- The Washington Times - Saturday, August 5, 2006

The budget process is clearly dysfunctional. Budget resolutions are passed late and have diminishing relevance. Appropriations burgeon beyond reason, partly because they are larded with earmarks. Entitlements grow, raise unrealistic expectations on the part of beneficiaries, and place impossible demands on future generations — leading to inevitable intergenerational conflict.

In the name of “tax reform” the tax code grows longer and Internal Revenue Service interpretations expand exponentially. Few members of Congress have any idea of the depth and breadth of special-interest provisions in the budget legislation on which they vote. Some who do are under investigation for influence-peddling; some are in the slammer.

The solution is not better people, but better institutional arrangements. If you design a system biased toward growing government, making the tax code more complicated and approving benefits with little care for how they will be financed, that’s what you will get — no matter how angelic are those in public offices.

Public choice researchers have found the collective decisionmaking body known as the U.S. Congress tends to grow the federal government beyond the size the American people think appropriate, to channel resources to projects that are not the highest priorities, and to tax Americans more than is acceptable.

The institutional arrangements under which members of Congress operate is far more at fault than the philosophical, ideological or political preferences of those elected. This point cannot be overemphasized: The system is at fault, and only by reforming the system will the problem be solved.

Let me illustrate with two examples. During the 1960s and 1970s, a debate raged among economists and political scientists about the causes of the miserable performance of the federal government’s economic regulatory agencies such as the Interstate Commerce Commission, the Federal Maritime Commission and the Civil Aeronautics Board. On one side were those espousing the “good man hypothesis.” Their notion was if only presidents would appoint good men and women and the Senate confirm them, these agencies would turn around. On the other side were those who said the basic regulatory institutions were at fault — indeed, certain agencies did not need to exist.

After endless arguments and trying out the good man theory with a notable lack of success, Congress and the president finally ended the debate by abolishing certain agencies. To all who have followed these matters, it is clear what was wrong was the institutions, not the people appointed to run them. For these people — including the really good ones — were destined to respond to the incentives incorporated in their positions and to follow what the laws required. If you design and institute a bad institutional arrangement, you get bad results.

Closer to home: In 1994, voters elected a Republican House and a Republican Senate. Many who were concerned about the federal government overreaching felt surely the size of government would be checked, priorities would be realigned and the tax code would become less burdensome and more efficient. This hope was stimulated by the election of a Republican president in 2000.

Now it must be noted these party reversals wrought important changes in the federal government’s behavior. At first, the growth of government was curtailed, marginal tax rates were reduced and the deficit was eliminated. But over time, there has been significant recidivism. Despite a Republican majority and a conservative cast of decisionmakers, federal spending in the last half-decade has exploded. So has the deficit. And the tax code is not simpler; it is more complicated and even more wasteful.

In short, Republicans act like the caricatures of the Democrats they attacked in their campaigns.

Is there no difference between Democrats and Republicans on budgeting? Between responsible and irresponsible members of Congress? Between ideologues and pragmatists? The data would suggest not. As long as institutional arrangements are biased toward larger government, you will get larger government. As long as institutional arrangements encourage members of Congress to make the tax code more complicated and lard it with exemptions and other special-interest provisions, you will get a more complicated, inefficient and inequitable tax code. As long as institutional arrangements encourage members to vote for benefits today and “forget the costs, that’s tomorrow’s problem,” entitlement spending will burgeon.

As long as you have institutional arrangements that give incumbents a leg up on challengers when they put pork in appropriations, you will get more earmarks. And as long as you have institutional arrangements that give individual members extraordinary power to determine the allocation of spending largess, you will not only get more spending but some who will succumb to temptation.

Oratory and the election cycle will not solve the problem. To do so, the institutional arrangements must be changed.

We’ve had important budget reforms, but they have been undermined. The 1974 budget act, which established the budget resolution whereby Congress as a whole must approve both the overall levels of appropriations, entitlements and tax revenue and the major dimensions of these elements, was an important advance. So was the Gramm-Rudman-Hollings Act, which cut spending automatically unless certain reduced deficit goals were met.

The problem is that the budget resolution is honored only in the breach; on Gramm-Rudman-Hollings, Congress got cold feet and revised its targets.

To restore the integrity of the budget resolution, Congress and the president need to make it a joint rather than a concurrent resolution. That would mean the president as well as Congress would sign on to these overall limits.

And the revision should include penalties for failure to conclude this instrument on time — such as withholding salaries of members of Congress and senior members of the administration until this is done. And why not promulgate a revised Gramm-Rudman-Hollings deficit-reduction schedule, putting at risk spending on nonessential programs?

Give the president a line-item veto. The Supreme Court has held the version enacted during President Clinton’s tenure is unconstitutional. But Congress could easily make a line-item veto device constitutional simply by enrolling each and every item appropriated as a separate bill. Moreover, the president himself could “line-item veto” the vast majority of earmarks — those specified in the report language accompanying the appropriations bills and not in the legislation itself.

Since such earmarks do not meet the presentment clause of the Constitution, they are not law. Under the 1974 Act, the president would have to spend the money on the account for which it was appropriated, but not on the earmarked projects. Congress could also give the president the “enhanced rescission” he has sought, under the name “legislative line item veto.” Rescissions — presidential proposals to “de-appropriate” spending — are ignored. At least give them an up-or-down vote.

Congress and the president should sunset entitlement programs. That would at least force a periodic thoroughgoing review of them. Both branches of government should also insist on fully funding sensitive programs — and list those that would not be eligible for “emergency appropriations.”

Each year, appropriators play the game of underfunding certain sensitive programs in order to fund those of lower priority and then count on an “emergency supplemental” to make the programs whole. “Emergency” appropriations should be precisely that: funding for unforeseeable emergencies.

Congress and the president should eliminate “budget speak” and communicate straightforwardly with the American people. Only in Washington can a spending increase of less than what was anticipated or desired be characterized as a “cut.” Most Americans think only if you spend less this year than last has there been a cut. Because of how it is abused, I would suggest doing away with the concept of “current services.”

Congress should end the practice of converting appropriations into entitlements. For appropriators, that is a very effective way to geet around limits imposed by the budget resolution, but it amounts to a shell game. That’s one reason appropriated spending is a shrinking part of total spending.

Congress and the president need to establish a regulatory budget. Just as in the case of the financial budget, where the president outlines his or her spending priorities and Congress responds, the president should be required to itemize, by agency and program, the regulatory costs to be imposed on the economy in the coming fiscal year. Congress and the president should then “appropriate” regulatory costs, and the agencies should be required to live within these limits.

The biases in the budget process largely result from members’ interests in getting re-elected. Earmarks and narrow tax concessions help with fund-raising and with drawing attention to members’ effectiveness in representing their districts or states. Special-interest appropriations or tax favors enhance members’ support among concentrated constituencies, while those who ultimately pay for such largess remain ignorant of their new liabilities.

The problems with the federal budget are not failure of character on the part of any or all member(s) of Congress, but rather a failure of budget institutions. And only by changing the institutional arrangements will Congress and the president eliminate the craziness over the budget.

So, fellow citizens, when you hear candidates speak, pay little attention to what they say about getting spending, taxing and the deficit under control, and more about what they say they will do to reform the budget process.

James C. Miller III is a senior fellow (by courtesy) of the Hoover Institution at Stanford University and a senior adviser to Blackwell Sanders Peper Martin.

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