The Perils of Automatic Budgeting

April 18, 2013

Since the 1980s, Congress is legally bound to the commitment that outlays of the U.S. government for a fiscal year may not be more than the receipts for that year. Yet, in all but four of the 30 years since, the federal government has spent more than it has received during a period when the national debt has grown by more than $10 trillion. The answer to today's fiscal woes are automatic budgeting mechanisms, like the sequester, but these fiscal tools will not work in the long run, says Philip Walach, a fellow at the Brookings Institution.

  • One problem with automatic budget mechanisms is that they are promises made by politicians today that future voters and their representatives must abide by in the future -- what political scientists call the commitment problem.
  • One rule, the Gramm-Rudman-Hollings Act of 1985, sought to require decreasing deficits until the national debt was paid off but the law was eventually abandoned by politicians who chose the politically expedient route instead of living with the challenges of abiding by the rule.
  • While it seems that trimming the budget in small incremental amounts would be more palpable than large cuts, both Democrats and Republicans have consistently demonstrated their inability to abide by previous Congressional decisions.

Given the history of cost-control measures, the spending reduction mechanisms built into ObamaCare will likely meet the same fate.

  • Some scholars have proposed amending the constitution to require that all budgets will be balanced but this proposal would result in increased regulation and mandates on the private sector.
  • Successful long-term budgeting should focus on a pay-as-you-go scheme that requires that any new cuts or spending be offset immediately in the budget.
  • Politicians will continue to face difficult decisions on taxing and spending but must not resort to automatic budgeting measures that will not stand the test of time.

Instead, Congress needs to adopt long-term, sensible and durable solutions that will lead to low inflation and a departure from complacent politics.

Source: Philip Wallach, "The Perils of Automatic Budgeting," National Affairs, Spring 2013.

 

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