Our never-ending taxing and spending system wasn’t built to last

Perpetual laws in place today cannot be sustained. They must be reformed. 

That’s essentially what the Congressional Budget Office declares when it projects that continuing current federal law, which enshrines the direction of almost all future spending at levels increasingly above projected revenues, will create massive and unsustainable debt increases into the future.  

Addressing this issue will be the hardest yet most important aspect of tackling budget reform. Simply stacking up some spending cuts and tax increases to restore sustainability, as tricky as that is alone, will not be enough. We need a set of fiscal rules and processes that limit the extent to which current or past Congresses can bind future ones.  

These are serious constitutional, large-scale governing issues, though, in my view, not matters that the Supreme Court should decide. 

This issue came up indirectly in the recent Supreme Court case that approved the Constitutionality of Congress’ decision to allow the Consumer Finance Protection Bureau to access funds from the Federal Reserve without additional appropriations from Congress. 

In his dissent, Justice Samuel Alito, joined by Justice Neil Gorsuch, argued that the seven-justice majority suggests that the appropriations process “imposes no temporal limit that would prevent Congress from authorizing the executive to spend public funds in perpetuity.”  

Although Alito’s comment refers to appropriations, most regulatory laws are permanent until future legislation rescinds those rules. Congress also establishes most taxes and tax subsidies in perpetuity. Only recently has most federal spending also been authorized through permanent laws (in CBO-speak, “mandatory” spending). In contrast, when the Constitution was adopted, almost all federal spending was appropriated annually. 

Suppose every future Congress, including the one elected to take office next year, lets current law stand and enacts no new legislation other than restraining appropriations (now only about one-quarter of total outlays) to grow only with inflation. Automatic growth from mandated spending and rising interest costs would continue to rise faster than rising taxes and our national debt would increase continually relative to our national income.  

The U.S., like most developed economies, has constitutionally boxed itself in. Consider James Madison’s efforts to ensure that sudden or populist ideas run a gauntlet to be enacted — passage by two different houses of Congress and then approval by the president. Essentially, he wanted checks and balances so that a supermajority was required to approve doing something new.

But with the perpetual laws now in place, the constraint works in reverse: New and higher spending levels will occur unless a supermajority agrees to cut back on promises made to the public.

The extent to which these permanent laws have grown undermines “fiscal democracy,” which I measure by calculating the share of new revenues remaining after taking into account the automatic spending growth set by permanent laws enacted in the past.

By that measure, today, there is close to zero fiscal democracy. Before members of the new Congress even walk through the doors of the Capitol to be sworn in, almost every dollar of revenue for the year has already been committed.  

Legislators today can thus do no new spending increase or tax cut without either adding to deficits, reneging on past permanent promises for benefit growth, or maintaining taxes far below spending.

Dead men — and they were mainly men — still rule over us today with the permanent spending laws they established decades ago. 

Thus, budget reform must deal with many permanent legal provisions, such as the uncontrolled way that health costs automatically rise to cover newly available drugs and procedures. To be viable long-term and consistent, however, it’s not enough to create a barely sustainable balance between permanent spending provisions and permanent tax provisions. That still leaves no fiscal slack or flexibility to address efficiently new needs, opportunities, or wants of tomorrow’s voters. 

No government or household can be responsive by signing perpetual contracts for how all expected growth in income would be spent. 

A new constitutional rule might limit any permanently scheduled automatic growth for more than a few years, thus forcing future Congresses to decide whether those increases deserve priority over other types of spending. It might establish a rule that existing tax rates automatically must adjust so that current taxpayers pay at least the same average tax rate as current law implies that future generations must pay. It might seek to establish some minimum level of fiscal democracy by limiting the share of new projected revenues that can be committed currently.  

There is the side issue of what belongs in a Constitution. When it comes to budget issues, it’s hard to come up with rules that work well for all times and places. Efforts of one generation to define the rights of future generations to some higher level of spending or lower level of taxes are particularly egregious.  

I certainly don’t have all the answers to the constitutional issues I raise here. They deserve serious attention from those who study how processes and rules, both explicit and implicit, can lead a legislature to enact budgets that do not excessively seek to control the future before it has arrived. 

Only by addressing when perpetuity can reasonably be built into spending and tax laws can Congress hope to solve our ever-growing debt problem.

Eugene Steuerle is a co-founder of the Urban-Brookings Tax Policy Center and a former deputy assistant secretary of the Treasury.