Budget Process and Reforms

Federal and state governments have tried to change budget rules to control government spending. Budget rules have also been used to impose fiscal discipline. Some of these proposals can erode democratic processes and institutions. And they can eliminate the flexibility that governments need to address changing economic and political circumstances. 

Line-item veto and enhanced rescission power: Presidents and state governors have requested greater control over spending through use of the line-item veto and enhanced rescission power. The line-item veto, or partial veto, allows chief executives to delete a portion of legislation without rejecting the entire bill. Rescission power allows chief executives to request a cancellation of funds that have been appropriated. 

Supporters claim that these changes would reduce the number of special-interest provisions in legislation. They also say it would help control spending. Opponents counter that the savings from these changes would be small. They are concerned that the line-item veto or enhanced rescission authority would give too much power to the executive branch. They also say it could result in arbitrary cuts to important programs. 

Balanced budget amendment: Federal budget deficits have generated some support for a constitutional amendment to require the federal government to balance the budget. Most state governments have already enacted some form of balanced budget requirement. 

A federal balanced budget amendment would be ill-advised. It would endanger the nation’s economic health by limiting the government’s ability to address economic and political changes and invest in our nation’s future. Compared with the states, the federal government needs more flexibility. Economic policy must counteract the effects of economic slowdowns. It must also respond to national emergencies. In addition, such an amendment poses questions of constitutionality. Some previous attempts at creating balanced budget amendments have been found unconstitutional. 

Pay-as-you-go rules: Federal pay-as-you-go (PAYGO) rules require that all new legislation be paid for within a specific timeframe through tax increases or spending reductions. One-sided PAYGO rules require that any new costs be offset by spending reductions only. Increasing revenue is not an option. 

Supermajority requirements: Generally, a simple majority is needed for legislators to pass laws. But some states require a supermajority to raise taxes. The number of votes that constitute a supermajority varies by state. It is not needed to cut taxes or spending. This is problematic because it tilts budget-balancing activities toward spending cuts. These cuts disproportionately hurt lower-income and vulnerable populations while protecting the tax expenditures that disproportionately benefit higher-income people. 

Tax and expenditure limits: Some states and the U.S. Congress have enacted various types of limitations or caps on spending and revenue. This can be problematic. First, caps can result in the use of budget gimmicks to mask actual costs. For example, a program’s estimated cost can appear lower when provisions are phased in over time. Long-term costs can be hidden if a policy clearly intended to be permanent is designated as temporary. 

Second, such limits can lead to reduced funding for programs critical to vulnerable groups. The effect can be especially harmful to people with low incomes. This is particularly true in cases of across-the-board caps or cuts. 

One example of strict tax and expenditure limits at the state level is the Taxpayer Bill of Rights (TABOR). TABORs place rigid constitutional limits on state government revenues and expenditures. They sometimes affect local governments as well. Limits are based on a formula of inflation plus population growth. Yet, this formula does not allow for the fact that the fastest-growing demographic groups are costly to serve. Among them are older adults and people with disabilities. Nor does it take into account states’ needs to deal with the unexpected such as natural disasters, acts of terrorism, or sudden increases in costs imposed by the federal government. 

Independent commissions: Policymakers and others have proposed creating independent bodies to make recommendations for how to close budget gaps outside the regular budget process. Such entities may be useful in educating policymakers and the public and in defining options. Such commissions must be structured in ways that ensure a fair and legitimate process.