Gramm-Rudman—a Bad Idea Whose Time Has Come Again

Perhaps Bush's concentration on the deficit might improve if Congress were to write his projected deficits into law.

By Jonathan Rauch

To understand how serious President Bush is about reducing the federal deficit, open his fiscal 2006 budget to page 364 and consider Table S-12, "Impact of Budget Policy." Here you can see that under present policies ("current services"), the deficit would be $361 billion in fiscal 2006, $303 billion in 2007, and $207 billion in 2010. You can also see the effect that Bush's budget would have on the deficit. Under Bush's plan, the deficit would likewise be $207 billion in 2010. But it would be $390 billion in 2006, and $312 billion in 2007.

Those numbers are not misprints: Bush's proposed deficits are higher than under existing policies. Between 2006 and 2010, his budget would increase the cumulative deficit by $42 billion. If you want to reduce the flow of federal red ink, a better plan would be to drop Bush's budget in the recycle bin and, simply, do nothing.

How can this be? After all, the administration claims that the budget would cut the deficit in half over five years. The answer is that Bush would cut nonsecurity discretionary spending—but he would more than offset those reductions with spending increases in other categories and with tax cuts. It is the economy, not Bush, that would halve the deficit.

All of that is according to Bush's own accounting, which is, one might fairly say, incomplete. His budget, notes The Washington Post, "does not include future expenses of the continuing wars in Afghanistan and Iraq, nor does it include up-front transition costs of restructuring Social Security as Bush has proposed." (It does include an $81 billion supplemental appropriation in fiscal 2005, mostly for Iraq.)

Yes, the budget holds discretionary nonsecurity spending below the rate of inflation, but that category accounts for less than one-fifth of the total budget. And even in that sector, according to the Cato Institute, the administration's vaunted elimination of 150 programs would reduce 2006 spending by less than 1 percent.

At the Heritage Foundation, budget analyst Brian Riedl notes that Bush's budget does not get a handle on swelling entitlement costs. But, Riedl adds, it's better than any of Bush's earlier budgets, which increased domestic discretionary spending. "We're just trying to turn the ship around over here," he says, with what sounds, over the phone, like a shrug.

Fortunately, the situation is not unprecedented. The country has been here before.

It is 1985, and the president has just been re-elected. The deficit has been rising through his first term, despite his annual promises to cut it. Rising also are the trade deficit and dependence on foreign capital. Congress is alarmed but undisciplined. As for the president, the deficit is his second priority. His first priority is everything else—especially avoiding tax increases, increasing security spending, and protecting entitlements.

His method of squaring the circle is to propose reductions in one narrow portion of the budget, domestic discretionary spending. Most of these cuts are too politically sensitive to pass Congress, especially when other parts of the budget and taxes are fenced off; and in truth, the president does not seem particularly interested in getting them passed. He and members of Congress all protect their agendas, and the deficit takes the hindmost.

In September of 1985, three senators—Phil Gramm, R-Texas; Warren Rudman, R-N.H.; and Ernest Hollings, D-S.C.—unexpectedly offer the ugliest, stupidest bill anyone has ever seen. It proposes to set declining annual deficit targets and impose primitive across-the-board cuts ("sequestration"), as needed, to reach the goals. Rudman calls the measure "a bad idea whose time has come."

In 1985, no one liked this Frankenstein's monster, but no one could stop it, and it had a certain monstrous logic. The real aim was not to cut spending automatically or even to meet precise targets, but to use the threat of sequestration—which would brutally and mindlessly reduce both domestic and defense spending—to force the White House and Congress into deficit-reduction negotiations. In effect, the monster took the Pentagon and domestic spending hostage. "Did I ever expect it to work exactly as written?" asked Rudman in a recent interview (he is now with the law firm Paul, Weiss, Rifkind, Wharton and Garrison in Washington and is co-chairman of the Concord Coalition, an anti-deficit group). "Of course not." But, he said, "it had a tremendous intimidation factor on a lot of people."

Mechanically, the measure, which came to be known by the shorthand "Gramm-Rudman," failed. Congress generally managed to evade or raise its limits. But it was not without effect. First, "Gramm-Rudman made it easier to go after defense [spending] as well as other elements," says William Niskanen, a former Reagan administration economic adviser who now is the chairman of Cato. Second, says Timothy Penny, a Democratic member of Congress during that period (now a senior fellow at the University of Minnesota's Hubert H. Humphrey Institute of Public Affairs), "it kept us focused on spending and the size of the deficit. The virtue of Gramm-Rudman was not that it worked as designed, but that it elevated attention to the deficit."

Third, and possibly most important, in 1990 Gramm-Rudman helped force the first President Bush and Congress to negotiate a sweeping budget deal. That deal turned out to be the largest deficit-reduction package ever; without it, the return to fiscal balance in the 1990s would have been, in all probability, impossible. "Bush's hand would not have been forced without Gramm-Rudman," says Allen Schick, a political scientist and budget expert at the University of Maryland.

In 1990, as part of that deal, Congress replaced Gramm-Rudman with measures that capped discretionary spending and required Congress to pay for any tax cuts or entitlement increases. I talked to four former Office of Management and Budget directors in preparing this article, and they all agreed that the budget caps and the "paygo" rules were "important and effective," in the words of Leon Panetta, President Clinton's first budget director. Alice Rivlin, Panetta's successor at OMB, recalls "many sessions, some of them lasting late into the night," where Clinton administration officials hunted for "offsets" to bring spending initiatives under the limits. "For example," she says, "it isn't that no one ever thought of adding prescription drugs to Medicare. We just couldn't find a way to pay for it. There was very real restraint."

Those budget-process rules expired in 2002. Deficit hawks want to bring them back—provided that the rules require Congress to offset tax cuts as well as spending increases. "You can't leave one-half of the barn door open and expect to exercise fiscal discipline," says Panetta.

The bit about taxes is anathema to the president and many conservatives, who view extending Bush's tax cuts as essential. Bush wants paygo budget rules that place limits on spending increases only, not on tax cuts. Other conservatives prefer a measure that would limit annual spending growth to adjustments for inflation and population growth. Several states are debating such measures (called TABORs, for Taxpayer Bill of Rights), and Colorado has enacted one. Conservatives are talking about introducing a federal equivalent this year, perhaps in the spring.

Rules requiring offsets and rules limiting spending growth both have good and bad points; but either might work best in addition to, rather than instead of, a rule targeting the deficit and backed by brutal spending cuts, a la Gramm-Rudman. The budget rules could help Congress meet the deficit targets, and the deficit targets could help enforce the budget rules. "One of the things about Gramm-Rudman was that it was understandable, and you had concrete goals," says Stephen Moore, a senior fellow in budget affairs at Cato. "With deficit targets that you have to meet, people can judge—did they meet them or not?"

One can be excused for imagining that Bush is none too serious about the deficit targets in his 2006 budget. Perhaps his concentration might improve if Congress were to write his projected five-year deficits into law and back them with the threat of sequestration. That is not a good idea, if "good" means anybody's first choice. On the other hand, Niskanen says, "I think it's likely to be a better idea than what Mr. Bush is trying to get away with now. He's saying 19 percent of the budget is going to be very tight. Even if he accomplishes that, that does not yield very significant budget effects."

There are times when the nation needs wisdom, times to summon the spirits of Lincoln and Jefferson. There are other times, too: times to call upon the spirits of Beavis and Butt-head. Deficit targets are crude, ugly, and senseless. Nothing less will do.

This article available online at:

http://www.theatlantic.com/magazine/archive/2005/02/gramm-rudman-a-bad-idea-whose-time-has-come-again/303805/