SUMMARY

This study addresses four major flaws in the federal budget process hat have contributed to the growing perception that the federal ɔudget is "out of control." For each flaw, a specific reform is suggested, one that, in general, would be consistent with the incentives of the major participants in the federal budget process and would not require a reform of our fundamental political institutions. These four flaws do not cause all of the many problems presented by the federal budget process, but resolution of the larger set of problems probably would require some changes in our political institutions.

1. At the present time, there is no explicit nexus between aggregate federal spending and tax rates. As a consequence, both major functions of fiscal policy-the efficient allocation of the nation's resources between the federal and nonfederal sectors and the stabilization of the national economy at low rates of unemployment and inflation-are undermined. Chapter 1 suggests a new "marginal balanced budget policy" that would establish a dollar-for-dollar relation between marginal federal spending and expected tax revenues around an outlay target approved by Congress. It also outlines several changes in the congressional budget process designed to implement this policy.

2. The annual value of a large amount of resources used by the federal government (roughly $30 billion a year) is not included in the total federal budget or in the budgets of the agencies using these resources. As a result, most of these unbudgeted resources are overused, and the accounting of both the total resource cost of the federal government and the relative resource cost of major federal activities is incomplete. Chapter 2 suggests modifications in the executive budget. process intended to force agencies to recognize the total annual

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cost of their activities and to permit them to change the combination of budgeted and unbudgeted resources.

3. Most federal budget decisions are made without effective consideration of the future costs of present decisions. As a consequence, in some instances decisions are made to commit the federal government to large future spending and to forego opportunities to reduce future spending that would have been made differently with appropriate accounting and balancing of present and future costs. Chapter 3 suggests several changes in the executive budget process that would improve the incentives of both agencies and the budget director to balance present and future costs more efficiently.

4. The executive budget process operates without effective prior policy guidance. This results in inadequate staff work on most major issues, redundant staff work on other issues, and a general failure to consider policy and budget issues beyond the current budget cycle. Chapter 4 outlines a policy planning and review process within the executive office designed to improve policy guidance both for the agencies and in the subsequent executive budget review.

Any decision process, including the federal budget process, should be evaluated by the quality of its decisions, not by the apparent simplicity and rationality of the process. Those who are satisfied with the outcomes of the present federal budget process have no reason to be concerned about that process, however complex and irrational it may appear to be. Those who are concerned about the outcomes, however, should focus their attention on improving the process rather than on merely decrying the outcomes. For those who share this concern, this study suggests the general characteristics of selected reforms that deserve serious discussion and, possibly, the test of experience.

INTRODUCTION

The Basis for Concern

A consensus is developing that the federal budget is "out of control." This concern is expressed by the public and by officials in both the administration and Congress.' It is manifest in increasing pressures for tax reform, as well as for structural reform of the congressional budget process. The objective basis for this concern is less clear, but probably includes at least the following conditions:

• Although Nixon's first budget message proposed a balanced federal budget, the four budgets from fiscal 1971 through 1974 indicate a cumulative deficit of around $100 billion.

• Since 1965, federal spending has increased at a substantially faster rate than the increase in national output.

• Around two-thirds of present federal spending is "uncontrollable" without a change of legislation.

• For the first time in American history, total federal spending did not decline with a major reduction in war spending.

• Also, for the first time, there is no prospect in the five-year budget planning horizon for a balanced federal budget, even at full

1 In October 1972, Congress considered and finally rejected a proposal for a $250 billion outlay ceiling for fiscal 1973 involving a temporary grant of discretionary authority to the President to reduce any federal program to maintain. the ceiling. Although the Senate rejected this measure, the fact that it was proposed by the Ways and Means Committee and approved by the House suggests a general concern that the present budget processes are considered inadequate to constrain total federal spending.

tions. See Congress Makes a Law (New York: Columbia University Press, 1950), chap. x.

4. "Control" may not be the best term because of its use in political science literature in so many different yet related contexts. In his Bureaucracy in a Democracy (New York: Harper and Bros., 1950), Charles S. Hyneman has discussed variants in the use of the terms "direction and control" (chap. iii). He, himself, employs "direction and control" in the broad sense of embracing "appointment and removal and every other influence to which administrative officials and employees actually respond in any degree." (p. 39). Because he uses the terms in such a broad sense, the questions he lists as being crucial to the direction and control of administrative officials and employees (p. 43) all involve both Congress and the Executive with varying degrees of responsibility. The most pertinent question we are concerned with here involves "setting limits to the scope and intensity of the bureaucracy's effort to carry out different government activities." We shall use "congressional control" of expenditures to mean not only "setting limits to the scope and intensity" of governmental activities, but also doing so with knowledge of the consequences of these limits.

5. Ernest S. Griffith, The Impasse of Democracy (New York: HarrisonHilton Books, 1939), p. 182.

6. James M. Burns, Congress on Trial (New York: Harper and Bros., 1949), p. 115.

7. Edward C. Banfield, "Congress and the Budget: A Planner's Criticism," American Political Science Review, XLIII (December, 1949), 1217-18. Perhaps "nonrational" would be a better word than "irrational" since the latter implies a nonuse of reason. Cf. Talcott Parsons, Structure of Social Action (2nd ed.; Glencoe, Illinois: Free Press, 1949), p. 66.

8. In short, what may be nonrational for the nation may be rational in terms of the interests served by the bureau. See Paul H. Douglas, Economy in the National Government (Chicago: University of Chicago Press, 1952), p. 44.

9. Vincent J. Browne, The Control of the Public Budget (Washington: Public Affairs Press, 1949), p. 12.

10. Ibid., pp. 31-32.

11. Alexander Hamilton, "The Federalist. No. 58" (From the New York Packet, February 22, 1788), The Federalist (Washington: National Home Library Foundation, 1937), p. 380.

12. Henry James Ford, "Budget Making and the Work of Government," The Annals of the American Academy of Political and Social Science, LXII (November, 1915), 4-5.

13. Browne, op. cit., pp. 36-37.

14. Ibid., p. 96.

15. Wilmerding, op. cit., pp. 4-5.

16. See Ernest S. Griffith, Congress: Its Contemporary Role (New York: New York University Press, 1952), p. 54.

17. W. F. Willoughby, Principles of Legislative Organization and Administration (Washington: The Brookings Institution, 1932), pp. 503-04.

18. S. Rep. No. 1011, 79th Congress, 2d Sess., 29-30 (7946).

19. Commission on Organization of the Executive Branch, Budgeting and

Accounting, pp. 8-11.

20. Wilmerding, op. cit.

21. As Edward S. Corwin has pointed out, wars bring expansion of executive

powers, and there has been an historical tendency for Congress to strengthen itself at the close of these wars. See Edward S. Corwin, The President, Office and Powers; History and Analysis of Practice and Opinion (4th ed., New York: New York University Press, 1957). See also Roland Young, Congressional Politics in the Second World War (New York: Columbia University Press, 1956).

22. Galloway, Legislative Process in Congress, p. 141. See also, for example, Roland Young, This Is Congress (New York: Alfred A. Knopf, 1943), p. 221; Paul H. Appleby, Big Democracy (New York: Alfred A. Knopf, 1945), p. 165; and MacMahon, op. cit., p. 163.

23. Harris, op. cit., p. 250.

24. MacMahon, op. cit., p. 161.

25. Banfield, op. cit., pp. 1217-18.

26. Lord Campion, et al., Parliament: A Survey (London: Allen and Unwin, 1952, p. 161.

27. Burns, op. cit., pp. 116-17. See also Luther Gulick, "Politics, Administration, and the New Deal," The Annals of the American Academy of Political and Social Science, CLXIX (September, 1933), 61. See also J. M. Gaus and L. O. Walcott, Public Administration and the United States Department of Agriculture (Chicago: Public Administration Service, 1940); M. E. Dimock, Modern Politics and Administration (New York: American Book Co., 1937); and Dwight Waldo, The Administrative State (New York: The Ronald Press, 1948), all cited by Burns.

28. Huzar, op. cit., pp. 398-99.

29. Ibid., pp. 390-91.

30. Griffith, Congress, pp. 111, 112.

Chapter 10

1. See S. Rep. No. 842, 82d Cong., 1st Sess. (1951).

2. Cong. Rec., 81st Cong., 1st Sess., XCV (1949), Part 5, 6903.

3. George B. Galloway, "Reform of the Federal Budget," Pubshe Ajjuvrs Bulletin, No. 80 (Washington, D.C.: Legislative Reference Service, Library of Congress, 1950), pp. 96-97.

4. Cong. Rec., 81st Cong., 2d Sess., XCV (1950), Part 1, 233.

5. Galloway, “Next Steps in Congressional Reform," pp. 19-20.

6. S. Rep. No. 842, p. 8.

7. Ibid., p. 9.

8. Ibid., pp. 7–15.

9. Vernon L. Wilkinson, "Observations on the Item Veto," Legislative Reference Service, Library of Congress, August 13, 1936. (Mimeographed)

10. Ibid.

11. II. R. Doc. No. 1, 86th Cong., 1st Sess. (January 9, 1959).

12. As quoted in Wilkinson, op. cit., p. 6.

13. Edward C. Mason, "The Veto Power," ed., A. B. Hart, Harvard Histori