, as envisioned by thisbill, is more judicious in spending the taxpayer's money and moreresponsive to the citizens that elect them to the privilege ofserving in high office.

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

Stephen Moore

Subcommittee on Financial Management and Accountability
Committee on Governmental Affairs
United States Senate