The Budget and Accounting Act of 1921 established the Bureau of the Budget (BB) within the Treasury Department (Shuman, 19). This legislation also created the General Accounting Office (GAO) which serves Congress as an internal auditing agency of the federal budget. The establishment of the Bureau of the Budget gave the President a great deal of influence over the budget in terms of the formulation of budget figures and priorities. In 1933, under Franklin Delano Roosevelt, executive power over the budget increased when the Bureau of the Budget was granted "power to make, wave, and modify apportionments of appropriations." (Shuman, 34)
Under the Executive Reorganization Plan
of 1939, the Bureau of the Budget was moved from the Treasury Department
into the Executive Office of the President. Using the Bureau of the Budget,
the Executive's power over the budget continued to increase and, under
some administrations, this power was abused.
The continued increase in the Executive's
power over the budget is only one example of a twentieth century trend
in which the power of the Executive Branch has increased markedly at the
expense of powers given to Congress by the Constitution.
Under President Richard Nixon, a second
Executive Reorganization Plan was passed. Among other aspects of this reorganization,
the name of the Bureau of the Budget was changed to the Office of Management
and Budget. According to Executive Order 11541, issued by President
Nixon, all functions formally assigned to the Bureau of the Budget were
now delegated to the Director of the Office of Management and Budget.
Under this new arrangement, all executive
departments, agencies, and other bureaucratic units had to funnel their
budget requests through the Office of Management and Budget and the President.
The idea was to use the budget as a management tool. If bureaucratic units
had to depend on the OMB and the President for the processing of their
budget requests for the next year, these bureaucratic units would more
likely follow the wishes of the President. This reorganization plan thus
tended to centralize the budget making process within the Executive Branch
and strengthen the hand of the President.
In Congress, on the other hand, the budget
was not treated as a single entity, but rather existed as the sum total
of 13 separate appropriation bills drafted by the House and Senate Appropriations
Committees, and various pieces of tax and other revenue raising legislation
drafted by the House Ways and Means Committee and reworked by the Senate
Finance Committee. Budget debate in Congress began each year on January
1 and was supposed to be completed by July 1, at that time the beginning
of the federal fiscal (or budget) year. The budgetary process in Congress
was generally both confusing and uncoordinated.
Due to the expansion of social spending
programs under President Lyndon Johnson's Great Society program, the Vietnam
War, and fiscal mishaps, annual budget deficits began to grow.
In the early 1970s, with the imminent demise
of President Nixon, reforms were passed by Congress in most areas of government.
This reflected the continuing tug of war for power between the Executive
and Legislative Branches--a struggle which also included the budget process.
Under budget making procedures then in force, Nixon had been able to impound
rural and urban subsidies, cancel programs, and secretly fund an invasion
of Cambodia. (Shuman, 211)
With a strong reform minded Congress and
a staggering economy, a window of opportunity existed for restructuring
the budget making process within Congress. The Federal Budget and Impoundment
Control Act of 1974 represented an attempt by Congress to centralize its
budget making process, and to allow it to vie more effectively with the
Executive Branch. The Act created a House and a Senate Budget Committee
which were to draft annual budget resolutions setting maximums
for spending in broad categories and minimums for revenues. In this
way, it was hoped that the federal deficit could be more tightly controlled.
The act also established a Congressional
Budget Office (CBO) to assist the budget committees in preparing the
budget resolutions. It was hoped that the CBO could help Congress counter
the power of the Office of Management and Budget within the Executive Branch.
Under the Budget and Impoundment Control
Act of 1974, the new budget process was more structured and, it was hoped,
better controlled by Congress. The process was structured around a fiscal
year beginning October 1 of each year. It started with the Office of Management
and Budget compiling figures for the President to formulate his budget
message. By November 10, the President had to submit a base line budget
for the next fiscal year. The President then drafted his budget message,
including budget priorities and anticipated revenues and expenditures for
the upcoming year. The President presented this message to Congress by
mid-January.
Next, the OMB figures were analyzed by the
Congressional Budget Office and given to the House and Senate Budget Committees.
These committees then send a budget resolution to the House and Senate
for action by April 15. This budget resolution is internally binding. The
House Ways and Means Committee and the Senate Finance Committee then present
specific revenue raising legislation to the floor of their respective
chambers, and the House and Senate Appropriations Committees present spending
legislation by June 1. The House and Senate have until June 30 to pass
the legislation. (Franklin, 38) Next--in line with the budget resolution
and the previously passed appropriations and revenue bills--reconciliation
legislation, bringing all figures into agreement, must be enacted by
both chambers in order for the budget to take effect. The supposed deadline
for all reconciliation legislation, and hence the final budget, is September
30. (Franklin, 36-39) Unfortunately, this deadline has not been met very
often in recent years.
In addition to Congressional motives to improve
the economy and to reduce the deficit and the confusion of the old budget
process, Congress also wanted to curtail the President's budgetary power.
Since Nixon had grossly abused this power, under Title X of the Budget
Act the Executive's impoundment power was greatly reduced. The president
could defer or reserve funds. However, if Congress did not approve of the
deferral, it has the power to overrule the President through an "impoundment
resolution." (Shuman, 243-45) The President was also allowed to rescind
funds, subject to approval by majority vote in both houses of Congress.
In the wake on President Reagan's landslide
election in 1980, his 1981 tax cuts were passed. The Economic Recovery
Tax Act of 1981 dramatically cut taxes on wealthy Americans. This tax cut
was based on supply side economics (or Reaganomics)--a theory that,
if you cut taxes and at the same time reduce government spending, this
will induce a vast improvement in the economy, and thus actually increase
government revenues. Unfortunately, by 1982 the economy had not improved,
and unemployment hovered around ten percent. (Shuman, 129-31)
Although the 1981 tax cut did reduce taxes
substantially for the wealthy, these tax cuts were not coupled with spending
cuts. In fact, Reagan dramatically increased federal spending with his
introduction of the Star Wars program, officially known as the Strategic
Defense Initiative (SDI). This program was supposed to provide the
United States with a protective shield which would nullify the nuclear
arsenal of the Soviet Union. Even though the possibility of building such
a deterrent was questioned by many scientists, the Initiative was carried
forward anyway.
The effect of this increase in military spending,
combined with the 1981 tax cut, was to greatly increase the federal
debt and therefore also to increase federal interest payments. As Howard
Shuman puts it in Politics and the Budget : "If one had to
choose a single watershed event that was the root of fiscal crisis and
foretold the downfall of the 1974 act, it was the enactment of the President's
Economic Recovery Tax Act of 1981. As passed, it gave away $750 billion
in revenues over five years. This assured massive deficits and an uncontrolled
budget policy for the foreseeable future."
The combination of Reaganomics, Star Wars
spending, a rising deficit and debt, and a poor economy--spurred at one
time or another by recession or inflation--created a major fiscal crisis.
"The annual deficit grew from the $40 billion to $80 billion range
. . . to the $127 billion to $220 billion level in the 1980s," and
the national debt nearly doubled . (Shuman, 279)
Congress's answer to this crisis was the
passage of the Balanced Budget and Emergency Deficit Control Act of
1985 sponsored by Senators Gramm (R, TX), Rudman (R, NH) and Hollings
(D, SC). This Act, also known as Gramm-Rudman-Hollings (or GRH), passed
with bipartisan support. GRH established deficit reduction guidelines with
a goal of reaching a balanced budget by 1991. (Shuman, 286)
The enforcement mechanism of this legislation
was sequestration. It altered the budget schedule slightly and provided
for the Office of Management and Budget and Congressional Budget Office
to examine the preliminary budget by August 15. If the budget did not attain
the deficit reduction goals within a $10 billion leeway, a sequestration
order could be given on September 1. Sequestration is when the Comptroller
General, the Head of the GAO, recommends that the president issue an across
the board, percentage based cut in all discretionary programs in the federal
budget in order that the deficit reduction goal may be reached. (Shuman,
287)
Immediately after the President signed the Gramm-Rudman-Hollings Act into law, Representative Michael Synar (D, OK) tested the constitutionality of the Act in the Supreme Court. The Court held that the Act was unconstitutional due to a violation of the separation of powers in the Bowsher v. Synar case (92 L. Ed. 2d 583). The Court said that the Comptroller General, Charles Bowsher (Head of the General Accounting Office--a Congressional office), was behaving in an executive manner. "By placing the responsibility for execution of the Balanced Budget and Emergency Deficit Control Act in the hands of an officer who is subject to removal only by itself, Congress in effect has retained control over the execution of the Act and has intruded into the executive function. The Constitution does not permit such intrusion." (Cushman, 109-11) Since the GAO is located within the legislative branch, only Congress has the power to remove the Comptroller General.
In light of Bowsher v. Synar ,
Congress changed the mechanism for triggering sequestration. A joint committee
of Congress now reviewed the OMB and CBO figures. If necessary, the committee
would produce a resolution containing the specifics of the sequestration
for consideration on the floor of the House and Senate. Then, both chambers
have to vote on the resolution with only limited debate and no amendments.
The resolution is then sent to the President and the sequestration may
be ordered. (Shuman, 291)
Other amendments to GRH, The Emergency
Deficit Control Reaffirmation Act of 1987 (also known as the Son of
GRH or GRH, Jr.) included less Draconian measures than its parent legislation.
According to this new Act, the deficit reduction targets now had to reflect
current economic conditions, and be adjusted to take economic forecasts
into account. (Franklin, 99) In addition, the deadline for a balanced budget
was extended to 1993. Congress was fearful of another recession in light
of the then recent stock market crash, and anticipated damaging results
to the public if GRH forced deficit reduction to take priority over a strong
social safety net during a potential recession or quasi-depression. Hoping
for a quick recovery for the economy, the forecast provision was to be
sunsetted, or eliminated, after three years.
A massive budget crisis arose when, halfway
through 1990, it was revealed that the OMB figures on which President Bush
had based his budget were overly optimistic. The OMB did not factor in
the recession or the impact of the savings and loan bailout. (Shuman, 315)
The President was forced to call a bipartisan budget summit. The summit
resulted in the Omnibus Budget Reconciliation Act of 1990 (OBRA) and
the breaking of Bush's "no new taxes" election pledge of 1988.
The Act's Title XIII, the Budget Enforcement Act of 1990 dramatically
restructured budget procedure and priorities. The deficit reduction goals
of GRH were drastically reduced with a goal of an $83 billion deficit by
1995 and the focus changed from deficit reduction to spending caps.
The legislation also set up "fire walls"
within the realm of discretionary spending. Three separate areas were established
within discretionary spending: defense, domestic programs, and foreign
aid. Under the concept of fire walls, a deficit in one of these budget
areas could not be remedied by taking funds from another. Any savings which
occurred in one area had to be used toward debt reduction.
The 1990 Budget Act also established a pay-as-you-go
or PAY-GO system. PAY-GO prevented the expansion of existing programs
or the introduction of new ones unless Congress was willing to cut some
other programs within its "fire walled" area. For example, if
Congress wanted to increase funding for education, it would have to cut
something else within the domestic budget.
Under this Act, the Executive maintained
all powers of sequestration, and could order it if the discretionary caps
or deficit reduction goals were not met, or if PAY-GO violations occurred.
However, since sequestration now occurs within the "fire walls,"
across the board budget cutting is limited by the legislation. (Shuman,
333-34)
The breaking of President Bush's "Read
my lips, no new taxes" pledge contributed to the election of President
Clinton in 1992. Because of troubles with the Republicans at the beginning
of his administration, and because his budget plan included increasing
taxes on the wealthy, the Omnibus Budget Reconciliation Act of 1993--which
contained President Clinton's budget--passed by very narrow margins: by
only two votes in the House, and by a tie breaking vote cast by Vice President
Al Gore in the Senate.
The deficit reduction measures in this Act
include a goal of reducing the budget deficit over a five-year period by
$496 billion. In this way, the annual deficit will be brought down to $212
billion by 1998. This five-year deficit reduction is to be achieved by
$255 billion in budget cuts and $241 billion in revenue increases. However,
most of the spending cuts will not kick in until 1996.
The Clinton budget includes tightening spending,
including reductions in the military budget; raising taxes on families
with incomes over $115,000; and increasing interest payments on the national
debt. Attempts at increased spending cuts are likely to be introduced in
forthcoming sessions of Congress.
Berman, Larry. The Office of Management and Budget and the Presidency, 1921-1979. Princeton, NJ: Princeton University Press, 1979.
Cushman, Robert F. Cases in Constitutional Law. Englewood Cliffs, NJ: Prentice Hall, 1989.
Franklin, Daniel P. Making Ends Meet: Congressional Budget Making in the Age of Deficits . Washington, DC: Congressional Quarterly Press, 1993.
Shuman, Howard E. Politics and the Budget: The Struggle Between the President and the Congress . Englewood Cliffs, NJ: Prentice Hall, 1992.