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Automatic budget cuts have spotty record on federal level

Sunday, May 8, 2011

WASHINGTON -- Congress and President Barack Obama are proposing ways to automatically trigger budget savings if they can't rein in deficits the old-fashioned way, by enacting laws to cut spending or raise taxes. Similar efforts in the past have a spotty record.

The last quarter-century has seen plenty of missed deficit and spending targets and inventive evasions of budget curbs. This is because the same legislators who put in place those budget constraints can pass laws to ignore them.

That history has convinced analysts that automatic triggers work best when lawmakers already have approved spending cuts, taxes increases or both. They're least effective when used as an incentive to force legislators into such agreements in the first place.

"Process alone is never going to bring about fiscal responsibility," said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that wants to erase federal deficits. "If the political actors are not willing or ready to make hard choices, they won't."

This year's expected record deficit of $1.5 trillion and a cumulative national debt topping $14 trillion have snowballed into a major political issue that may color presidential and congressional elections in 2012.

As a result, Washington is awash with proposals from Obama, lawmakers and anti-deficit groups such as the Bipartisan Policy Center to automatically trigger budget savings if ceilings on spending, the national debt or other benchmarks are pierced.

A quarter-century ago, lawmakers were looking for similar mechanisms.

When Reagan-era deficits reached the unprecedented $200 billion-a-year range, Congress in 1985 enacted the Gramm-Rudman law, sponsored by Sens. Phil Gramm, R-Texas, Warren Rudman, R-N.H., and Ernest Hollings, D-S.C.

The measure set a declining six-year path of deficit targets that would culminate in a balanced budget in 1991. Failure to hit an annual target was supposed to automatically trigger across-the-board spending cuts known as sequesters.

At the time, Rudman called it "a bad idea whose time has come." For the most part, it didn't work.

Gramm-Rudman forced a $12 billion sequester in 1986, a small but noticeable dent in that year's $990 billion budget. But Congress dealt with two other sequesters in 1988 and 1990 by passing laws to reduce or erase them. The same lawmakers who enacted Gramm-Rudman simply voted to defang it. What was to have been a balanced budget in 1991 produced $269 billion in red ink, a record at the time.

"When it became hard to do those things, people walked away," Rudman said recently.

One problem was that the law's targets were pegged to federal deficits, which lawmakers don't fully control because government spending and revenue are strongly influenced by the economy. A strong economy brings the government more revenue and lower spending. A weak economy does the opposite.

When Congress relaxed Gramm-Rudman's deficit targets after the 1987 stock market crash, actual deficits still missed the law's new goals by an average of $50 billion annually from 1988 to 1990. The controls were abandoned when President George H.W. Bush's administration projected the law would force unbearably high budget cuts of up to $100 billion that fall.

The new red ink drove Bush and congressional Democrats to the bargaining table, ultimately producing a deficit-cutting agreement and Bush's abandonment of his "read my lips -- no new taxes" pledge, costing him re-election two years later.

"It certainly didn't work as well as we might have hoped," Gramm, now a vice chairman of UBS investment bank, said recently of Gramm-Rudman. "But it certainly worked better than nothing."

The 1990 budget deal also produced new budget-cutting controls.

Instead of annual deficit targets, yearly caps were clamped on congressionally controlled spending on everything from agriculture research to water projects. Guaranteed federal benefits such as Social Security and Medicare could not rise -- and taxes could not fall -- unless those costs were covered by other spending cuts or tax increases. If those requirements were breached, sequesters were to be automatically imposed.

Experts agree that those procedures -- renewed twice but abandoned after 2002 -- helped control budget deficits by forcing lawmakers to pay for pet initiatives. But credit for the steadily shrinking deficits beginning in 1993 also goes to declining military expenditures allowed by the Soviet Union's breakup, gridlock between Democratic President Bill Clinton and the GOP-controlled Congress, and a rapidly growing economy.

"It was a very favorable economic and political climate," said Robert Reischauer, former chief of the nonpartisan Congressional Budget Office who now heads the nonpartisan Urban Institute.

As the economy heated up and federal surpluses appeared in 1998, lawmakers had little taste for budget constraints and increasingly voted to flout them.

Lawmakers ended up ignoring mandated spending caps by a total $400 billion from 1999 through 2002, according to a 2003 study by the nonpartisan Congressional Budget Office. Separately, they voted to erase $700 billion in cuts from benefit programs the law would have triggered from 2001 through 2006 to offset spending increases and tax cuts they'd approved.

They also employed creative ways of side-stepping complaints. Though the Constitution requires a census every decade, they declared the 2000 count an emergency, thereby exempting its costs from budget controls.

By the time lawmakers let the controls expire, there was never a sequester on benefit programs and no sequesters of congressionally controlled spending after 1991.

President George W. Bush's $1.3 trillion tax cut of 2001 was not paid for; lawmakers voted to waive that requirement.

With no serious budget controls in place for most of the past decade, also unpaid for were Bush's 2003 tax cut, wars in Iraq and Afghanistan, a new Medicare prescription drug benefit, Obama's economic stimulus package and his renewal last autumn of Bush's tax breaks.

"For a great democracy with a gigantic budget, we certainly haven't been too innovative about making budgets enforceable," said Pete Domenici, the former New Mexico GOP senator who chaired the Senate Budget Committee.


Online:

Concord Coalition: http://www.concordcoalition.org/

Bipartisan Policy Center: http://www.bipartisanpolicy.org

Bureau of the Public Debt: http://www.publicdebt.treas.gov


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