Should we have a long-term budget for entitlements?

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Federal law treats Social Security, Medicare, Medicaid and other entitlements as “mandatory” spending programs, which means they are not subject to the annual appropriations process like the rest of the budget. These programs annually take on an ever-greater share of the federal budget — now almost 60 percent. They also are racking up huge unfunded long-term obligations, as the nonpartisan Congressional Budget Office has reported. The Government Accountability Office has chimed in by warning that entitlements are on an unsustainable growth trajectory.

So what to do?  Stuart Butler of the Brookings Institution and Maya MacGuineas of Committee for a Responsible Federal Budget suggest a long-term budget for entitlements. Doing this, they posit, would establish an “orderly pathway for helping to resolve inherent tensions” in current budgeting. Additionally, a long-term entitlement budget would “encourage Congress to make clear choices about long-term spending.” Presently, the auto-pilot growth of entitlements is crowding out spending on other priorities and fueling bruising budget fights.

The authors identify two steps to enact a long-term budget: designing a long-term budget plan and treating the plan as binding going forward (unless Congress takes steps to change it). For the initial design phase, Congress would need to map out a 25-year spending plan for major entitlement programs, as well as a funding plan to cover their costs (presumably by identifying specific taxes or revenue, savings, or by proposing a debt increase). The authors advocate that this long-term budget plan should also include tax expenditures, which, like entitlements, tend to grow inexorably.

CBO would then be tasked with publishing an annual 10-year “moving average” (based on the results of the previous five years and projections five years into the future) that would act as the baseline from which it would be determined if the budget was veering outside what the authors call the “corridors” of the long-term plan.

Congress would engage in quadrennial reviews of the long-term budget during the year after each presidential election. This formal review could be used to alter the long-term budget going forward, if Congress deemed it desirable. Once finalized, the budget timeline would be extended by another four years to create a new 25-year budget. Critically, revenue and entitlement levels that had been established during prior reviews would only be alterable by an act of Congress signed by the president.

In between these quadrennial reviews, agencies and Congress would have free rein to change revenues and entitlements, so long as the changes did not cause the long-term budget to diverge from the established corridors.

Once a plan is developed, Congress would vote to enact it, thereby creating a framework moving forward and teeing up the second element of the author’s proposal. That element requires the long-term budget plan to be the default budget for entitlement programs moving forward, and automatic procedures would be triggered if the spending plan failed to stay within the agreed-upon corridors.

The authors sensibly note that a long-term budget plan would be unlikely to survive if it required Congress to take proactive action to maintain it. Therefore, automatic enforcement mechanisms are necessary. The authors criticize the idea of using automatic triggers—modeled after mechanisms like the Medicare Sustainable Growth Rate—that would initiate cuts whenever the long-term plan veered outside the set corridors. As they point out, such proposals are politically difficult given their blunt nature of cutting expenditures across the board.

Instead, they propose establishing a commission similar to the Defense Base Realignment Commission (which was established in the late 1980s to identify and close unnecessary military bases) that would act as the default enforcement mechanism to maintain the long-term budget. This would mean that, in the event the long-term budget started to careen outside the guardrails (for example, entitlement spending started to rise more than anticipated), the commission would be able to engage in the necessary course-correction actions to keep the long-term budget within the corridors (for example, by cutting spending or identifying more revenues for funding).

This commission would be jointly selected by Congress and the president, and its recommendations would be final — unless Congress took action to override it. This could be done by a congressional “super committee” that could develop an alternative method and package to maintain the long-term budget’s proper trajectory. The super committee’s alternative would then be considered on an expedited up-or-down vote in Congress and would replace the commission’s plan if approved.

In their paper, the authors address a few other points regarding their proposal, including some counterarguments to the idea. They note, for example, that it might be wise to allow the automatic-enforcement mechanisms (the commission and super-committee process) to be suspended during a certified recession. They also suggest the importance of setting an explicit fiscal objective that the long-term budget would be trying to help achieve, in an effort to discourage overpromising by politicians. Finally, the authors acknowledge that, while one Congress cannot legally bind future Congresses, the legislature is empowered to establish congressional procedures that can work to shape future congressional behavior and politics.

Congress has struggled mightily in recent years to carry out the fantastically complex annual budget and appropriations processes. A new process is needed, one that both reduces the steps that need to be completed each year, reduces the realm of conflict and soberly confronts fiscal reality. As such, Butler’s and MacGuineas’ proposal is a welcome effort to tackle a problem that too long has been unaddressed.


Image by Digital Storm

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