National Small Business Network

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Budget Reform Recommendations for the 119th Congress



Congress can control the deficit with a balanced bi-partisan plan.  We support the long ignored, effort to control annual budget deficits and the growing $35 Trillion National Debt.    We agree with GAO and most economic advisory groups that our current fiscal path is “unsustainable” and will result in significant economic harm if not corrected.   The next Congress can start to re-establish long-term fiscal sustainability, but it must be done logically and it needs to start now.


To effectively and firmly control the spiraling annual deficits we recommend four key actions for the next Congress.


1)    Support the formation of a bi-partisan Congressional Task Force on Fiscal Stability.   Adopt legislation requiring appointment of a bi-partisan, bi-cameral Deficit Control Task Force and require strong  involvement of economic advisors and private sector business and organization leaders with experience in managing large service delivery organizations. 


2)    Do not make the problem worse by risking government shutdowns or default on US financial obligations.   We cannot let the world believe that we might not stand behind our obligations by failing to pass continuing resolutions when needed.    Even a 1% risk based increase in borrowing costs on the current debt would add an additional $315+ Million cost to every annual budget, with no benefit.   If the world loses trust in our financial obligations, it will also weaken trust in our other international agreements, defense alliances, and our currency.


3)    Start to reform the current ineffective Federal Budgeting and Appropriations process to better focus on key long-term national priorities, and greater efficiency of expenditures and agency programs.   The current process is neither timely enough, nor compete enough, to provide good long-term program and expenditure control.  As a start, we have outlined in the second section a series of more detailed process reform suggestions to get the greatest value out of necessary expenditures, and provide better Congressional information and management for all Federal programs.


4)    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.



Specific Budget and Fiscal Policy Reform Recommendations:


These recommendations are suggested as part of a balanced program of both tax policy 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.    This includes the tendency of both Congress and the Administration to 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 current 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 identifying 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


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 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 adoption process prior to the start of the next fiscal period.     


C.   Stop using intentionally misleading 10 year impact 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 look 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 loss of tax revenue.    Revenue scoring also often focuses only on estimated federal tax revenue changes, without adequate consideration of the direct governmental program and administrative costs and additional private sector compliance costs which reduce economic productivity.  We support legislation that also requires analysis of long-term 10, 25, and 40-year budget impacts on major tax and expenditure legislation.


D.   Develop stronger and 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.   The goal should be to reduce the national debt below 60% of GDP by 2045.   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.


E.    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, and encourages wasteful spending and program disruption.   The government should also search for and reclaim unused prior year grants and revenue sharing expenditures and reapply the funds in current budgets.


F.    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 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.


G.   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.


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


I.      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. 


J.    Stop using special tax rates and expenditure 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 may help meet social and environmental objectives, but they usually reduce revenue and add to the deficit.  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 behaviors that add to health care costs .


2. Control 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. These should include off-setting adjustments to other budget items, or provision of 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 later in 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 future budget plans the full long-term costs of  all “entitlement “ programs.


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 Federal government should expand, and make part of the regulatory process, 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 with 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.    Without careful Congressional oversight, regulatory programs can grow beyond their original need, adding to governmental cost and private sector burden.  


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. Continue to Reduce the National  Cost of Health Care:

The direct and indirect costs of health are a major issue for national fiscal stability.   Direct federal costs include federal  employee health insurance, veteran’s health care, ACA subsidies and Medicare programs.   Indirect costs include the impact of poor health on the economy, reducing tax revenue and increasing the need for other social welfare programs.    Although the ACA increased insurance coverage to over 91% 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 almost 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.


5. Make 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 options to restoring stability –  increase the payroll tax rate or maximum wage limit; further limit benefits to 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 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, and adjust the all cut-off levels for inflation.   The estimated value of the taxes paid on social security benefits should also be credited from general revenues to the Social Security program.  


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 high 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.  That world has changed!     

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 have replaced administrative and managerial employees, and now intelligent robots are replacing many remaining domestic manufacturing, distribution and even personal service jobs.  The standard unemployment statistics greatly understate the true level of under-employment and long-term un-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 increased the incentive to eliminate jobs where possible, and replace low skill, high cost, employees with technology, off-shore production, or increased use of part-time workers. This further compounds the 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 programs and 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 other 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 religious 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.


Research future US workforce needs and projected labor supply based considering technology changes to workforce needs and required skills.   Update US immigration laws to focus on long standing 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 the process for admitting them.  Resolve the status and citizenship options of existing long-term illegal alien residents and their children.   Stop the flow of illegal entry by pre-defining standards for true political “asylum “ entry.   And, make a very clear policy statement  that other illegal entry will result in permanent exclusion from the US and our economy. 


7. Sustainably Correct the US Infrastructure Deficit:

The last Congress provided significant one-time funding for infrastructure improvements, but did not establish adequate long-term tax and fee funding to assure continued maintenance and revitalization.      Much of the infrastructure needed to sustain and grow our economy, such as roads, bridges, ports, the electrical grid, and other transportation systems is not being adequately maintained 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.


8. Stop 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 overcome environmental pollution and  the increasing effects of carbon based climate change.     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 will  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 adding to 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 our “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 practical to collect only at the US customs port of entry, not after fuels are distributed throughout the states.  A predictable and transparent carbon content adjustment tax is also likely to be more  effective, and more equitable, than carbon emission trading schemes that encourage speculation and reward the large existing carbon polluters, not energy consumers.


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 Issue Chairs and does not represent the interests of any other organization or business.


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