Public Budgeting With the Talk

Public Budgeting

With the talk of the looming fiscal cliff, it is important to understand what this is for the federal budget, how it works and what the legal antecedents of such an action are. The fiscal cliff is a sequester that will make dramatic cuts in government spending and tax increases (Sahadi, 2012). The sequester derives from the Budget Control Act of 2011, which itself has roots in two previous pieces of legislation governing federal budgets. These predecessor acts, the 1985 Balanced Budget and Emergency Deficit Control Act and the Budget Enforcement Act, where the first attempts by Congress to reign in government spending by tackling the issues of discretionary spending and entitlement reform. This paper will analyze those two acts and discuss whether they constitute political solutions or not.

1985 Balanced Budget and Emergency Deficit Control Act

This Reagan-era act is also known as Gramm-Rudman-Hollings (GRH). This act was passed to create a series of deficit targets with an eye to balancing the federal budget by 1991. If the cuts were not met, sequestration would occur, resulting in across-the-board spending cuts (Bancroft Library, 2011). The act allowed the debt ceiling to be raised by creating a five-year budget reduction plan. The act exempted social entitlements like Social Security and Medicare, and instead focused on defense and discretionary spending. The Act gathered bipartisan support, was rule unconstitutional by the Supreme Court and then passed again in 1987. The Act was praised by free market think tank the Cato Institute as a "potent weapon for spending restraint" (Mitchell, 1989).

The Budget Enforcement Act of 1990, which was enacted in the middle of the deficit reduction schedule of Gramm-Rudman-Hollings, was another step to budget reform. This act was designed to enforce compliance with negotiated deficit reduction actions. This stands in contrast to Gramm-Rudman-Hollings, which was designed to force future policy actions to meet fixed, arbitrary targets (Reischauer, 1993). The Budget Enforcement Act serves as an enforcement mechanism, but does not set targets or specific policy prescriptions.

These two acts, especially when put together, provide a framework for budget negotiations. They do not constitute the negotiations in and of themselves. Rather, they set the targets and create enforcement mechanisms respectively. Both acts, therefore, contribute to the legal environment that surrounds the mission to reign in deficit spending. What they do not do is actually offer solutions, other than the sequester of GRH, which was seen as something to be avoided at all costs, much like the way discussion about the fiscal cliff created by the Budget Control Act is seen today.

In that sense, solutions like GRH and the BEA are not real solutions. The problems with the budget are said to arise from politicians who are unable to make difficult decisions. The problem with these laws is that they do not explicitly force politicians to make those decision. GRH provides targets for the politicians to work towards, creating motivation, and the BEA provides a framework for penalizing inaction, but neither truly forces politicians to make the tough choices.

Real political solutions involve actually making those tough choices. This is not to discount the value of having these frameworks to guide the negotiations and hold Congress to the outcomes of those negotiations, but the negotiations themselves are the critical component to the budget problem. For example, if the sequester is initiated, Congress can follow it up with laws to build back some of those spending cuts, and it would likely do so quickly. There are no provisions in the BEA, for example, that call for Congressmen to be thrown from office if they fail to meet their negotiated actions. The incentives, therefore, while not worthless are not a solution unto themselves. These acts improve the political climate for making tough decisions, but since they do not make the tough decisions themselves, cannot truly be seen as a political solution to a political problem.