The Budget Resolution--Content, Timeliness, and Enforcement

Comments for the Record

Joint Select Committee on

Budget and Appropriations Process Reform

The Budget Resolution--Content, Timeliness, and Enforcement

Thursday, May 24, 2018, 10:00 AM

By Michael G. Bindner

Center for Fiscal Equity

Co-Chairs Womack and Lowey, thank you for the opportunity to submit these comments for the record on budget and appropriations process reform.  These comments reflect what I published in my book, Musings from the Christian Left in 2004 and which I transmitted to the House Budget Committee in September of 2011 and June of 2016 and to the Senate Committee in October 2011 and to this Committee two weeks ago.

Let me suggest again, as well as myself, some possible additional witnesses from the Academy who suggest very workable reforms that will help. Thomas Lynch of Florida Atlantic University also advocates a two-step budget process in "Federal Budget Reform," beginning with passage of a Joint Budget Resolution, which sets overall spending priorities. After this resolution passes agencies submit their requests, which are considered in detailed budget and bills. The strength of this approach is that it forces Congress to decide on overall priorities before they can begin to consider their local interests. Rudolph Penner and Alan Abramson, in their landmark book Broken Purse Strings, support the establishment of a Joint Budget Committee (echoing Senator Pete Domenici), a Joint Budget Resolution and multi-year budgeting.

The Budget Resolution should be joint rather than concurrent and have both spending targets and suggestions for changes to entitlements and taxes. As per our last comments, it could be passed with regional totals as well, with regional targets for total value added tax revenue and net business receipts tax revenue, entitlement spending, both direct and through tax expenditures and military and civil spending in each region. Even without regional totals, VAT revenue could be tied to military and civil spending with automatic rate modifications and spending cuts if deficits are likely in this area. Entitlement spending deficits are the feedback loop that corrects the economy in downturns, so there should be no automatic cuts in that area.

Phase One: The Joint Budget Resolution

The first phase of the budgetary process is high-level budget enactment. The budget message, revenue estimates and increases, departmental, independent agency and functional spending totals, and deficit projections are included in the Joint Budget Resolution proposal. Until the resolution is enacted the Executive withholds detailed spending estimate or authorizing language. The proposal is submitted to Congress during mid-January, with passage of the Joint Budget Resolution by the July 4th recess.

A Joint Committee on the Budget considers the resolution. The Committee consists of members of the leadership of both houses, various committee chairs and members, and members not assigned to any major authorizing or appropriations committee (who shall be a majority). The Chair alternates between chambers. Such a committee is necessary to expedite action.

After the Committee reports the resolution it is considered in an expedited fashion. If there are differences between the amended versions of the resolution it goes back to the Committee one final time, and acts as a conference committee in this case.

The Executive Branch uses the totals enacted in the Joint Budget Resolution as the totals in its detailed authorizations and appropriations submissions.

Control Act Years

During Budget Control Act years, unless a Joint Budget Resolution is passed, the budget caps in the Budget Control Act will be considered allocations for the purpose of drafting appropriations legislation and automatic appropriations should appropriations bill not be enacted by the start of the fiscal year. We suggest that as part of any reform, new caps be set out for the next decade at levels in line with the recently enacted Omnibus Appropriations Legislation. As long as the current tax cuts are in force, the money not collected in taxes should be made up with bond sales, else all sorts of mischief occur in the area of asset accumulation and inflation. Such accumulations are not economic growth, they are the manufacture of speculative investment bubbles that always lead back to recessions and depressions. There is no such thing as a business cycle, only rich people who are undertaxed who invest in garbage.

Phase Two: Authorization

The second phase of the budgetary process is authorization, which begins after the Joint Budget Resolution is signed, in July of the first session. Most of the authorization process is accomplished before the appropriations process begins. To guarantee this, no appropriations bill is marked up in committee in either house until the authorization bill has secured floor passage in that house, including tax and entitlement adjustments. This occurs by February of the second session. At the start of a new President's term honeymoon authorizations changes are submitted by February, with enactment by September so that they take effect October first.

As part of this process, authorizing committees consider major regulations enacted since the last authorization. Doing so avoids the practice of appropriators playing games with the funding of regulatory agencies, since Congress has the opportunity to work its will during the authorization process. Before continuing on to the appropriations phase, I briefly discuss ways in which regulatory power is exercised in such a way as to not appear illegitimate by the vast majority of the public.

Phase Three: Appropriations

The third phase of the budgetary process is appropriations. The Executive Branch begins preparing its detailed appropriation submissions after passage of the Joint Budget Resolution in July of the previous year. It modifies its targets when Authorization legislation is marked up. The Appropriations submissions clear OMB and go to the Hill by March 15th of the second session. The submissions for each program are between the ceiling and floor listed in the authorization legislation. The total for the agency or department matches the total found in the Joint Budget Resolution. Agency submissions reflect program financial performance. Agency personnel defend the submission.

Appropriations sub-committees do not markup legislation until after the authorization has cleared the full chamber. The full Appropriations Committees reports by June 15. If the total for an appropriations bill exceeds the total specified in the Joint Resolution the bill must clear the Joint Budget Committee before going to the floor. Legislation gets to the President's desk by Labor Day.

If an appropriations bill is not enacted prior to the start of the fiscal period (October 1) the current distribution of spending within current law is maintained, minus programs cancelled in the authorization phase, at the total set in the Joint Budget Resolution. This prevents the government from stopping at the end of the fiscal year. Likewise, if there is no JBR or authorization legislation passed, the Budget Control Act totals, with the same current distribution as current law, are enacted.

This last measure is not meant to be used and it should not be if the Congress operates bipartisanly under effective leadership. If that leadership breaks down, however, the government absolutely must have a backup procedure.

Enactment of this proposal restores discipline to the budget process. Every actor in the process has specific responsibilities and incentives to meet them. Each actor maintains his share in the process, but not more than his share. The Executive Branch is forced to offer realistic proposals. The Legislative Branch meets its deadlines. The Federal Government then stops arguing about the budget and gets on with the business of governing.

Fiscal Reform

The remainder of our comments address the budget itself. As usual, our comments are based on our four-part tax reform plan, which is as follows:

• ·         A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
• ·         Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25% in either 5% or 10% increments.  Heirs would also pay taxes on distributions from estates, but not the assets themselves, with distributions from sales to a qualified ESOP continuing to be exempt.
• ·         Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
• ·         A VAT-like Net Business Receipts Tax (NBRT), essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age sixty.

When these proposals were first submitted to the Fiscal Commission in 2010, the value added tax in bullet one was regionally set, which would have required a constitutional amendment to overturn the requirement of uniform excise tax rates. The actual establishing of a regional caucus would not require constitutional change, so Congress could give it a trial before setting it in stone.

Regionalizing the domestic and military functions of the executive branch under regional vice presidents could be done by statute or even executive order, although an amendment would be required to confine election of the RVP to only the electors of that region. In this regime, either the remaining national caucus or each regional caucus would enact its Joint Budget Resolution, taking into account regional spending and economic conditions, which would be signed or allowed to pass by the President at the recommendation of the RVP. The regional caucus would enact the VAT rate and spending bills, with a balance requirement, automatic enactment of appropriations by the start of the fiscal year and sequesters and VAT rate adjustments if the budget is out of balance. It is automatic enactment that will spur both Congress and Regional Caucuses to act. Timeline discipline only occurs when there are no consequences. Put the consequences in and suddenly deals are made.

Deficit financing through debt limit extensions will be enacted automatically, as part of the Joint Budget Resolution. Of course, if income tax rates on the wealthy are high enough, the problem will be how manage paying down the debt so that it does not upset the reserve requirements of the Federal Reserve system and the currencies of many countries. It is a luxury problem we can handle. The challenge will be how to ignore calls for tax cutting as the debt is being paid down. Keeping the linkage between a high-income-surtax and debt financing should do the trick.

The national debt is possible because of progressive income taxation. The liability for repayment, therefore, is a function of that tax. The Gross Debt (we have to pay back trust funds too) is $19 Trillion. Income Tax revenue is roughly $1.8 Trillion per year. That means that for every dollar you pay in taxes, you owe $10.55 in debt (although this will increase). People who pay nothing owe nothing. People who pay tens of thousands of dollars a year owe hundreds of thousands.

The answer is not making the poor pay more or giving them less benefits, either only slows the economy. Rich people must pay more and do it faster. My child is becoming a social worker, although she was going to be an artist. Don’t look to her to pay off the debt. Your children and grandchildren and those of your donors are the ones on the hook unless their parents step up and pay more. How’s that for incentive?

When Social Security was saved in the early 1980s, payroll taxes were increased to build up a Trust Fund for the retirement of the Baby Boom generation. The building of this allowed the government to use these revenues to finance current operations, allowing the President and his allies in Congress to honor their commitment to preserving the last increment of his signature tax cut.

This trust fund is now coming due, so it is entirely appropriate to rely on increased income tax revenue to redeem them. It would be entirely inappropriate to renege on these promises by further extending the retirement age, cutting promised Medicare benefits or by enacting an across the board increase to the OASI payroll tax as a way to subsidize current spending or tax cuts.

Those who object to entitlement spending likely object most to its redistributive function and would strengthen those reforms that allow wealthier savers to retire with more while the poor have less. We absolutely object to that. It is not what we would call an American action.

The problem with entitlements is not overspending, but too drastic a set of tax cuts on the wealthy. If Social Security or Medicare is suffering, and it is not, then changing how revenue is collected fixes the problem easily. Simply lower the employee contribution to FICA so that rich people get less, decouple the employer and employee contributions with the employer contribution funded to each worker EQUALLY (without regard to income) and through a subtraction VAT or Net Business Receipts Tax with no cap, as per our standard recommendation.

Our tax reform plan alters how we deal with entitlement spending, including Social Security, by shifting payroll and a good bit of income taxation (including pass-throughs) to a subtraction value added tax/net business receipts tax (NBRT), where certain entitlements can be shifted to employers in lieu of paying a portion of the tax, with this encouraging both employment and participation in training programs in order to have access to social services.

These deduction and credits could include everything from the last two years of undergraduate and graduate education to a more robust child tax credit to health care reform that encourages hiring medical staff directly (thus matching the incentive to cut cost to the ability to do so) to retirement savings in lieu of Social Security, although the savings should be in the form of employer voting stock rather than unaccountable index funds run from Wall Street. These reforms can be hammered out next year or in the next Congress, but the right tax to hold them is clearly the NBRT.

This plan gives regions an incentive to cut discretionary spending and transfer entitlement functions to employers, as well as to encourage the wealthy to finally pay their fair share of taxes to virtually eliminate the debt. It gives Congress, nationally and maybe regionally, an incentive to get its work done (until it has no work). After a time, there may be little need for a budget resolution at all, at least on the national level. Frankly, there is a good argument to be made for eliminating it altogether and let the Chairs of the Appropriations Committees set the marks for the subcommittees. This would end the paralysis by analysis we face each year, and that would be a good thing.

Thank you for the opportunity to address the Joint Select Committee.  We are, of course, available for direct testimony or to answer questions by members and staff.