Why Budgets Matter

When the first edition of Why Budgets Matter was published in 2003, the federal budget had fallen back into deficit. At the time, fairly modest changes in taxes and spending would have ensured that deficits and debt would remain at tolerable levels. Instead, the disconnect between taxes and spending that had plagued the United States since the 1960s grew even greater. A near-catastrophic economic collapse beginning in December 2007 then magnified the fiscal consequences of irresponsible policy choices. This new edition examines how and why the balanced-budget equilibrium of the 1990s was destabilized in the 2000s. It also places this latest partisan battle over the size of government in historical perspective by exploring its connection to earlier budget policy eras.

“Ippolito’s analysis of the budget process is an important contribution to the literature on the American budget process. It is unquestionably one of the best books on the subject, similar in scope to Aaron Wildavsky’s classic The New Politics of the Budgetary Process (1988). Overall, Why Budgets Matter: Budget Policy and American Politics is an excellent historical account of the federal budget process, and it is intended for a general adult reading audience.”—Patrick Fisher, Perspectives on Political Science, on the first edition

“This book is without doubt the best analysis yet written of federal budgeting from the late eighteenth century to the present. . . . The subject matter of this splendid book should therefore be of immense interest to students of political history and public policy.”—Iwan Morgan, Journal of American History, on the first edition

Dennis S. Ippolito is Eugene McElvaney Professor of Political Science and Chairman of the Department of Political Science at Southern Methodist University.

Contents

List of Figures and Tables

Preface

Chapter One Perspectives on Budget Policy

Chapter Two The "Small Government" Era (1789–1860)

Chapter Three Budgeting for Government Growth (1860–1915)

Chapter Four The Transition to Modern Government (1915–1940)

Chapter Five War and Defense Budgets (1940–1970)

Chapter Six Social Welfare Budgets and Deficits (1970–1990)

Chapter Seven Reconciliation and Balanced Budgets (1990-2001)

Chapter Eight Destabilizing Budget Policy (2001– )

Selected Bibliography

Index

Chapter One

Perspectives on Budget Policy

For much of the past several decades, conflicts over federal budget policy have monopolized the domestic political agenda in the United States. Partisan and ideological divisions over spending and taxation, often amplified by divided control of government, have made it difficult to stabilize the budget for extended periods. As a result, chronic deficits and mounting debt have defined nearly all of our recent fiscal history and will likely dominate budget policy debates for the foreseeable future.

After World War II, publicly-held debt totaled more than $240 billion, or nearly 110 percent of gross domestic product (GDP). By 1970, the public debt had grown only modestly, to just over $280 billion, and its GDP share had consequently dropped below 30 percent. Deficit and debt levels, however, began to accelerate during the 1970s and then soared during the 1980s. By 1990, the public debt was more than $2.4 trillion, debt-GDP had risen above 40 percent, and projected debt levels were even higher.

In response, and despite deep partisan divisions, Congress passed major deficit reduction bills in 1990 and 1993. The nearly $1 trillion in multiyear spending cuts and tax increases from these measures soon transformed the budget outlook. In 1998, the budget was balanced for the first time since 1969, and surpluses continued to grow over the next several years. A January 2001 report by the Congressional Budget Office (CBO) projected surpluses of $5.6 trillion over the next decade, raising hopes for not just reducing but even eliminating the nation’s long-standing public debt.

These hopes quickly evaporated, as tax cuts, wartime defense spending, and domestic program expansions produced deficits of more than $2.1 trillion from 2002 to 2008. When the Great Recession then took hold, the 2009 deficit rose to $1.4 trillion, and annual deficits remained above $1 trillion through 2012. Publicly-held debt at the end of 2012 was $11.3 trillion, with a debt-GDP ratio of more than 70 percent, the highest level since 1950.

There are widespread concerns that accelerating entitlement and interest costs will make it more difficult to control future deficits and that rising debt-GDP levels will reduce long-term economic growth. Political leaders in both parties have echoed these concerns and pledged to cut projected deficits and stabilize debt levels. They remain divided, however, over the tax increases and spending cuts that would insure a sustainable path for future budgets, and recent Congresses have struggled to accomplish even routine tasks, such as passing appropriations bills and raising the debt limit.

This partisan stalemate over budget policy is clearly tied to electoral strategies, but at stake as well are competing beliefs about the appropriate size and role of the federal government. Today’s parties may be more polarized than in the past, but the fiscal issues that separate them are rooted in the budget policy debates of the 1970s and 1980s. When there is widespread disagreement about taxes and spending, as there has been for quite some time, it is exceedingly hard to stabilize budgets.

It is also helpful to place these contemporary fiscal struggles in historical perspective. Protracted battles over the powers to tax, spend, and borrow have been part of American political development for more than two centuries. The Constitution itself set the stage for these battles, with its provisions for an unrestricted federal “power of the purse.” In defending this expansive fiscal authority, Alexander Hamilton declared that “Money is, with propriety, considered as the vital principle of the body politic; as that which sustains its life and motion and enables it to perform its most essential functions.” Shortly thereafter, Hamilton became the nation’s first Secretary of the Treasury, and his ambitious fiscal plans soon galvanized an opposition political movement based on low taxes, balanced budgets, and limited government.

From the Federalist-Jeffersonian Republican party clashes of Hamilton’s day to the present, the eras, or stages, of budget policy change in the United States have been shaped by these themes. Of course, fiscal norms, particularly regarding peacetime deficits and debt, have changed a great deal over time, as has the composition of federal spending. During the nineteenth and early twentieth centuries, federal spending was limited to traditional public goods, such as internal improvements, government services, and national defense. Since the New Deal and World War II, the budget has had to accommodate Cold War defense requirements and, more recently, expansive social welfare programs. On the revenue side, the transition from the limited indirect taxes of the nineteenth century to the comprehensive income taxation of the post–World War II period has been equally far-reaching. Finally, as the president and Congress have competed over spending and tax policy, the institutional parameters of the budget process have changed.

Nevertheless, the history of federal budget policy can be divided into distinctive eras. Chronicling the changes in the size and role of the federal government from one era to the next comprises the approach of this book. Within each era, budget policy is examined in terms of major spending and tax issues, the institutional arrangements of the budget process, and the effectiveness of budget control. Comparing these eras helps to illuminate the policy and political bases of government growth and provides insights into how and why fiscal problems develop and the means through which legislators and presidents attempt to resolve them.

The Decline of the Balanced-Budget Rule

A good starting point in understanding budget policy and budget control is the balanced-budget “rule.” The belief that the federal government should balance its budget has been a powerful force in American politics. Webber and Wildavsky, who identify a number of important differences between American and European budgeting during the nineteenth century, find the clearest example of “American exceptionalism” in a balanced-budget belief that was “almost a religion.” Against this backdrop, our modern-day difficulties with deficits and debt might suggest a serious decline in fiscal responsibility, but the reality is more complex.

Deficits and debt are not modern inventions. The United States began with a consolidated Revolutionary War debt of nearly $80 million, which amounted to more than 40 percent of GDP according to CBO historical estimates. During the Civil War and World War I, debt-GDP reached comparable levels, and periodic economic recessions also led to temporary, albeit much smaller, debt increases during the nineteenth and early twentieth centuries. The balanced-budget rule, then, has always accommodated emergency deficits (notably war) and short-term imbalances caused by economic downturns. In addition, the rule was used for different political purposes during our early history.

Before the Civil War, for example, the balanced-budget rule was used by Jeffersonians and Jacksonians—by the 1830s, Thomas Jefferson's Republican party had become Andrew Jackson's Democratic party—to limit the federal government's role in domestic politics. State governments, by comparison, borrowed freely and accumulated much larger debts than the federal government. Then, after the Civil War, the balanced-budget rule accommodated a different set of political concerns. The Republican majority that dominated national politics during this period was committed to high protective tariffs. Armed with the abundant revenues from these tariffs, Republicans initiated expensive spending programs. Thus, during this second period, the balanced-budget rule was employed to expand rather than limit government.

Modern Deficits: Causes

Since the New Deal, deficits have certainly been more common than they were earlier. During the Great Depression, federal spending rose sharply, the budget was in deficit each year, and the relative size of deficits was approximately 3 percent of GDP (Table 1.1). The deficits that helped finance World War II were enormous, averaging nearly 25 percent of GDP from 1943 to 1945 and raising the public debt to the highest levels ever recorded. Despite their exceptional size, the deficits of the 1930s and early 1940s were, like most prior deficits, driven by a weak economy or by war. Then, after World War II and through the 1950s, the commitment to balanced budgets resurfaced. The Truman administration achieved budget surpluses from 1947 to 1949, and the Eisenhower administration balanced three of its peacetime budgets after the Korean War.

<comp: insert table 1.1 about here>

The transition to large and chronic deficits began during the 1960s, as economic stimulus policies and nondefense spending growth undermined the balanced-budget rule. In 1963, the Kennedy administration called for large tax cuts and temporary deficits to boost economic growth. Its rationale was that fiscal stimulus, in the form of deliberate deficits, would revitalize a sluggish economy. Future budgets could then be brought back into balance at higher levels of growth and employment. When growth surged and deficits fell following the administration’s tax cuts, this more aggressive fiscal policy approach was legitimized, at least for a time.

A second element of the 1960s transition was the reshaping of spending policy during the Johnson presidency. During the Vietnam War, the Johnson administration pursued an ambitious domestic policy agenda, and the result was a sharp break with previous wartime spending patterns. During World War II, defense spending had absorbed as much as 90 percent of the budget, while the defense budget share for the Korean War reached 70 percent. At the beginning of the Vietnam War, defense spending was more than 45 percent of federal outlays. The wartime peak in the late 1960s was about the same, because domestic spending had risen along with defense. By the time the Vietnam War officially ended in 1973, the defense budget share had dropped to just over 30 percent. Defense budgets declined even further through the end of the decade, yet total spending continued to grow in response to domestic program commitments. Between 1965 and 1980, the defense-GDP ratio dropped by one-third, from 7.4 percent to 4.9 percent, but total outlays rose from 17.2 percent of GDP to 21.7 percent, the highest level since World War II. With revenue levels lagging well behind, deficits grew rapidly during the 1970s and even more rapidly during the 1980s. Under Ronald Reagan, annual deficits averaged nearly 4 percent of GDP.

Moreover, the deficits that took hold during this period were “structural”—even if the economy had reached optimum levels of growth and employment, the spending and tax laws in place would still have yielded deficits. Structural deficits for the 1980s were generally smaller than actual deficits, but the structural deficit “policy gap” between spending and revenues was still quite large (Table 1.2). Efforts to reduce these structural deficits were stymied by differences between the Reagan administration and Congress over spending and tax policy. Although both sides ostensibly supported the balanced-budget rule, they could not agree on the level of federal spending at which the budget should be balanced.

<comp: insert table 1.2 about here>

The Spending Problem. This impasse over budget policy that emerged during the 1970s and deepened under Reagan was directly related to the changes that had occurred in the composition of spending. The shift in the spending side of the budget began with the social welfare initiatives of the Johnson presidency and accelerated with their expansion during the 1970s. From the end of World War II through the early 1960s, defense and nondefense discretionary spending—that is, spending determined by the annual appropriations process—accounted for about two-thirds of the budget. The remainder consisted of mandatory spending for social welfare programs and interest payments on the federal debt. By the 1980s, the budget shares for discretionary and mandatory spending had been reversed (Table 1.3).

<comp: insert table 1.3 about here>

Retirement and healthcare entitlements accounted for much of this change. In 1960, Social Security outlays were less than 2.5 percent of GDP. Two decades later, Social Security along with the Medicare and Medicaid programs enacted in 1965 had risen to 6 percent of GDP, and other social welfare programs continued to grow over this period as well. During the 1970s, the shift in spending priorities from defense to domestic programs was especially abrupt. By 1980, the entitlement spending-GDP share was roughly double that for defense and on par with the defense spending peaks for the early Cold War period. In addition, even the nondefense discretionary spending-GDP share eclipsed defense between 1970 and 1980, erasing a defense priority that had been in place for decades.

Cold War defense budgets had been supported by a bipartisan strategic consensus, but the budget policy changes of the 1970s were orchestrated by heavily Democratic Congresses. As a result, partisan divisions over spending policy—both the level and composition of the spending side of the budget—steadily widened as the “welfare shift” took hold. The Reagan administration was able to reverse the defense decline of the 1970s but never came close to restoring pre–Great Society spending priorities. Continued high levels of entitlement spending combined with the defense budget increases of the Reagan years raised total spending-GDP to its highest levels since World War II.

The Revenue Problem. In 1944 and 1945, wartime tax increases raised revenue-GDP above 20 percent, roughly three times higher than the prewar levels of the late 1930s. After the war, revenue levels fell below 15 percent of GDP in the late 1940s before rebounding during the Korean War and remaining fairly stable thereafter. As shown in Table 1.4, revenue-GDP levels in the 1980s were actually a bit higher than those of the preceding three decades despite the Reagan tax cuts. Since spending levels, however, had grown much higher, the revenue-spending gap had become much larger.

<comp: insert table 1.4 about here>

In 1950, about one-half of total revenues was generated by direct taxes on individuals—individual income taxes and social insurance taxes (primarily payroll taxes for Social Security). Three decades later, these direct taxes on individuals accounted for nearly 80 percent of revenues. As a consequence, raising revenue levels to control deficits would have meant even heavier tax burdens on individuals, particularly individual income taxes.

Tax policy in the 1980s, however, moved in the opposite direction. The Reagan administration’s 1981 tax cut included substantially lower tax rates on individual income as well as corporate tax cuts. When deficits quickly mounted, Reagan agreed to a series of corporate and payroll tax increases but refused to raise individual rates. Then, in 1986, the Tax Reform Act cut individual rates still further. Thus, the net tax reductions enacted under Reagan remained very large.

For Reagan and congressional Republicans, low income tax rates were seen as indispensable for economic growth. At the same time, Reagan insisted that budgets could be balanced at these reduced revenue levels by cutting domestic spending, including entitlements. Even when it became clear that domestic cuts of this magnitude were not possible, individual income tax increases remained off limits. The high revenue levels needed to fund Cold War defense budgets had been supported by both parties. The even higher revenue levels needed to support the social welfare state were no doubt problematic even for some Democrats but completely unacceptable to Reagan and his Republican supporters in Congress. The inevitable result of domestic spending commitments that Democrats refused to retrench and income tax policies that Republicans were equally determined to preserve was a deficit record that both parties denounced.

Modern Deficits: Temporary Solutions

The size and growth of structural deficits during the 1980s led some observers, including leading scholars, to conclude that the deficit problem was intractable. A number of studies argued that the defining features of contemporary American politics—divided party control, congressional decentralization, ubiquitous and powerful interest groups—and the constitutional separation of powers between the president and Congress posed formidable, perhaps insuperable, barriers to effective fiscal control. A 1996 study concluded that institutional weaknesses and expansive policy commitments had undermined the federal government’s ability “to pursue coherent and rational [fiscal] objectives,” resulting in “a rising trend in deficit spending that shows no signs of abating.”

Even more sweeping indictments questioned whether modern budgets should “be left adrift in the sea of democratic politics.” For some critics, the answer to this political dilemma was a constitutional amendment that would prohibit deficits except during wars and recessions. A constitutional bar to routine deficit financing, it was claimed, would force the public and its representatives “to take account of the costs of government as well as the benefits, and to do so simultaneously.” While balanced-budget amendments had been introduced in Congress for decades, the fiscal imbalances of the late 1980s and early 1990s strengthened the case for constitutional change. In 1995, when Republicans gained control of the House and Senate, a constitutional balanced-budget amendment was a top legislative priority, and Congress failed by the narrowest of margins to send the amendment to the states for ratification.

The push for a constitutional remedy soon lost its urgency, however, as policy changes during the early 1990s moved the budget toward balance more quickly and decisively than anyone had expected. In 1990, President George H. W. Bush had broken the long-standing partisan deadlock over deficit reduction by signing a multiyear package of tax increases and defense cutbacks. Unlike Reagan, Bush agreed to raise taxes on individuals in order to boost revenue levels, and the end of the Cold War allowed Bush to make important concessions on defense as well. Then, in 1993, the Clinton administration and Congress enacted another five-year deficit-reduction package of tax increases and spending cuts.

Both the Bush and Clinton budget agreements contained tight limits on discretionary spending and complementary deficit-reduction controls on entitlements and revenues. Policy changes, multiyear enforcement provisions, and an unexpectedly strong economy moved the budget into surplus in 1998. Two years later, the surplus exceeded $235 billion. As shown in Table 1.5, the structural deficit problem was solved by two basic policy adjustments. First, revenue levels were raised substantially between 1990 and 2000, with more than 80 percent of this revenue growth supplied by individual income taxes. Second, discretionary spending fell by 2.4 percent of GDP, with more than 90 percent of this reduction in defense. Defense cuts, the elimination of deposit insurance outlays that had funded savings and loans insolvencies in the early 1990s, and interest savings on debt service combined to lower outlay-GDP ratios to the lowest level in more than three decades.

<comp: insert table 1.5 about here>

Nevertheless, these budget agreements were not broad bipartisan compromises, particularly when it came to revenues. The 1990 bill was bipartisan only insofar as a Republican president signed it. A majority of Republicans in the House and Senate opposed the measure, and congressional Republicans unanimously voted against the 1993 bill. Two years later, the Republican-controlled Congress tried to repeal the 1993 tax increases and to balance the budget instead through massive spending cuts, including entitlements. Bill Clinton vetoed this initiative, and congressional Republicans never came close to enacting a Republican balanced-budget program for the remainder of his presidency.

When George W. Bush took office, Republicans were able to pass the tax-cut part of their program but never seriously attacked domestic spending. Not surprisingly, the deficit problem returned, and by 2008 public debt-GDP was at the same level it had reached under Reagan. With the even more serious deficit and debt dynamics stemming from the Great Recession, comprehensive deficit reduction is once again a priority, but divided party control of government since 2012 has yielded only piecemeal and inadequate changes in budget policy.

Cross-National Policy Comparisons

An additional perspective on budget policy and budget control in the United States is provided by past and future fiscal trends in other democracies. During the past century, the relative size of government has increased in all of the industrialized democracies, and, since the 1960s, the composition of their spending budgets has shifted toward social welfare entitlements. The growing importance of social welfare spending has led to similar deficit problems.

A critique of U.S. fiscal policy during the 1980s attributed the explosive growth of deficits to “intellectual error of the first magnitude . . . [or] deliberate moral irresponsibility on a truly astonishing scale.” These U.S. deficits, however, were not isolated events. Other industrialized nations were encountering deficit-control problems of comparable severity and for similar reasons: “The fiscal deficits of the 1980s were rooted in decisions made in the 1960s and 1970s to create and enlarge public programs. Governments . . . increased spending under the presumption that the high economic growth rates of the 1950s and 1960s would continue. By the time economic growth rates slowed in the mid-1970s, many of these programs were entrenched.” When deficits first appeared, it was widely assumed that the imbalances were temporary and would not require major fiscal adjustments. By the time governments recognized that budgetary problems were more severe, they “found themselves overcommitted and facing even larger deficits.”

Structural deficits were therefore a common problem in Western Europe and Japan, as well as in the United States during the 1980s and early 1990s. By the mid-1990s, for example, the average structural deficit for the Euro area exceeded that in the United States, and structural deficits for Japan were even higher. In addition, net debt-GDP for the Euro areas was slightly greater than the public debt-GDP ratio in the United States.

By the end of the decade, however, fiscal consolidation programs had achieved widespread success. U.S. budgets registered surpluses from 1998–2001, and structural deficits declined significantly in much of Western Europe as well. In 2000, the public debt-GDP level in the United States had fallen below 35 percent. For the Euro area, average net debt-GDP had dropped as well but remained considerably higher than in the United States.

In Europe, fiscal consolidation was facilitated by the deficit and debt limits set by the Maastricht Treaty. Multiyear spending limits and substantial tax increases, together with budget enforcement rules, achieved even better results in the United States. At the time, this cross-national commitment to strong fiscal controls highlighted “the critical role of budgeting . . . in contemporary international affairs, as well as what might be called the internationalization of budgeting.”

Against this background, the post-2000 fiscal deterioration in the United States has been striking. Since the early 2000s, U.S. structural deficits have usually been well above Euro area averages, and public debt-GDP levels are now higher as well. Nevertheless, the United States still enjoys a comparative advantage when it comes to the major fiscal problem countries will be facing over the next several decades—the escalating cost of social welfare systems. Demographic pressures, notably population aging, will make it more difficult for governments to finance the retirement and healthcare commitments they have made in the past. Demographic trends in the United States, however, are less forbidding than in Western Europe and Japan, and its welfare system remains comparatively limited. But politically painful adjustments in entitlement policy (and politically risky increases in taxes) will almost certainly be needed to control future deficits and debt. From a cross-national perspective, then, the United States has a manageable fiscal challenge, but it also has institutional obstacles that will need to be overcome in making politically difficult decisions.

Institutional Checks

The framers of the Constitution conferred on Congress the powers to tax, spend, and borrow. One of the persistent problems that Congress has faced in exercising its “power of the purse” is how to organize the budget process to protect its prerogatives, while producing acceptable fiscal outcomes. In the modern era, Congress has faced the additional difficulty of controlling large spending programs (i.e., social welfare entitlements) that operate outside the regular appropriations process. An effective budget process must be congruent, in terms of procedural controls, with the types of spending programs and revenue policies that drive the budget. While Congress has had a more centralized budget process and stronger procedural controls in place since the mid-1970s, there has been growing dissatisfaction with the results. Complexity and delay have been persistent problems, but House-Senate policy differences now routinely deadlock the entire process. With the influence of the president’s budget having declined as well, coordinated budget decision making is even more elusive than in the past.

Microbudgeting and Incrementalism

During the early history of the United States, there were no formal mechanisms in Congress for coordinating spending and revenues nor, until 1921, was there a presidential budget. Yet, as Wildavsky explains, “Calculations were made, conflict diffused, and . . . budgets were passed on time while revenues and expenditures stayed within hailing distance.” This microbudgeting, or bottom-up, approach allocated spending to individual programs and agencies without the need for overall totals, because there was “widespread agreement on the norms of balance and comprehensiveness.” The former rested upon a “de facto spending limit,” while the latter meant that “neither substantial revenues nor expenditures were outside the purview of the political authorities for ratcheting up or down.”

While much of the historical literature on classical budgeting stresses the effectiveness of incrementalist, decentralized decision making, the reality was more complex. Wartime financing presented serious problems throughout the nineteenth century, forcing Congress to cede authority to the executive branch and especially the Secretary of the Treasury. The requirement that wartime debt be retired quickly also necessitated centralized controls over spending, with the post–Civil War Appropriations Committees providing a model reform of this type. In addition, balanced budgets did not guarantee financial stability. Federal credit and debt management, for example, often created financial dislocations, because Congress could not adequately coordinate fiscal and monetary policy.

Perhaps the key element in classical budgeting, however, was the limited scope of federal spending. With the exception of interest on the debt, most spending during the nineteenth and early twentieth centuries was what we now classify as discretionary. The locus of control was the annual appropriations process, which allowed Congress to enforce spending discipline as needed. Moreover, since state and local governments were responsible for many of the largest and fastest-growing spending programs during this period, Congress did not face the relentless pressures to spend it does today.

Macrobudgeting and Coordination

The decline of incrementalism as both a descriptive and prescriptive norm for budgeting can be attributed to a variety of economic and political changes that have made budget policy less stable and consensual. The changing composition of spending policy, however, has clearly had an enormous impact on the perceived need for centralization and coordination in the budgetary process. As mandatory social welfare entitlements displaced discretionary spending as the largest share of the federal budget, the congressional appropriations process could not effectively control either spending totals or spending growth. A parallel decline affected presidential budgets, since the president's leverage over mandatory spending was limited.

New types of spending commitments and the growing importance of fiscal policy choices led to the budget process reforms that Congress adopted in 1974. Congressional budget resolutions, like presidential budgets, set spending, revenue, and deficit (or surplus) totals that then govern the specific spending and tax bills that determine the budget. It also became possible for Congress and the president to enact multiyear budget agreements using expedited legislative procedures.

Multiyear agreements were enacted in the 1990s, but nothing remotely comparable has been achieved since. Budgeting over the past decade has typically been piecemeal and uncoordinated, because Congress is unable to agree on enforceable spending and revenue totals and is unwilling to accept meaningful presidential direction. Macrobudgeting is not possible without agreed upon totals, but the confluence of bicameralism, separation of powers, and party polarization has left budget policy largely adrift.

Future Budget Reform

The balanced-budget principle in American politics is not self-enforcing. A degree of centralized control has always been necessary to balance spending demands against one another and to keep them in line with available revenues. Periodic attempts to reform the budget process have therefore been directed toward centralizing spending authority within the House and Senate and, more recently, with providing fiscal policy coordination through presidential budgets and congressional budget resolutions.

The major reforms of the budget process have thus had a shared emphasis on centralization. The difficulty has been in designing reforms that would protect the legislative power of the purse and still resolve budget policy problems, such as excessive spending, inadequate revenues, or persistent deficits and growing debt. Institutional arrangements are a complicating feature in federal budget control, and concerns have been raised about the institutional costs to Congress of centralization. A leading constitutional scholar has argued that the 1974 Budget Act has compromised congressional accountability to the public and increased Congress’ vulnerability to presidential leverage. Since it is likely that even more centralized and comprehensive fiscal controls will be needed to deal with future entitlement financing pressures, these concerns about constitutional prerogatives and institutional balance will need to be addressed in budget reform debates.

The Politics of Budget Policy

The budget represents a fundamental set of political decisions. Much of what we consider politically important—what the government does, who decides what it does, and who benefits from it—can be translated into the financial language of budget policy. The chapters that follow trace the evolution of budget policy from the nation's founding through the modern era, and the purpose of this historical analysis is to document the growth of government over time and to explore the factors that have shaped that growth.

The recurring debate about the appropriate size of government is not an abstract argument. Rather, this debate involves competing ideas about what the federal government should do in terms of specific spending commitments and the tax policies to support that spending. The size of government debate also involves competing ideas about deficits, debt, and the importance of balanced budgets. Today, for example, it is generally accepted that governments cannot, indeed should not, balance budgets during major wars or recessions. At other times, however, the issue is whether budgets should be balanced at politically popular spending levels or politically acceptable revenue levels. Battles over balanced budgets, today as in the past, are inseparable from this basic political calculus. The size, shape, and balance of the budgets that ultimately emerge thus define the role of the federal government in providing for “the common Defence and general Welfare of the United States.”

Business & Economics

History

           U.S.

Political Science

           American Politics