How Congress Quietly Eviscerated 50 Years of Deficit Constraints

Congress wrote the rules to restrain deficits. Then it broke every one.

(Originally appeared in The Dispatch)

Congressional Republicans have begun the process of “reconciliation 3.0,” which, like reconciliation 1.0 (the 2025 tax cuts) and reconciliation 2.0 (new spending on immigrant deportation and border control), will notably expand budget deficits with barely any of the spending cut offsets that Republicans have long promised.

These expensive bills violate the purpose of the budget reconciliation process (deficit reduction), and possibly even its legal requirements (such as the 2025 tax cuts bypassing limits on expanding long-term deficits, and non-budgetary items like the SAVE Act possibly being added to the new reconciliation bill). Yet such restrictions matter not to Washington, which today treats budget rules as mere speed bumps on the path to the next budget-busting blowout.

Washington has always been creative with fiscal accounting. Lawmakers from both parties have long twisted budget rules, gamed baselines, and declared victory over deficits that they had actually expanded. But in recent years, the budget process has devolved from imperfect to essentially nonexistent. And while the media coverage tends to focus on the partisan theater rather than the structural rot underneath, allocating $7 trillion annually with barely any functioning budget process is a recipe for poor choices and escalating shortfalls.

In a city allergic to hard choices, it is absolutely vital to maintain a budget process that at least sets a framework for responsible decision-making and imposes guardrails that only supermajorities can waive. The chaos we have seen—lurching from government shutdowns to debt-limit standoffs to trillion-dollar Christmas-tree bills that no lawmakers have read—is not merely embarrassing. It is expensive: The collapse of the budget architecture has yielded the steepest budget deficits among the 38 countries the Organisation for Economic Co-operation and Development.

How the budget process was designed to work.

The modern budget process was created by the 1974 Congressional Budget and Impoundment Control Act. In addition to stopping President Richard Nixon’s impoundment of legally appropriated funds, the law reasserted Congress’ constitutional budget powers, aimed to create an orderly process for setting spending and tax levels and promoting deficit reduction.

At the risk of oversimplification, this annual process begins in early February with the president releasing a detailed budget proposal. This nonbinding document relays the president’s fiscal priorities and previews potential veto threats should Congress move in a different direction. From there, by April 15, Congress is required to enact a budget resolution setting broad spending and revenue targets, typically for the next five to 10 years.

Then the real work begins. While taxes and mandatory spending programs—Social Security, Medicare, interest on the national debt—generally remain on autopilot with no further legislation, the budget resolution can attach reconciliation instructions directing committees such Senate Finance and House Ways and Means to begin drafting tax and/or mandatory spending changes that cannot be filibustered in the Senate and thus pass with 51 votes. Expanding mandatory spending or cutting taxes without offsets will trigger a pay-as-you-go (PAYGO) law mandating automatic offsetting spending cuts (called “sequestrations”).

On the discretionary spending side—which includes defense spending, infrastructure, housing, and education—the budget resolution’s overall spending target for the following year (say, $1.5 trillion) splits off into 12 or 13 separate appropriations bills. These spending targets are enforced by points of order that often require supermajorities to waive—including for “emergency” spending that would bypass these limits. If Congress has also enacted a statutory discretionary spending cap law, then any spending overage will trigger automatic across-the-board sequestrations.

Finally, total government borrowing is subject to a debt limit that—while it must be raised by Congress to avoid defaulting on government obligations —can also shame lawmakers into attaching deficit-reducing reforms to address the underlying problem,

The process has never been followed perfectly. However, it functioned well for a quarter-century, and between 1983 and 2001 it even provided a framework for turning large deficits into surpluses. During this period, expensive proposals proved difficult (albeit not impossible) to enact without offsets, and lawmakers benefited from having an excuse to say no to constituents and special interests demanding expensive favors. (“I’d love to help, but the budget rules make it nearly impossible.”) In short, the budget process facilitated (mostly) responsible decision-making, deficit reduction, and economic growth.

How the process collapsed.

Over the past few decades, Congresses and presidents of both parties have relentlessly shredded the budget process and nearly all of its fiscal responsibility guardrails—with disastrous results—in the following ways:

President’s budget proposal. Until the mid-2010s, the president’s budget release was so central to the White House agenda that it received media attention rivaling the State of the Union speech. Now, it has become virtually irrelevant. Budget proposals are often delayed until May or later, after Congress’ annual budget process has already started. Pledges of aggressive deficit reduction are backed up with “magic asterisks” that fail to specify any of the proposed savings. The proposals that are included are typically unserious, undeveloped, and unaccompanied by pressure on Congress to pass them, such as the Trump budget’s call for deep cuts in “woke” programs that somehow included NASA, cancer research, and senior citizen housing. Virtually every presidential budget is considered dead on arrival by Congress.

For the second consecutive year, President Trump did not even release a complete budget proposal—just a “skinny budget” of discretionary spending proposals. This leaves Congress with little sense of presidential priorities, and a lack of information and proposals on key agencies.

Congressional budget resolution. For a few decades, the budget resolution served its vital purpose of setting Congress on a long-term deficit reduction path, imposing fiscal restraints on lawmakers, and guiding subsequent tax and spending legislation. In the 2000s, lawmakers stopped using the budget as an actual fiscal planning document. Instead, it became an annual political messaging exercise with fake savings targets and empty balanced-budget promises lacking any policy specifics or plans to follow through on the savings.

Since 2010, Congress has largely abandoned even that largely fake budgeting exercise and largely stopped discussing deficit reduction at all. It enacted no budget at all in nine of the past 15 years, and those that were passed were typically empty shells whose only purpose was to spin off reconciliation instructions. Which brings us to …

Tax and mandatory spending reconciliation. Until 2000, the reconciliation process served its intended purpose of providing a fast-track, filibuster-free path to achieving the mandatory spending and tax savings targets laid out in the budget resolution. Then, in 2001, tax-cutting Republicans took advantage of a loophole allowing the fast-track reconciliation process to also be used to expand deficits with tax cuts and spending expansions (and then canceling PAYGO enforcement). Since then, reconciliation has been twisted into an annual “get out of jail free” card for parties controlling the White House and congressional majorities to pass all the partisan, budget-busting measures that could never survive the filibuster under regular order.

Consequently, since 2001, the reconciliation process has been abused to pass an astounding $12.8 trillion in tax cuts and mandatory spending expansions—also resulting in $3 trillion in additional interest costs. That is roughly half of the $31 trillion debt held by the public—and diametrically opposite to the intended purpose of reconciliation.

Discretionary appropriations process. For much of the 1980s and 1990s, the appropriations process worked as intended, with 13 appropriations bills allowing a piece-by-piece review of discretionary spending with frequent lawmaker amendments to tweak individual program spending levels.

For the past 30 years, this system gradually devolved to one massive annual appropriations bill that runs as long as 5,400 pages and spends as much as $2.3 trillion. The bill is often unveiled several months after the October 1 fiscal year has already started (typically right before Christmas when voters are distracted and lawmakers want to return home) and stuffed with every other legislative priority that could not pass during the year. Lawmakers are given 24 to 48 hours to examine the thousands of individual policies stuffed inside the bill and then forced to vote the entire package up or down with no opportunity to amend it. Congressional leaders often ensure that voting down the bill would trigger an immediate government shutdown—a convenient threat to lawmakers who consider opposing this annual monstrosity.

Emergency spending. Remember that total appropriations spending is supposed to be limited to the amount set in the annual budget resolution (which itself may be limited by multiyear statutory discretionary spending caps). Yet Congress has another “get out of jail free” card in the form of the emergency spending loophole. As long as lawmakers attach an “emergency designation,” any spending becomes immediately exempt from budget constraints. Of course, there is no enforceable legal constraint on what constitutes an “emergency,” so in practice the definition has become “anything Congress wants to spend beyond the budget rules.”

Dominik Lett and Romina Boccia of the Cato Institute calculate that total “emergency” spending and resulting interest costs on the debt have totaled $15 trillion since 1991, when adjusted for inflation. Some of this spending went to truly unanticipated emergencies—such as the immediate aftermath of the September 11 attacks, the 2008 market crash, and the 2020 pandemic. On the flip side, spending on the wars in Iraq and Afghanistan was still being designated as a sudden, unanticipated emergency for nearly a decade after the wars began. This practice moved beyond parody when funding for the 2000 census—which the U.S. Constitution 211 years earlier had mandated to occur once per decade—was nonetheless classified as a sudden, unforeseen emergency to evade spending limits.

Government shutdowns. If Congress and the president cannot finish all appropriations bills by the beginning of the fiscal year on October 1, then the affected discretionary spending programs are meant to shut down without a governing appropriations bill. In reality, Congress has failed to meet the October 1 appropriations deadline for the past 30 consecutive years. Thus, funding discretionary spending in the meantime requires passing a continuing resolution to keep those programs running.

There have been seven government shutdowns since 1995, with lawmakers holding the normal operations of government hostage for their own pet causes that they want passed along with the continuing resolution. The result has been regular chaos for federal programs as well as those who depend on them. Proposals to either move the fiscal year deadline from October 1 back to January 1 (after those Christmastime omnibus bills) or create automatic continuing resolutions to keep the government running have gone nowhere because neither party is willing to surrender its ability to hold the government hostage.

Discretionary spending caps. Concerns that budget resolutions were setting annual discretionary spending levels too high, and that Congress needs a longer-term, statutory commitment to fiscal responsibility, have occasionally led to multiyear discretionary spending caps. While such caps have typically held down discretionary spending increases for a couple years, they subsequently get bypassed by a coalition of Republicans wanting more defense spending and Democrats wanting more social spending. And because any law can be altered by the next law, these discretionary spending caps function more as a suggestion than a binding cap.

Thus, the 2011 Budget Control Act—a tight nine-year statutory cap on annual discretionary spending increases painstakingly negotiated by President Obama and House Speaker John Boehner in response to Tea Party deficit concerns— achieved barely half of its promised discretionary spending savings, while the two parties negotiating the 2023 Fiscal Responsibility Act agreed on “side deals” to evade its caps before the bill was even signed into law. This means that discretionary spending caps have served primarily as a public relations exercise, generating press releases and campaign ads highlighting deficit-reducing budget targets that Congress has no intention of following.

Pay-as-you-go (PAYGO) laws. Because discretionary spending caps affect only that one-third of the budget, they typically have been paired with PAYGO laws requiring that all tax and mandatory spending reforms be collectively deficit-neutral, or face automatic spending “sequestration” cuts.

While PAYGO has been in place in some form since 1990 (with the exception of 2003-2006), it has never once been enforced through sequestration. Instead, Congress has repeatedly cut taxes and expanded mandatory spending by collectively more than $10 trillion, and then voted to cancel every single PAYGO sequestration to enforce the law.

Back in the 1990s, PAYGO was likely effective in dissuading Congress and presidents from enacting certain tax cuts and spending expansions in the first place. Yet over the past 15 years, congressional votes to cancel PAYGO enforcement have become so routine that they are no longer noticed by anyone except the most committed budget hawks. Because everyone in Congress knows that PAYGO will never be enforced, the law has become irrelevant.

Debt limit. When all else fails, the last brake on escalating federal debt is supposed to be the statutory limit on how much debt the federal government can run up. The limit on total consolidated federal debt goes back to 1939, and while the mechanism is flawed (failure to raise the debt limit can bring default on the government’s debt, creditors, and obligations), the law is intended to at least shame Congress and the White House into passing fiscally responsible reforms alongside debt limit increases. And between 1985 and 1997, all six major budget deficit reforms were attached to debt limit increases.

However, since 2000, lawmakers have given up on attaching such savings reforms to the more than 25 debt limit increases and suspensions, with the exceptions of the (barely enforced) 2011 Budget Control Act and 2023 Fiscal Responsibility Act. Instead, the debt limit has devolved into a game where the party out of power holds the impending debt-limit legislation hostage—roiling financial markets—in order to extract some unrelated concession or simply cause embarrassment to the majority party. This final brake on unrestrained government debt has been essentially disabled and replaced with nothing.

CLICK HERE for the full article at The Dispatch (paywall)