National Tax Journal, Vol. 43, no. 3,
(September, 1990), pp. 223-32
TAXES AND SPENDING
UNDER
GRAMM-RUDMAN-HOLLINGS
ROBERT D. REISCHAUER*
tions and transparent
budget gimmickry.
This has made the participants
cynical
about
dermined the public's image of politicians
and political institutions. Furthermore,
the
process has heightened conflict both within
the Congress and between the Congress
and the Executive branch.
The frustration
has generated
a new
wave of proposals to reform the budget
process. Some of these proposals
would
scrap GRH and return to the procedures
that existed before 1985 or even to those
that were followed before the enactment
of the Congressional
Budget and Impoundment Act of 1974.' Others would
strengthen
GRH by closing various loopholes and restructuring
sequestration
to
include the revenue side of the budget and
also to increase the contribution
required
from defense. Many of these proposals
would extend the GRH discipline beyond
1993 and require that the government
balance the budget excluding Social Security (OASDI). Still other proposals would
replace the system of fixed targets and sequestration
with some new and more
flexible process that relied on strengthened Congressional
procedures
for enforcement.
Because some change will almost certainly be made in the GRH process in 1990,
this seems an appropriate time to attempt
an assessment
of the impacts of the current procedures.
GRH might be evaluated
along many dimensions,
but three are
paramount:
1. Whether GRH has held down the size
of the deficit,
2. Whether GRH has biased deficit reduction away from a reliance
on
higher taxes and restraint
in entitlement spending and toward cuts in
discretionary
spending, and
3. Whether GRH has altered the institutional balance of power and spending priorities on Capitol Hill.
Of course there is no way to answer
these questions in anything resembling
a
HE fifth anniversary
of the enactment of the Balanced
Budget and
gm- @ikency- bel?cti-t Co-n'@6-ol-A@f @(dfflairaRudman-Hollings
or GRH) is rapidly approaching.
If budgetary
events had followed the script laid out in the original
legislation, the deficit in the current fiscal year (1990) would have been somewhere between $36 billion and $46 billion
and the challenge facing the Congress and
the Administration
would be to come up
with savings sufficient to balance the 1991
budget. The reward for this accomplishment would have been an end to the era
of fixed budget targets and sequestration
threats. Then, to the relief of all, the 1992
budget could have been developed using
the pre-1985 procedures.
Of course,
the original
GrammRudman-Hollings
script has been rewritten by the actors and events. In September of 1987, when the 1988 deficit target
proved impossible to reach, the targets
were revised upward and the period for
attaining
a balanced
budget was extended by two years.' Despite this relaxation of discipline, the deficit for the current fiscal year (1990) will be roughly
double the revised GRH target of $100
billion. Furthermore,
the task facing the
Administration
and the Congress for 1991
is daunting to say the least: spending reductions and tax increases sumniing to
roughly $100 billion will be required to
meet the revised 1991 deficit target of $64
billion.
The glaring failure of GRH to bring
down the deficit has led to a growing sense
of frustration.
This frustration
has been
exacerbated
by the nontrivial
costs imposed by the GRH process. At times GRH
has led the Congress to accept second- or
even third-best solutions to problems in
an effort to stay within its short-term
budget constraints.
The GRH process has
also encouraged reliance on overly optinlistic economic and technical
assump*The Congressional Budget Office, Washington, DC
20515.
T
223
tr-
National Tax Journal, Vol. 43, no. 3,
(September, 1990), pp. 223-32
224
NATIONAL
TAX JOURNAL
rigorous manner. The period of time under review is far too short for the application of conventional statistical procedures that might be used to disentangle
the effects of GRH from the effects of the
other changes that have taken place.' And
these changes have been significant. For
example, during the GRH period, the Republicans have lost control of the Senate,
a new Administration
has taken over, the
Soviet threat has diminished, the economy has strengthened and the budget has
been buffeted by both natural and manmade disasters in the form of droughts,
hurricanes, earthquakes,
financial market crashes and the S&L debacle. What
follows, therefore, is necessarily judgmental.
What Is Gramm-Rudman-Hollings?
Before examining the dimensions listed
above, it would be best to describe briefly
the three key elements of GRH that were
expected to affect budgeting. The first of
these was the establishment
of fixed deficit targets. These targets decline by $36
billion a year until the budget is in balance.' The PresidenCs budget proposal and
the Congressional budget resolution are
required to meet these targets.
The system of fixed targets was intended to eliminate the wrangling overjust
how much deficit reduction to engage in
each year, and to force the Administration and the Congress to propose significant deficit reduction packages each year.
The second and most controversial element of GRH is sequestration,
the automatic across-the-board
cancellation
of
budget resources. Under GRH, sequestration occurs if OMB's estimate of the deficit made in mid-October exceeds the target set for that fiscal year by more than
$10 billion. If this test is not met, an aggregate amount of budgetary resources
sufficient to reach the target is sequestered. Half of the savings are generated
by-mapo&VN"quW powentage-redmkons
in the budgetary resources of every program, project and activity in the defense
budget, and half from imposing similar
reductions in the programs, projects and
activities of the non-defense discretionary
[Vol. XLIII
I
budget. Some programs, including the retirement, disability and means-tested entitlement programs, are exempted from
sequestration, and the size of the cuts that
can be imposed on Medicare and several
small mandatory programs is limited.
The threat posed by sequestration was
expected to force the President and the
Congress to reach agreement on more
sensible ways to cut the deficit than
through equal percentage spending reductions imposed on programs of very different political importance. Some supporters of GRH anticipated
that the
President would want to protect defense
and the Congress would want to protect
domestic discretionary
programs. Some
hoped that the threat of sequestration
might generate support for higher taxes.
The third component of GRH is a set of
procedural and definitional changes that
were designed to tighten and clarify the
budget process. These reforms, it was
hoped, would moderate conflict within the
Congress and reduce the opportunities to
evade the discipline of the budget process.
Many of these changes presumably will
have a life independent of the GRH targets and sequestration.
Has GRH Reduced The Deficit?
From the superficial evidence, it would
appear that GRH has done little to reduce
the deficit. The law was enacted in December 1985, two months into fiscal year
1986. Action on the budget for that fiscal
year was over by then. The only effect that
the new law could have been expected to
have on the 1986 fiscal year was through
the $11.7 billion mini-sequestration
that,
as called for in the new law, was meted
out in March 1986. Even after this sequestration, the deficit for that fiscal year
came in at $221 billion, the largest in
budget history.'
The budget for 1987 was thus the first
budget subject to the full discipline of
(IJW A-*W#or- Arop:@5m-theAeficit was
achieved, to $149.7 billion. But this
achievement was not followed by similar
progress in the ensuing three years. The
deficits for fiscal years 1988 and 1989 came
in at $155 billion and $152 billion re-
National Tax Journal, Vol. 43, no. 3,
(September, 1990), pp. 223-32
No. 31
ROBERT D. REISCHAUER
spectively despite strong economic growth
(4.4 percent for 1988 and 3.2 percent for
1989). And fiscal year 1990 promises to
be something of a budgetary disaster: at
this point the deficit is projected to be close
to $200 billion.
A superficial reading of these deficit
nwW)m-wW"ead
to the concluswa."t
GRH had a significant initial effect but
that its impact was only temporary. However, these numbers are quite misleading. Much of the credit for the sharp drop
in the deficit between 1986 and 1987 must
be given to the Tax Reform Act of 1986
(TRA), which was front-loaded to produce
a large, first-year revenue gain that drove
down the 1987 deficit by over $20 billion. 6
While the need t6 reach the GRH deficit
target may have played some role in the
decision to front-load the "revenue neutral" TRA, the large revenue gain for 1987
was probably inevitable given the decision to eliminate the preferential capital
gains tax rates. Furthermore,
another
large slug of deficit reduction (some $16.3
billion) was contributed by the lagged impact of the March 1986 sequestration.
While this sequestration was an integral
part of GRH, its lagged effect did not reflect any change in behavior during 1987
that could be attributed to the new process. 7
Just as the sharp reduction in the deficit in fiscal year 1987 should not all be
attributed to the initiation of GRH, the
lack of progress in 1988 and 1989 and the
retrogression in 1990 should not be regarded as indicating that the discipline of
GRH had suddenly gone limp. For 1988,
Policymakers had to offset the substantial
effects of the one-time deficit reduction
measures that caused the 1987 deficit to
fall so sharply. The deficits for the next
two years were significantly affected by
the hemorrhaging of the S&L deposit insurance accounts. If net outlays for dePosit insurance had not exploded, the deficit for 1989 would have been $135 billion
and that for 1990 would be around $149
billion.8 In other words, it is possible to
Paint a picture that shows the deficit
drifting down during the GRH period if
one abstracts from the effects of temporary deficit reduction measures and the
225
impact of the S&L crisis.
Of course the size of the deficit, whether
adjusted in this manner or left unadjusted, is a poor gauge of the impact that
GRH may have had because the deficit is
affected by many forces. Changes in the
deficit do not accurately reflect the effects
indicator of the effects of GRH is the magnitude of the deficit reduction packages
that have been submitted by the President and the size of those that have been
passed by the Congress. As was noted
previously, the requirement
that the
President's budget proposal meet a fixed
deficit target, together with the threat of
sequestration, was expected to lead to more
substantial proposals from the Administration and more action on the part of the
Congress.
There seems to be little evidence that
either of these effects has occurred under
GRH. One measure of the size of the deficit reduction package contained in the
President's budget is the difference between the Administratioes
current services deficit estimates and the President's
estimate of the deficit that would result
from implementation
of his budget proposal. By this measure, the deficit reduction packages submitted by President
Reagan averaged $37 billion in the four
years preceding GRH, but only $31 billion in the four years following the enactment of GRH (see Table 1).
Of course, fiscal year 1989 was affected
by the Balanced Budget and Emergency
Deficit Control ReaiTirmation Act of 1987
which relaxed the deficit targets so that
there was only an $8 billion drop in the
targets between 1988 and 1989. Even excluding the latter year, the average
amount of deficit reduction proposed by
President Reagan in the post-GRH era was
not appreciably different from that in the
pre-GRH period- $38 billion versus $37
billion. A similar story emerges from an
examination of the two Bush budgets,
which proposed an average of $37 billion
in deficit reduction by this measure.
A second, more objective, measure of the
size of the deficit reduction measures proposed by the President is provided by
CBO's annual analysis of the President's
National Tax Journal, Vol. 43, no. 3,
(September, 1990), pp. 223-32
226
NATIONAL TAX JOURNAL
Table
1.
Deficit
Reduction
in the President's
by OMB and CBO, Fiscal
Years
1983 to 1991 (In
dollars)
Fiscal
Year
[Vol. XLIEII
Budget
billions
OMB
CBO
1983
1984
1985
1986
34.5
42.7
27.2
42.6
36
24
5
33
Average
36.8
i-5
1987
1988
1989
1990
38.2
42.4
8.9
34.4
22
36
12
26
Average
30.0
@i-4
1990
1991
36.7
36.5
16
31
Average:
34.4
T4
Pre-GRH
Post-GRH
Post-GRH
as Measured
of
(Reagan)
(Reagan)
(Bush)
Sources:
Office
of Management
and Budget,
Special
Analyses,
Budget
of the United
States
Government,
Fiscal
Years
1983 to
1991.
Congressional
Budget
Office,
An Analysis
of thg
President's
Budgetary
Proposals
for Fiscal
Year 1983 (1982)
and
subsequent
annual
volumes
covering
the years
through
1991.
budget. CBO's estimates
of the net deficit
reduction
associated
with the policy
changes proposed
by the President
lead to
a similar conclusionthat there is no appreciable
difference
between
the amount
of-deficit, reddgd**OVfted
@Wthe"VMGRH era and that proposed in the period
after fiscal year 1986. The average for the
1983-1986
period was $25 billion, while
that for the 1987-1991 period was $24 billion.
The reason why the Presidents'
deficit
reduction
packages
failed to increase
in
size after the enactment
of GRH is no
mystery.
The Administration
chose to
minimize
the size of the deficit problem
by increasing
its reliance
on optimistic
eCdftdfflb-40-teMdW- In
the four fiscal years preceding
GRH, CBO
reestimated
the President's
proposed budget deficit upward
by an average
of $2
billion for economic reasons (see Table 2).
In the five fiscal years following
the enactment
of GRH, this adjustment
has av-
National Tax Journal, Vol. 43, no. 3,
(September, 1990), pp. 223-32
No. 31
ROBERT D. REISCHAUER
Table
2.
President's
dollars)
CBO Economic
and
Budget,
Fiscal
Fiscal
Year
Technical
Adjustments
Years
1983 to 1991
Economic
Adjustments
Pre-GRH
(In
to the
billions
4
Technical
Adjustments
8
7
25
-2
3
-1
2
6
-11
Average
(Reagan)
1987
1988
1989
1990
-1
15
25
10
17
12
11
17
Average
Y2
-i4
9
26
30
44
Post-GRH
(Bush)
1990
1991
Average
Source:
President's
Subsequent
of
(Reagan)
1983
1984
1985
1986
Post-GRH
227
'@7
Congressional
Budget
Office,
An Analysis
of
Budgetary
Proposals
for Fiscal
Year 1983
annual
volumes
covering
the
years
through
eraged $15 billion a year. Similar
reestiniates for technical
reasons averaged
$6
billion in the pre-GRH
era and over $20
billion in the post-GRH
period.
A comparison
of the average amount
of
Permanent
deficit reduction
enacted in the
Pre-GRH era with that of the GRH period
reinforces
the conclusion
that not much
was changed by GRH. Over the 1983-1986
Period such savings averaged
$14 billion
a year; in the ensuing five years (19871990) the average
was $10 billion a year.
What ' is different
about the two periods is
the
(1982)
1991.
and
the reliance
on one-time
savings that became a feature
of the GRH period. These
one-time
savings
devices
include
such
legislated
actions as accelerating
revenue
collections,
selling
government
assets,
moving agencies off the budget (the FSLIC
Financing
Corporation,
the Postal
Service, etc.) and altering
the rules governing distribution
of lump-sum
retirement
benefits for federal workers.'
In the preGRH period, these gimmicks
occurred so
infrequently
that CBO did not keep systematic
track of them. In the GRH era,
National Tax Journal, Vol. 43, no. 3,
(September, 1990), pp. 223-32
228
NATIONAL
TAX JOURNAL
fully half of the apparent deficit reduction
has been achieved by such devices.
The comparison of deficit reduction in
the period before GRH with that during
the last few years is a very unsatisfactory
way of attempting to ascertain whether
GRH has had an impact on the size of the
deficit. No one can know what the deficit
outcome would have been during the past
few years without the GRH constraints.
But there are several reasons to believe
that the deficits might have been even
larger.
First, the political environment in the
GRH period might be regarded as less
conducive to deficit reduction. In January
of 1987, just when the GRH era began, the
Democrats regained control of the Senate.
Congressional Democrats then started a
concerted effort to differentiate their policy positions from those of the Administration. In January of 1989, a new President who promised a "kinder and gentler"
Administration
took office. The new
Administration
was not hostile to government programs and, in fact, proposed a
wide-ranging package of domestic initiatives. The President's election pledge to
eschew tax increases certainly did nothing to enhance the prospects for deficit reduction.
Second, public support for (or more accurately, tolerance of) deficit reduction
probably began to wane during the late
1980s. Despite the persistence of large
deficits, the sky had not fallen. The economy had continued to grow, inflation had
not gotten out of control, and the unemployment rate had declined to a 14-year
low. A decade of spending restraint had
left domestic discretionary spending lower,
relative to GNP, than at any time since
the 1950s. The public reacted to this situation by expressing support for expanding government efforts to address unmet
needs in numerous areas such as education, homelessness, infrastructure,
AIDS,
health insurance, and the. en-,iron
-if'cin be- a'
@'@'gftt
the constraints of GRH acted as a brake
on new initiatives. Some initiatives never
got out of the starting blocks, others were
delayed or scaled back. GRH budget constraints have made it easier to strip some
[Vol. XLIII
of the costly trimmings from supplemental appropriation bills. A new legislative
animal that has appeared only in the GRH
period is the deficit-neutral
proposal. The
child care initiative, the legislation to
combat the drug problems, the short-lived
Medicare Catastrophic Coverage Act and
the Panama/Nicaragua
supplemental appropriation for 1990 are examples of proposals that contained a pay-as-you-go element.
Furthermore,
GRH may have provided
a mechanism for translating into concrete
legislation action a general perception that
certain programs should be scaled back or
restrained. The case for this is particularly strong with respect to the defense
budget and Medicare. Real defense budget authority not only stopped growing in
fiscal 1985 but has actually been reduced
in each of the following five fiscal years.
The 1990 level is some 12 percent to 13
percent below that for 1985. In recent
years these reductions have required procurement cuts and base closings. If it had
not been for the pressures of GRH, the political costs of these actions might have
undermined efforts to reduce the defense
budget.
The growth of Medicare spending has
been restrained during the GRH period
by provision in the 1987 and 1989 Reconciliation Acts. As a result of these and
other measures, Medicare outlays have
grown no faster than the economy over the
1985-1990 period. In short, the limits imposed by GRH may have stiffened the fiscal backbone of the political system.'o
Has GRH Made Tax Increases and
Entitlement Cuts Even Less Likely?
No one-not the President or the Congress, not the Democrats or the Republicans- wants to raise taxes or cut entitlements. This truth was reflected in the
GRH sequestration
procedures, which re1*,abUat-o@xclusI .ively oia -cuts in--&smiionary spending to bring the budget into
compliance with the deficit targets. But
an unspoken assumption shared by many
early supporters of GRH was that the pain
and irrationality of sequestration would
lead policymakers at least to consider the
National Tax Journal, Vol. 43, no. 3,
(September, 1990), pp. 223-32
No. 31
ROBERT D. REISCHAUER
altezmatives-namely,
substantial tax increases and entitlement cuts. Most supporters of GRH thought that the President would accept tax increases rather
than endure sharp reductions in the defense budget, and that the Congress would
accept qM#,sa"
mQOicatiom in eoitlement programs in oi@Aerto a@ll@wso-me
leeway in the domestic discretionary accounts. In short, sequestration could provide the political cover that was needed
to raise taxes and cut entitlements.
But sequestration
turned out to be
something of a toothless tiger, defanged
by optimistic economic and technical assumptions,
accounting
gimmicks and
changes in the deficit targets. The failure
of the sequestration
threat raises the possibility that GRH has, in fact, reenforced
the reluctance of policymakers to turn to
taxes and entitlement cuts. In the parlance of the day, GRH may have taken
taxes and entitlements
off the table,
thereby increasing the chances that discretionary programs would absorb most
of whatever adjustment occurred. After all,
discretionary
programs were clearly
threatened
the most by sequestration,
which presented a choice between allocating the inevitable cuts sensibly according to Congressional priorities or accepting
nonsensical
across-the-board
reductions.
An examination of the evidence provides some superficial support for this hypothesis. Revenue increases contributed a
much higher share of the permanent deficit reduction enacted in the four fiscal
years before GRH than in the four subsequent fiscal years. To be specific, increased revenues contributed 64 percent
of the permanent net deficit reduction over
the 1983-1986 period, but only 40 percent
of the reduction during the GRH era (see
Table 3)."
Of course, the figures for permanent
deficit reduction represent an amalgam of
all the actions taken for a fiscal year and,
therefore, encompass far more than the
Congress's deficit reduction initiative. The
portion of that initiative that is aimed at
tax, entitlement and authorizing legislation is usually packaged in a reconciliation bill. As Table 4 indicates, 62 percent
229
of the deficit reduction contained in the
three reconciliation bills in the pre-GRH
era represented increased revenues, while
during the GRH period only 41 percent
presented increased revenues.
While these numbers might be taken as
has 4,qn e
atteast we* e
pqe,t
G
little to rais -@t e viability of tax increases, the case is hardly convincing. For
the past decade, the Congress has not
shown a willingness to lead when it comes
to tax increases. The budget resolutions
have assiduously avoided increasing revenues beyond the levels proposed in the
Presidents'
budgets. And the average
amount of new revenues recommended in
the Presidents' budgets has declined. In
the four fiscal years preceding GRH, these
revenue enhancements
averaged $7.6 bil.
lion, while in the following four years they
averaged $3.7 billion (or $4.6 billion if the
figures for the 1990 Bush budget are included).
This suggests that it is Presidential
policy, not the structure of GRH, that has
kept tax increases from playing a bigger
role in the effort to reduce the deficit during the GRH era.
How Has GRH Affected Spending
and Other Priorities?
GRH has had effects extending far beyond the questions of how large the deficit ought to be and how reductions in the
deficit should be structured. It has affected the balance of political power and
legislative priorities in subtle and complex ways. The magnitude and net effect
of these changes must remain largely the
province of speculation. But it is clear that
the relative positions of certain committees and programs in the Congress have
risen, while those of others have diminished.
These changes can be illustrated by examining the role of the tax-writing committees, which have both gained and lost
under GRH. They have lost in the sense
that the decisions on whether or not to
take up tax legislation in a year, and the
composition of that legislation, are less
likely to be left in those committees'hands
alone. GRH has made the committees more
National Tax Journal, Vol. 43, no. 3,
(September, 1990), pp. 223-32
230
NATIONAL TAX JOURNAL
Table
3.
Sources
1983 to 1991 (In
of Permanent
Deficit
billions
of dollars)
Fiscal
Year
Revenue
Increases
[Vol. XLIII
Reduction,
Permanent
Savings
outlay
Deficit
Reductions
Reductions
Fiscal
Years
One-Time
Savings
Pre-GRH
1983
1984
1985
1986
Average
-20
-4
-10
-1
-3
+1
-0
-16
-23
-3
-11
-17
0
0
12
0
-9
-5
-14
3
- 9
-15
+5
-6
-17
-25
+6
-2
-28
-9
0
-8
-6
-10
-11
Post-GRH
19,87
1988
1989
1990
-8
-11
0 A/
+4
Average
Source:
a= Less
-4
Congressional
than
$500
Budget
Office
million.
subject to the reconciliation
process. Reconciliation
can include an order for the
committees
to raise revenues,
and to raise
them by a specific amount. In addition,
the
tax debate has focused more on the revenue repercussions
of pending
legislation
and less on its policy merits. Any member
of Congress
can be a player in the revenue game, while members
of the Ways and
Means and Finance Comnuttees
alone can
claim special expertise
in the policy game.
The tax committees
have also gained
some power under GRH, at least in a relative sense, by virtue of the fact that they
have both spending
programs
and revenuee -#*Mn VWtiUfl§@Wdft.
14ft-6%re,
unlike most other committees,
they have
the ability to offset the costs of any program expansion
they may wish to undertake. In effect, they are unconstrained
because they are the quintessential
pay-as-
you-go committees.
Furthermore,
in a
world of strictly
enforced budget limits,
their assistance
will increasingly
be sought
by other committees
whose agendas
can
be made or broken by the tax committees'
willingness
to act.
When it comes to the deficit reduction
process, the tax committees
also are in an
enviable
position because
of the myopic
focus of GRH. Existing
tax provisions that
raise revenues,
and existing entitlement
provisions
that curtail
spending,
can be
extended
for limited periods of time when
reconciliation
action is required.
In this
way they can be used pver
yer agin
to tfttmbbte
to'i@e n--'ati-on':s'*e icit retuetion effort without entailing
any new political pain. The telephone
tax extensions,
the Supplementary
Medical
Insurance
(SMI) premium
increases
and the various
Medicare
reimbursement
limits have had
National Tax Journal, Vol. 43, no. 3,
(September, 1990), pp. 223-32
ROBERT D. REISCHAUER
No. 31
Table
4.
Sources
of Permanent,
Reconciliation,
by Fiscal
Year
Fiscal
Year
First-Year
(In billions
231
Deficit
Reduction
of dollars)
Permanent
Savings
outlay
Reductions
Revenue
Increases
from
Total
Deficit
Reductions
Pre-GRH
1983
1985
1986
(a)
Average
18.0
10.5
0.8
6.9
4.4
6.0
24.9
14.9
6.8
9.8
5.8
15.5
Post-GRH
1987
1988
1990
2.5
8.9
5.4
6.2
8.8
9.0
8.7
17.7
14.4
Average
5.6
8.0
13.6
(a)
The 1984 reconciliation
legislation
of the fiscal
year.
The numbers
shown
fiscal
year
1985.
Source:
Congressional
Budget
was
reflect
passed
the
near
effect
the end
on
Office.
at least nine deficit reduction
lives of this
sort.
If GRH-type
constraints
are extended
in coming years and spending
altematives are limited, then tax, regulatory
and
credit policy will increasingly
become the
focus of policymakers'
efforts to achieve
their objectives.
The tax committees
could
find themselves
under increasing
pressure to modify the tax code to create incentives
designed
to achieve
various
social and economic policy goals.
With respect
to programs,
GRH has
Probably
increased
the importance
of relative priorities
among them and increased the significance
of being big. It has
become increasingly
important
for supPorters of a program who want to get added
resources to obtain explicit recognition
of
the expansion
in the budget resolution.
Such recognition
can serve as an impor-
tant justification
not only for a claim on
scarce resources
but also for a seat on the
Reconciliation
Express or the Supplemental Limited.
Advocates
for some programs, such as Medicaid,
have been very
adept at these budgetary
tactics. It is much
easier to obtain recognition
of this sort for
large initiatives
than for smaller
ones,
which more often than not are left to fend
for themselves
in the cutthroat
appropriation process.
At the other end of the priority
spectrum, weak programs
and those that represent declining
priorities
can become the
target of budgetary
feeding frenzies that
leave them far smaller than their merits
might warrant.
In recent years the defense budget has found itself in this position. In the cases of the drug initiative,
the disaster relief bill, and the Panama/
Nicaragua
supplemental,
members
have
National Tax Journal, Vol. 43, no. 3,
(September, 1990), pp. 223-32
232
NATIONAL
tried to rip a piece off the Pentagon's
to feed their favorite initiative.
TAX JOURNAL
hide
Conclusion
Even though
many people regard the
GRH law as a failure,
it is not clear
any other process could have achieved
that
its
modicum
of success. GRH may not have
brought the deficit cows back mto the barn,
but it has kept them from stampeding
over
the cliff. R may have encouraged
budget
makers
to resort to optimistic
economic
assumptions
and other sleight of hand, but
it has also focused public attention
on their
expediencies
and made them somewhat
uncomfortable.
The lesson of the last five years is that
process reform, by itself, cannot guarantee that signfficant
deficit reduction
takes
place. No budget process can force those
engaged in it to commit what they regard
to be political
suicide. The nation, therefore, will probably
have larger than desired deficits until the political
costs of
continued
large deficits are perceived
to
exceed those of spending
cuts and tax increases.
ENDNOTES
'In the summer of 1987, CBO estimated that the
baseline deficit for fiscal year 1988 was $188 billion.
The Gramm-Rudman-Hollings
deficit target for that
year was $108 billion.
'Testimony of Louis Fisher, Congressional
Research Service, Hearings on the Budget Process, House
Committee on Rules, March 21, 1990.
3For an attempt along these lines, we Edward M.
[Vol. XLIII
Gr-niieh, "U.S. Federal Budget Deficits and GrammRudman-Hollings," The Anwrican Economic Review,
Papers and Proceedings, Vol. 80, No. 2 (May 1990),
p@. 75-80.
The deficit targets decline by $36 billion every year
except in the first and last years.
GRH Deficit Targets (Billions of dollan)
1986 1987 1988 1989 1990 1991 1992 1993
Original
Law
171.9 144 108 72 36
Amended
144 136 100
Law
0
64
28
0
5Relative to GNP, the 1986 deficit (at 5.3 percent)
was the third highest in the post-1946 period, being
surpassed only by those of fiscal years 1983 (6.3 percent) and 1985 (5.4 percent).
n%e Administration in its budget for fiscal year 1989
estimated that the 1986 tax reform act reduced the
1987 deficit by $21.5 billion. CBO's latest estimate of
the impact is $27 billion.
70ne significant behavioral response to GRH was
the inclusion in the 1987 reconciliation bill of significant one-time savings from asset sales and other
gimmicks.
8These estimates substitute the average deposit inoutlays for the period 1980 through 1988 ($1.4
billion) for the actual 1989 and 1990 amounts.
9The one-time savings do not include those resulting from administrative
actions such as accelerating
the distribution of deficiency payments, crediting the
deficit for unredoemed food stamps, shifting pay dates
where this does not require legislative approval, and
changing the pattern of Medicare payments.
loln the pre-GRH period the growth of Medicare
spending was reduced by the reconciliation legislation of 1981, 1982, 1984, 1985, and 1986.
"These percentages are calculated from the aggregates shown in Table 3. Much the same conclusion is
reached by examining the average of the contribution
made by revenues each year, treating each year as an
equal observation irrespective of the amount of deficit
reduction achieved in that year. Using this approach,
the average contribution of revenue increases was 71
percent in the pre-GRH period and 23 percent in the
GRH era.