Changing The Budget Rules
Administration's New Rules Would Favor Tax Cuts Over All Other Budget Priorities

PDF of full report (16pp.)

By Richard Kogan

April 18, 2006

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Summary

In the budget it presented to Congress last month, the Bush Administration proposed a series of changes in the rules under which Congress considers and approves the federal budget.[1]  The principal Administration proposals have a common theme: the new rules would allow unlimited tax cuts while imposing tight limits on federal programs.

The leaderships of both the Senate and the House have indicated that they plan to take up legislation later this year to change the budget rules.  Some of the Administration proposals may be considered at that time.

In the first part of this analysis, we discuss four Administration proposals to limit or “cap” the costs of budget programs.

  • Medicare costs would be subject to an artificial cap, based on a formula that is designed to induce cuts in benefits, reductions in provider payments, increases in beneficiary premiums, and/or increases in regressive payroll taxes, but to rule out any increases in progressive income taxes as part of a larger plan to address Medicare’s financing problems.
  • Legislation that would increase the cost of entitlement programs in any of the first five years after its enactment would be prohibited.
  • For major entitlement programs such as Medicare and Social Security, program expansions with long-term costs also would be prohibited, unless paid for with dedicated taxes such as the regressive Medicare payroll tax.
  • Finally, annually appropriated or discretionary programs would be capped at levels that imply substantial reductions in domestic programs.

On the other hand, the Administration proposes no new rules to impede tax cuts of any size, no matter how costly.  Moreover, the Administration proposes a fifth rule, a new accounting gimmick under which the 2001 and 2003 tax cuts, which are temporary, could be extended indefinitely by Congress — at an actual cost of hundreds of billions of dollars per year — with such extensions officially considered to have zero cost.  The extension of these tax cuts could thus be accomplished outside of even the routine budgetary constraints that Congress places on tax cuts in its annual budget plans.

Capping budget programs but allowing unlimited tax cuts has four consequences, all undesirable.

  • Savings achieved by capping budget programs would likely facilitate more tax cuts rather than reduce the deficit
  • Congress would be more likely to provide new or increased benefits by way of special tax deductions, preferences, or other tax loopholes, even when new targeted tax breaks were more costly and less efficient than providing benefits through targeted program increases.
  • Budget policies would favor the well-off rather than the middle class and the poor to a greater extent than they already do.
  • Congress and the President probably would be less, rather than more, likely to enter into a major deficit-reduction deal.

In the second part of this analysis, we examine four additional Administration budget-process proposals.  These proposals would strengthen the President and weaken Congress in various ways:

  • creating fast-track “expedited” rescission powers, sometimes called a line-item veto;
  • requiring the President’s signature on congressional budget plans;
  • establishing biennial budgeting; and
  • enacting an “automatic” continuing appropriations bill to preclude government shut-downs.

In the third and final part of this analysis, we suggest some changes to the budget process to strengthen fiscal responsibility across the entire budget and to improve congressional consideration of budget legislation.

Click here to read the full-text PDF of this report (16pp.)

End Notes:

[1] See Chapter 15 of the FY 2007 Analytical Perspectives, one of the documents making up the Administration’s budget.

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