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Tuesday, December 7, 2010

Adopting A Long-Term Budget Focus: Challenges and Proposals

Megan Suzanne Lynch
Analyst on Congress and the Legislative Process

Marc Labonte
Specialist in Macroeconomic Policy

Mindy R. Levit
Analyst in Public Finance

One criticism of the current budget process is that it does not encourage or require the consideration of long-term budgetary concerns. In this context, a long-term concern is one that affects the budget beyond the traditional five- or 10-year budget window as currently used in the congressional budget resolution and the President’s budget.

Some components of the budget process already deal with long-term budget issues. This means that data already exist, in publicly available formats, to assist in evaluating the country’s longterm fiscal health. In some instances, data evaluating the long-term outlook of certain programs are currently available, including on those programs that are generally thought of as the most challenging to deal with going forward. Long-term components of the budget process can be separated into two general categories and are currently used for two distinct purposes: long-term budgetary data used for informational purposes and rules affecting long-term outcomes that are used for enforcement purposes.

Proponents of more formal long-term budgeting have expressed concerns that the current process allows difficult long-term decisions to be avoided, hides the long-term effects of certain budgetary decisions, and does not provide incentives or tangible goals for achieving long-term deficit reduction. To address these concerns, some have recommended modifying the budget process in various ways to incorporate a long-term budgetary outlook.

Some critics of this approach, however, suggest that information already exists to make long-term evaluations possible, so that a shift to longer-term budgeting alone would not improve the ability of Congress or the President to make the decisions necessary to achieve long-term sustainability of budget policies. Further, some have argued that there are fundamental issues that make successful longer term budgeting impractical, such as projection uncertainty, unforeseen events, and the problem of trying to bind future Congresses to specific goals.

The National Commission on Fiscal Responsibility and Reform, several outside groups, and some Members of Congress have, or are expected to, release budget and budget process reform proposals. Many proposals contain reform options that focus on a longer-term outlook.

Five major proposals are analyzed in this report: (1) extending the time period of the current budget window to provide greater detail about fiscal challenges ahead and the long-term effects of proposed legislation; (2) employing multi-year budget controls that would require the outyears of the President’s budget proposal and the congressional budget resolution to be adhered to; (3) creating annual fiscal targets that could be used either for informational purposes or to enforce specific budgetary outcomes; (4) increasing budget transparency in various ways; and (5) switching from cash-flow accounting to accrual-basis accounting to capture the effects of future entitlements in the current budget.

Date of Report: December 3, 2010
Number of Pages: 22
Order Number: R41516
Price: $29.95

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