National Small Business Network

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Budget and Fiscal Policy Recommendations for the 119th Congress             June 2025

  

Congress can pass sustainable budgets to control the rapidly growing deficit, but current spending proposals will increase the national debt by $4 Trillion over 10 years, and are bad policy!   We have long supported the effort to control annual budget deficits and the growing $36 Trillion National Debt.    We agree with CBO, GAO and most economic advisory groups that our current fiscal path is “unsustainable” and will result in significant economic harm if not corrected.  Congress can start to re-establish long-term fiscal sustainability, but it must be done logically, and it needs to start now.    These recommendations are suggested as part of a balanced program of both tax policy ( www.NationalSmallBusiness.net ) and budget policy recommendations to restore a sustainable Federal fiscal process and stable economic growth.

 

1. Improve Discretionary Budget Expenditure Control and Efficiency

 

The purpose of government is to provide a stable structure in which people can live and work, and to provide important services collectively that individuals cannot effectively provide for themselves.   Unfortunately, the federal budget has grown so large and complex that it is difficult for even the Congress to properly evaluate program effectiveness, or understand the long-term economic impacts of spending policies.   Realistic budget decisions are also made more difficult by a lack of transparent and consistent accounting standards, as required of private sector organizations.     Congress and the Administration also intentionally present expenditure and revenue estimates with time frames and baselines most favorable to their policy preferences.     To assist Congress in making more realistic and sustainable budget decisions, we recommend these changes to the Federal budget process.

 

A.    Develop a performance-based budgeting process similar to successful businesses and several state governments which have "re-invented" their budget processes.    Congress should regularly re-evaluate program expenditures and agency budgets in relation to the value and efficiency of the services delivered.   This approach rewards the program’s importance to citizens, rather than historical expenditure levels.    Multi-level prioritization based on clearly defined performance measures should occur at the program level, the agency level and finally between agencies.   The process should focus on minimizing “non-value-added costs” that do not significantly improve service delivery, and on supporting programs that provide the greatest benefit to taxpayers in relation to their cost.   Prior to each appropriation cycle, agencies should be asked for detailed recommendations on how they can achieve their objectives with less funding.  Current service level, “use it or lose it” budgeting, or “across the board” percentage reductions such as sequestration, often waste resources on in-efficient or unneeded programs, and under-fund more beneficial programs.    The reckless and autocratic destruction of Federal programs by DOGE in the name of “efficiency” will significantly reduce the quality of taxpayer services and eventually cost far more than their claimed savings.

 

B.    Convert to a two-year Budget and appropriations cycle to allow better evaluation of agency programs and appropriations.    It has been more than 25 years since the Congress has completed the full appropriations process prior to the start of a fiscal year.  This means decisions are often rushed and agencies often don’t know what their budget is until well into the program year.  Changing to a biennial process would allow more time to review agency programs over an 18-month period and still have time to complete the appropriation process prior to the start of the next bi-annual fiscal period.

 

C.    Assure effective Agency performance with careful vetting of the management skills of all Presidential appointees.     The performance of any organization depends on the CEO and management team at the top.   Do not allow confirmation of unqualified, politically motivated nominations who lack the management skills and subject matter background to effectively lead an agency.    Voters will blame the Congress as well as the President for poor agency performance.          

 

D.    Stop using intentionally misleading 10-year legislation expense scoring.   Put a greater emphasis on analyzing the broader long-term economic impacts of all legislation and budget allocations prior to adoption.   Too often legislation is crafted to appear revenue positive during the 10-year scoring period without considering longer term, revenue consequences.    A perfect example was Congress using the short-term tax revenue from allowing the conversion of taxable IRAs to Roth IRAs to “pay for” the Bush era tax cuts, without considering the long-term permanent loss of tax revenue.    Revenue scoring also often focuses only on estimated federal tax revenue changes, without adequately considering of the governmental administrative costs and additional private sector compliance costs which may reduce economic productivity.  We support legislation that would require analysis of long-term 10, 25, and 40-year budget impacts on major tax and expenditure legislation.

 

E.    Develop more detailed 10 year and 25 year running budget and revenue plans for the federal government with a congressionally adopted policy to keep expenditures below projected revenues over the periods.   A reasonable goal should be to reduce the national debt below 75% of GDP by 2050.   This is a better way to control expenditures than “Balanced budget Amendments” or borrowing limitations that restrict deficit spending recovery options in true economic emergencies.

 

F.    Using the 10-year budget plan as a base, assure that bi-annual budgets and appropriations are evaluated by the Congress and approved prior to the start of each two-year fiscal period.  This would allow agencies to more efficiently make transitions needed for future funding and program changes and prevent future government shutdowns.   Doing this will require catching up on the budgeting and appropriations process and making it a top priority at the start of every new congress.     The failure to pass agency budgets until well after the start of a budget year demonstrates a basic lack of proper control over the budget and expenditure process. It encourages wasteful spending and program disruption.  

 

G.   Develop a bi-partisan strategic National Economic Growth Plan identifying the best potentials for future domestic and international traded sector economic growth.    Identify, and invest in, the kinds of education and training programs needed to develop the workforce skills to successfully compete with other countries in the future.  Use the analysis as a base for reform of our immigration policies to balance needed technology and workforce skills.      The Congress should then support government programs, regulatory policies, and tax policies to encourage and support future economic growth in these key economic sectors, within the legal limits of international trade agreements.

 

H.    Expand the roles of the Office of Management and Budget (OMB), the Congressional Budget Office (CBO), and the Government Accountability Office (GAO), to help the Congress better evaluate the comparative performance and cost efficiency of agencies and programs.  Detailed and unbiased evaluations of program performance and value are necessary for a successful performance-based budgeting process.

 

I.       Replace, intergovernmental and private contractor “cost plus” reimbursement agreements, which reward in-efficiency, with fixed price contracts that reward cost reduction.

 

J.     All joint Federal–State programs should require participating states to use standardized, jointly developed, data standards and software reporting programs. This will reduce administration and reporting expense and take advantage of economies of scale in development.  This can also facilitate easy exchange of program data and improve Federal evaluation of administration costs and program benefits and reduce fraud and waste. 

 

K.    Stop using reduced tax rates and tax credits, which reduce tax revenue, to influence taxpayer behavior.     Instead, place revenue generating taxes on products or activities which the government wants to discourage.  Tax incentives can help meet social and environmental objectives, but they also reduce revenue and add to the deficit.   Instead, add taxes on products or behaviors that have negative societal impacts or secondary costs. Examples of revenue generating incentives are current “sin” taxes on alcohol and tobacco, and hazardous chemicals, but could include carbon taxes on fossil fuels or taxes on un-healthy products and behaviors that add to health care costs.

 

2. Control All Off-Budget Expenditures:

 

A.     There should be NO continuing off budget expenditures, for military activity, disaster assistance, or any other purpose.  There is no value to having a budget for fiscal control unless all significant expenditures are included.    Congress should review and approve supplemental budget authorizations for any non-budgeted expenditures at least annually. This should include off-setting adjustments to other budget items, or provision for additional revenue if necessary.     Recurring “emergency” spending needs, such as disaster assistance, should be pre-budgeted for, based on realistically expected expenditures.   When short-term economic stimulus or “emergency” deficit spending is needed to help the economy through cyclical downturns, wars, or emergencies such as Covid, Congress should provide a source of offsetting revenue within the 10-year budget planning period.

 

B.    Identify and prevent the growth of unfunded future budget needs when approving programs.     Many government programs also result in long-term costs that are often not properly considered or budgeted for, such as federal employee retirement benefits, veteran’s benefits, or other entitlements.  For example, the VA indicates that almost 45% of the 1.6 million veterans from the Iraq and Afghanistan wars sought disability compensation.  When possible, convert new federal employee and military retirement benefits from defined benefit programs to currently funded defined contribution plans which will automatically prevent the growth of unfunded pension obligations.   Add into all future budget plans the full long-term costs resulting from the program.

 

3. Improve Regulatory Agency Cost Control:

Regulatory programs are an important function of government, but also result in both regulatory agency expense, and significant non-value-added compliance costs for businesses and individuals.    The Congress should adopt an ongoing "Regulatory Efficiency Initiative" building on prior efforts by multiple Administrations and Congresses.    Much of the non-value-added cost of the current regulatory structure results from poor regulatory design and poor coordination of new regulatory legislation with the existing regulatory processes of other Federal agencies, and state regulatory processes.   The result is overlapping regulatory responsibilities and duplicate administrative costs, as well as duplicate reporting and compliance costs for businesses.   Unfortunately, regulatory agencies, like other organizations, inherently seek to enlarge their responsibilities, personnel, and budgets.  Since the “Loper” Supreme Court ruling, reducing agency regulatory clarification authority, it is important that Congress be far completer and more specific when passing regulatory legislation.

 

A.    When budgeting for regulatory agencies, Congress should demand increasingly efficient performance results.  Program funding, and state government, or private sector cost reimbursements, should be based on the use of the most efficient administrative processes and technologies.     This should include improving economies of scale by combining existing agencies and administrative processes when possible and closely coordinating with state regulatory programs    The non-value-added cost impacts on the private sector, on state governments, and on the economy, must also be considered in evaluating the need for, and performance of, all regulatory programs.

 

B.    Develop a more coordinated and economically efficient Federal-State regulatory structure.   State government program partners and private service providers to federal programs should be required to use standardized electronic reporting and accounting software.  This will reduce duplicate development costs and improve program transparency and accountability.    The process should also include continuation and expansion of initiatives to work more directly with State regulatory agencies and reduce duplication of overlapping regulatory programs.

 

4. Reduce the National Cost of Health Care:

The direct and indirect costs of health care are a major issue for national fiscal stability.   Direct federal costs include federal employee health insurance, veteran’s health care, ACA subsidies and Medicare-Medicaid programs.   Indirect costs include the impact of poor population health on the economy, reducing tax revenue and increasing the need for other social welfare programs.    Although the ACA increased insurance coverage to over 90% of the population through mandates and public subsidies for low-income individuals, it has not adequately reduced the growing total cost for health care.  The US still spends about 17% of GDP on health care compared to the second highest country, Switzerland at 11.5%.   Yet we rank well below the median of all OECD countries on life expectancy, infant mortality, obesity, and the percentage of population living beyond age 65.  This is due to higher health care delivery system costs and unequal access of low-income individuals to basic health services.  Further changes are needed to make basic health care more affordable and accessible, and to focus more on preventative care.  We recommend a detailed evaluation of the non-value-added cost factors in the US health system, and legislation to reduce them.

 

 

5. Make US Social Insurance Programs Sustainable:

Making these programs sustainable is technically simple, as any insurance actuary knows, and should have been done many years ago.     There are only 3 basic options to restoring stability.  Either increase the payroll tax rate or maximum wage limit; further limit benefits to only those most in need; or provide additional funding for the programs from other revenue sources.     In selecting a balanced solution from those alternatives, it is important to remember that the programs were originally intended to be “social insurance” safety nets, for those who need them most, not pre-paid benefit programs for every citizen.   People buy many kinds of insurance every year; even though most never collect any actual benefits from them.   If current benefit levels are going to be continued with projected participant levels, payroll taxes would have to increase significantly on current wage earners, with potential negative economic impacts.   The current payroll tax base limits for social security are also regressive by limiting the tax contributions from higher income wage earners, while taxing all the wages of lower income workers.

 

A.    Increase the Social Security early retirement, and full retirement, ages to better reflect current life spans and working patterns.  Revise the Cost-of-Living Adjustment formula.

 

B.    Continue to tax Social Security benefits to reduce the net after tax benefit to those with higher incomes in retirement, and adjust all cut-off levels for inflation.   The estimated value of the taxes paid on social security benefits should continue to be credited to the Social Security Trust Fund.  

 

C.    Remove the Social Security taxable wage limitation so it matches the Medicare program provisions to increase contributions from higher income individuals.

 

D.    Investigate and reduce fraudulent Medicare reimbursement billings and invalid claims against the Medicare disability system and other government disability programs.   Require states or other agencies who administer federal programs to use the same reporting software and communication systems to process claims to help enable rapid detection of duplicate or fraudulent claims.

 

E.    Limit covered Medicare and Medicaid services to those with good long-term value to the recipient’s health and quality of life in relation to the cost of the procedure.  

 

 

6. Reform Education, Workforce and Immigration Programs:

The root cause of any long-term governmental deficit is a cost of governmental services that exceeds the economic productivity and tax revenue contribution of its citizens.   As a result, an important factor in restoring economic sustainability is the composition and average economic productivity of the US population.    Two hundred years ago we had a vast continent, with seemingly unlimited resources and a great need for people to develop it.

    

Even with declining birth rates, we now face a different world where technology advances in agriculture, manufacturing, and most other types of businesses, have reduced our need for human labor in relation to our GDP.  The McKinsey Global Institute forecasts that half of all current work activity could be automated by 2055.  This has been compounded by a “flatter world” which has caused many of our lower skill middle income manufacturing jobs to be “out sourced” to lower cost foreign workers in foreign economies.    This reduces the domestic economic multiplier effect of our domestic consumption expenditures.    Machines have replaced manual labor, computers and AI are replaced administrative and managerial employees.   Now intelligent robots are even replacing many remaining domestic manufacturing, distribution and even personal service jobs.  The standard unemployment statistics greatly understate the true level of under-employment and future long-term non-employment.

   

The percentage of our population, who are unemployed, under-employed, unemployable, or prematurely “retired”, continues to grow.    It is now estimated that over 40% of our total working age population is not employed.   Many citizens simply do not have the skills needed for higher skill, higher economic value, jobs.  With social changes, others simply do not want to work beyond a basic subsistence level.    This results in lower per capita productivity and personal income.  It also creates a greater cost for governmental social program subsidies, but with less income tax and payroll tax revenue available to pay for them.    Efforts to shift increased benefit costs onto employers, such as paid health care requirements, only increase the incentive to eliminate jobs where possible.    Businesses will replace low skill, higher cost, employees with technology, off-shore production, or increased use of part-time workers. This will further increase our long-term under-employment problem.

 

A. Develop a more comprehensive national economic and workforce redevelopment plan.   Target Federal tax incentives and education programs toward workforce skill areas needed in the economy, and that will be needed in the future for the US to compete in the world economy.   Reduce federal programs and tax incentives which may promote un-needed population growth.    If government is going to force women to have unwanted children, by restricting family planning options, government will also have to budget to pay for their health, education, and potential lifetime assistance.  

 

B. Provide stronger incentives, in education, unemployment, and social welfare programs to get more recipients into training and work experience programs.   Partner with private businesses, trade groups, colleges and state employment departments to develop training programs to match specific regional workforce needs.

 

C. Provide coordinated, and consistent national incentives for businesses to hire and train military veterans, the disabled, the under educated, and displaced workers.  

 

D. Adopt strategic, 21st century immigration policy reforms.

We must understand that an increasing percentage of the world’s population would like to live in the US and benefit from our economy, governmental system, and social benefit programs.    Climate change disasters, famine, and wars could soon create millions, or even billions of new “refuges” seeking a better life.   The US economy and social infrastructure cannot survive this level of immigration.    

We need, instead, to help other countries, both financially, and with our economic leadership, to solve their own national problems such as criminal violence, so they can meet the economic and security needs of their own citizens    We also need to research future US workforce needs and projected labor supply considering technology changes and required future skills, to better understand our immigration capacity.    Then, update US immigration laws to focus on long-term economic issues such as the quantities and skills of both permanent immigrants and short-term “guest workers” who are truly needed for the future economy, and a logical process for admitting them.

 

 

    

F.    Stop illegal immigration.

Legislatively redefine our policy of allowing even temporary “asylum” residency to clearly limit it to recognized pro-democracy political advocates from their home nation.   Include those who have helped US foreign policy and would be endangered by return to their home country.  Establish a rapid vetting process for those who could meet those requirements, and publicize internationally that only those meeting the requirements will be considered for asylum status.  Others must apply for regular immigration.    Effectively block and detain others who attempt to enter the US illegally, and collect photos, fingerprints, and DNA samples from them, as would be done for other law violators, before deportation.  Block any returning violators from applying for legal immigration status for 5 years and block repeat violators for additional periods.  

Resolve the status and citizenship options of existing long-term illegal residents and their children.

 

7. Sustainably Correct the US Infrastructure Deficit:

The prior Congress provided significant one-time funding for infrastructure improvements, but did not establish adequate long-term tax and fee funding to assure continued maintenance.  Some of that funding has also been cancelled.     Much of the infrastructure needed to sustain and grow our economy, such as roads, bridges, ports, a modern air traffic control system, a “smart” electrical grid, and other transportation systems are not being adequately funded and improved.    The Federal government, in coordination with the states, needs to develop a prioritized program of infrastructure repairs, replacements, and improvements along with long-term sustainable funding programs to pay for them.   Reauthorize a self-funding Federal Highway Program funded by increased fuel taxes and user fees on electric vehicles.

 

8. Reduce the Growing Environmental and Climate Deficit:

 

The largest unfunded future cost for the US, and other nations, is the massive potential cost of trying to correct the increasing effects of climate changes.     To help consumers make better long-term decisions on carbon-based fuel use, Congress should enact a revenue neutral Carbon Emission Adjustment (CEA) tax on all fossil fuels produced in, or imported into, the United States This would provide a simple, market based, economic incentive for reducing carbon emissions.     It is time to stop giving away tax revenue with tax credits, and start taxing the products and behaviors that are causing the problem.

 

Just as borrowing against the future is bad fiscal policy, compromising the country’s physical environment and future economy for short term gain is also bad national policy.      Unless we act soon to identify and reduce potential damage, the long-term costs of climate change mitigation, disaster recovery, food shortages, and massive population migrations will be even greater and more economically damaging than the consequences of our Fiscal Deficit.    Unfortunately, the problem with the “Environmental Deficit” is that there is no agreed, or comprehensive, accounting system to measure the growing future economic costs of not stopping the damage.

 

It is important that a CEA, or any US carbon reduction program, be done at the Federal level, not by individual states, to prevent wasted duplication of administrative costs, and disruption of free interstate commerce.   A CEA adjustment on imported fuels is also only practical to collect at the US customs port of entry, not after fuels are distributed throughout the states.  A predictable and transparent carbon content adjustment tax would be more effective, and more equitable, than carbon emission trading schemes that encourage speculation and reward the large existing carbon polluters, not energy consumers.

 

9. As a last resort, firmly and automatically stop the growing deficit by adopting a bi-partisan Deficit Control Act!   

Because of the political pressure of the continuous re-election cycle, and the very high level of division and partisanship that exists in Congress, it is very difficult for either party to advocate for balancing the budget by increasing specific taxes or reducing major expenditure programs.    The only possible way to get agreement on needed revenue increases may be through a bipartisan pre-agreement on an “automatic” deficit control surtax process similar to prior “pay-go” and budget sequestration legislation on expenditures.   They weren’t perfect, but they helped control deficits without either party having to take the political “blame” for the necessary program reductions.  The Act would simply require Congress to pay for the expenses it has authorized, just as we expect any business or individual to do.  This way, no one, and no party, has to take the blame for the changes needed to stop annual deficits.   

 

a.     Congress should always first try to balance expenditures with adequate tax revenue using regular order, but that is politically difficult with the current process.     So as a “Fail-Safe” to prevent increased deficits, except in times of true national economic emergencies, we suggest the Congress adopt a law which would require an automatic uniform surtax on all taxable income to offset any prior budget year deficit.

 

b.     The Act would require the Congressional Budget Office to determine the amount of any net budget deficit for the prior fiscal year, just as it does now.   Congress would then have one year to pass legislation during the current fiscal year which either reduces expenditures, or increases tax revenue, by an amount that CBO projects would be adequate to offset the prior year’s deficit.   If Congress failed to act, CBO would automatically be required to calculate a surtax rate, which when applied to all income tax categories, including corporations, pass-throughs, individuals, trusts, etc., would raise the amount of income needed to offset the prior year deficit.  This surcharge percentage would then be added onto the following year’s tax return calculation.  

 

c.     When special economic conditions justify a budget deficit for stimulus during a recession, Congress could override the requirement for a year or two by a 60% vote of both the House and Senate.     Congress would still remain in complete control of the process.    However, as a last resort, the surtax would provide the needed revenue without members of Congress having to vote for any specific tax increases.   The surtax would not change, or complicate, the initial tax calculation for any taxpayer.    It would simply add a surtax to the regular tax owed, as was done with the 1968 10% surtax to fund Vietnam war expenses.

 

 

Prepared for the National Small Business Network by Eric Blackledge and Thala Taperman Rolnick CPA.

NSBN is a nonprofit group that evolved from the 1995 White House Conference on Small Business Regional Tax Chairs.

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