Better Budget Rules Could Lead to Reform

January 28, 2014

Lawmakers could actually make sustainable changes to the federal budget if they use well-designed budget rules, says Mercatus Center scholar David M. Primo.

Entitlements and an ever-increasing debt burden threaten the United States' fiscal health, and when Standard & Poor's downgraded the nation's debt in 2011, the ratings agency pointed to the lack of a "credible solution to the rising U.S. government debt burden."

Lawmakers need to bring some fiscal responsibility back to Washington, but they have proven unable to make the difficult choices that are necessary to achieve these types of impactful reforms. Primo identifies two problems that keep lawmakers from making actual changes: commitment and enforcement.

  • Legislators lack credibility when it comes to budget reforms. Looming elections tempt legislators to spend rather than save, leading short-term considerations to dominate over long-term gains.
  • Congressmen can actually determine their own rules, meaning that one Congress cannot bind a future set of legislators. Congress can write one set of rules and then change them entirely.

To fix these problems, Primo developed ten principles for designing budget rules, including:

  • Use budget rules to change the terms of the debate: Rules should be structured so that it is no longer a question of whether to reform the budget or not. Instead, the rule should dictate how to reform (for example, requiring spending cuts followed by spending increases no greater than the inflation rate).
  • Apply rules permanently and to the entire federal budget: Temporary budget rules are just that -- temporary -- and will not fix structural problems in the budget. Permanent rules that focus on the entire budget are the way to go.
  • Incorporate well-designed rules into the U.S. Constitution: A constitutional rule would be the best way to fix Congress's enforcement problem and would impose some external enforcement on legislators that would be difficult to circumvent.

The United States needs to make major adjustments to the budget if it is to deal with its fiscal problems without hurting the economy.

Source: David M. Primo, "Making Budget Rules Work," Mercatus Center, January 21, 2014.

 

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