Executive Policymaking. Andrew Rudalevige
2-6. Uncontrollables Increasingly Dominate the Budget
| Category | % Annual Outlays in 2017 | % Annual Projected Outlays in 2028 |
|---|---|---|
| Mandatory spending | 63 | 64 |
| Interest on the debt | 7 | 13 |
| Total uncontrollables | 70 | 77 |
Source: Congressional Research Service, “The Federal Budget: Overview and Issues for FY 2019 and Beyond” (May 21, 2018), p. 7 (author name redacted).
Consequently, cuts in nondefense discretionary spending would not put much of a dent in the deficit or debt. This leaves appropriations committees fighting more and more over less and less. Insofar as future budget battles are concerned with the overall health of the economy and the ratio of debt-to-GDP, they will have to be focused on uncontrollable spending and revenues. This leaves OMB’s greatest influence relevant to a smaller portion of total federal spending. OMB career staff have considerable expertise in the financing of entitlement programs, and if Congress decides to enact changes to achieve cost savings, OMB will play a major role. But Congress has not often been willing to address such change in recent years. Congress and presidents have squandered opportunities to deal with the broader trends of fiscal policy, making the inevitable reckoning with budgetary and economic reality more traumatic.
CONCLUSION
After the creation of the executive budget in 1921, the Bureau of the Budget served as the primary tool for presidential control of the federal budget and, as such, the overall contours of the executive branch. In its first half-century, presidents used BOB to control discretionary spending through bottom-up budgeting, but also to respond to changing national priorities, such as the Great Depression, World War II, and Great Society programs.
During its second half-century, the Office of Management and Budget adapted to accommodate presidential concerns about budget deficits. In doing so, its approach shifted from a bottom-up focus on programs and agencies to the top-down imperative to reduce deficits. Although OMB maintained its expertise in and control over agency budgets, its leadership shifted the primary focus from controlling spending by programs and agencies to shepherding the president’s budget through Congress. Discretionary (controllable) spending was overwhelmed by the demands of mandatory spending programs (uncontrollables). The leadership of OMB became more political (with more than fifty political appointees in 2018), and directors worked closely with White House staff to implement the president’s political and policy priorities.
In the twenty-first century, deficits increased; as the gross national debt exceeded $22 trillion, and as the net debt approached 80 percent of GDP, OMB could not assert control. The staff of OMB shared the concern of many informed observers, including CBO, CRS, and GAO, that current fiscal trends were not sustainable. Less than 30 percent of annual outlays were subject to annual appropriations, and half of those funds went to the defense budget. Thus, career OMB expertise in agency oversight and control, while important for executive branch effectiveness and efficiency, could not impose rational budget decisions on a polarized Congress and presidency. As former OMB professional Kathleen Peroff observed, “the concern of presidents and Congress about deficits has diminished. OMB has often lost in the White House debate over the importance of fiscal constraint versus the inexorable political dynamics of the welfare/warfare state.”84
The COVID-19 pandemic that was declared in March 2020 severely affected the economic outlook of the United States and the rest of the world. Within ten weeks more than 36 million workers in the United States filed for unemployment compensation, about 15 percent of the total workforce. Subsequently, the unemployment rate increased to the highest rate since the Great Depression, when unemployment was about 25 percent. Decreasing revenue from tax payments, in addition to automatic payments from safety net programs and the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, ensured that deficits for fiscal years 2021 and 2022, which were already projected to be more than $1 trillion (4.5 percent of GDP), would be much higher. These deficits would increase the national debt to 100 percent of GDP by 2021. The stimulus spending and decreased revenue would drive the deficit higher than the previous post–World War II record deficit of 9.8 percent of GDP in fiscal year 2009. It is also possible that deficits would approach those during World War II, when they ranged from 21 percent to 29.6 percent of GDP from 1943 to 1945.85
At the end of the budget bureau’s first century, the United States was on an unsustainable fiscal path. OMB projected years of deficits of $1 trillion, and because of the recession caused by the COVID-19 pandemic, the debt to GDP ratio would hit 100 percent in 2021. Without significant changes, the trust fund for Medicare would be depleted and revenues would cover only 91 percent of spending by 2026. Ten years after that, Social Security disability and old age insurance would face the same fate.86
Politicians and experts have considered a range of reforms of the budgetary process, hoping to address the fiscal crisis. But as former CBO director Rudy Penner observed, “the process is not the problem; the problem is the problem.” Both political parties must compromise, because only painful political decisions that reduce spending and increase taxes can begin to reduce deficits and address the national debt.
Notes
The author would like to thank the following friends and colleagues for their advice and assistance in writing this paper: scholars of the federal budget process Meena Bose, Jim Carter, Matt Dickenson, Phil Joyce, David Lewis, Siona Listokin, Roy Meyers, Iwan Morgan, Elouise Pasachoff, Irene Rubin, Andy Rudalevige, and Joe White; OMB career professionals Barry Clendenin, Martha Coven, Phil Dame, Bernie Martin, Kathy Peroff, Steve Redburn, and Jeffrey Weinberg.
1. For details, see James P. Pfiffner, The President, the Budget, and Congress: Impoundment and the 1974 Budget Act (Boulder, CO: Westview Press, 1979), pp. 9–20.
2. For a detailed analysis of the development of the 1921 Budget and Accounting Act, see John Dearborn, “The ‘Proper Organs’ for Presidential Representation: A Fresh Look at the Budget and Accounting Act of 1921,” Journal of Policy History 31, no. 1 (2019), pp. 1–41.
3. Budget and Accounting Act of 1921, Section 207, quoted in Fritz Morstein Marx, “The Bureau of the Budget: Its Evolution and Present Role,” Part I, American Political Science Review 39, no. 4 (1945), p. 668. In an address to budget representatives in departments and agencies, President Harding emphasized Dawes’ authority: “He is going to have all the authority of this government back of him. There will be many heart burnings.” Charles W. Dawes, The First Year of the Budget of the United States (NY: Harper and Brothers, 1923), p. 20.
4. Dawes, The First Year of the Budget of the United States, p. 178. Dawes went on, “Again I say, we have nothing to do with policy. Much as we love the President, if Congress in its omnipotence over appropriations and in accordance with its authority over policy, passed a law that garbage should be put on the White House steps, it would be our regrettable duty, as a bureau, in an impartial, nonpolitical and nonpartisan way to advise the Executive and Congress as to how the largest amount of garbage could be spread in the most expeditious and economical manner.”
5. Larry Berman, The Office of Management and Budget and the Presidency, 1921–1979 (Princeton University Press, 1979), pp. 7–8.