Tools for Tracking the Economic Impact of

Legislation

Dr. Jason J. Fichtner, Dr. Jerry Ellig & Dr. Patrick McLaughlinSenior Research FellowsMercatus Center

July 22, 2015

What we’re going to discuss today:

How the budget process assists Congress in exercising its tax and spending powers.

Elements of the budget process that weaken Congress’s management of government spending.

How the power to regulate operates like the powers to tax and spend but without a defined process for Congressional management.

How budget and regulatory process reforms can advance good governance practices.

Overview

Congress and the Federal Budget Process The budget process enables Congress to manage revenue

and discretionary spending. Provides a feedback loop to determine if the

expenditures authorized by Congress achieved the intended results and how those expenditures impacted the economy.

Opportunity to compare results and set priorities for the coming year.

Weaknesses Outputs are measured rather than outcomes. Major spending and debt obligations are under

managed. Current process does not account for the economic

impact and costs of regulations. No current lookback ability for Congress to determine if

cost of regulations match its original expectations.

The budget process puts the Executive Branch and Congress “on the same page.”

Stage 1 – The President’s Budget Office of Management and Budget manages the

formulation of agency budget requests and the evaluation of agency performance and strategic plans.

President’s proposed budget request submitted to Congress. Due by the 1st Monday of the first full week of February.

OMB’s Mid-Session Review report to Congress outlines any economic or legislative changes that impact the President’s budget proposal. Due by July 15.

Development of the Budget

Stage 2 – Concurrent Budget Resolution A budget resolution frames the “big picture” - aggregate

spending and revenue levels. Legislative committees submit jurisdictional “views &

estimates” of spending and revenues to their chamber’s budget committee.

No spending, revenue, debt-limit legislation can be considered before a budget resolution passes unless this rule is waived or resolution is not passed by May 15.

House and Senate to agree on a concurrent budget resolution. This is not a law so no signature by the President required.

Development of the Budget

Concurrent budget resolution includes Aggregate levels of federal revenue Aggregate levels of new Budget Authority and Outlays

Budget authority – the amount Congress allows a federal agency to commit to spend

Outlays – the amount of revenue allowed to flow from the U.S. Treasury

Target levels for surplus/deficit and debt ceiling Sec. 302 Allocations

Sec. 302(a) allocation provide the aggregate spending levels to the House and Senate Appropriations Committees.

Sec. 302(b) allocations are the levels of spending assigned to each appropriations subcommittee.

Development of the Budget

Stage 3 – Budget Reconciliation Process to achieve the revenue, mandatory spending

and debt limit levels assumed in the concurrent budget resolution.

Legislative committees provide the statutory changes necessary to meet the budget instructions.

Subject to expedited procedures that limit debate and amendments.

Requires the President’s signature.

Development of the Budget

“Point of Order” – Floor procedure that prevents Congress from passing legislation not in line with the budget resolution.House – can waive by simple majority.Senate – subject to filibuster – need 60 votes to

waive. Pay As You GO – Requires tax cuts and entitlement

spending increases to be fully offset unless they fit within targets of the budget resolution.PAYGO as defined by the Budget Enforcement Act

1990, expired after FY2002.House and Senate Rule in 111th Congress.

CUTGO – Mandatory spending be offset by mandatory spending cuts alone; House rules exempt tax reductions from mandatory offsets.

Budget Enforcement

Policy Drives Budget versus Budget Drives Policy.

Economic impacts are difficult to track becauseMinor management of entitlements which are

2/3’s of the budget.Several types of “spending” are left out:

Loan guarantees,Future costs of entitlement obligations,Regulation.

Opportunity to consider Legislative Impact Accounting.

Problems

Taxing and Spending via Regulation

TSA budget (ticket tax)

$4.3 billion (2005)

Increased waiting time

Reduced air travel

116 Fatalities (4th quarter 2002)

$2.76 billion (2005)

$2.35 billion (2005)

What Decision-makers Should Know

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What’s the root cause of the problem that must be solved to achieve the desired outcome?

What are alternative solutions that address the root cause?

What are the social benefits and costs of each alternative?

What goals and measures indicate whether the desired outcomes are actually achieved?

Most Analysis is Confined to the Executive Branch

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Only a Handful of Regulations Get Analyzed

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3000-4000 final regulations issued annually.

200-400 “significant” final rules overseen by OIRA.

60-100 “economically significant” final rules (> $100 million annual impact) require a full Regulatory Impact Analysis.

Regulations with impact exceeding $1 billion must have a formal uncertainty analysis.

Independent Agency Rulemaking

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Independent agency

Regulatory Analysis Standards for Independent Agencies are Rare

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Paperwork Reduction Act: Paperwork burden.

Regulatory Flexibility Act: Effects on small businesses.

Specific benefit-cost analysis requirements for specific agencies (Consumer Product Safety Commission, Federal Trade Commission).

Specific laws mandates the implementing regulations must “consider” costs, benefits, efficiency, or competition.

Weak Enforcement

ExecutiveOIRA review is helpful, but effectiveness is limited.

CongressNo process for independent analysis of regulatory legislation or individual regulations.

JudiciaryStatutory requirements for analysis nonexistent or vague

Review under highly deferential “arbitrary and capricious” standard. mercatus.org

Analysis of Regulatory Results is Rare

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No congressional process for assessing actual results of regulations.

Periodic presidential initiatives, but no regular review (except NHTSA).

Annual OMB Benefit-Cost report.

Based on agencies’ prospective estimates

Just 116 of the 37,000 regulations adopted in the past decade had estimates of both benefits and costs.

Estimates often seriously incomplete.

Problems

Congress often passes regulatory legislation without systematic analysis of the underlying problem, alternative solutions, or the likely benefits and costs.

Agencies often write regulations based on seriously incomplete analysis of these factors.

No systematic process for identifying actual results of regulations and eliminating nonfunctional ones. mercatus.org

“We were hoarders before hoarding was cool.”-- Jase Robertson

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Regulation is a Linear Process

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Bill Statute Agency budgets Analysis Regulations

Comprehensive Reform

Analyze legislation prior to enactment, and use to inform budgeting.

Improve quality of prospective analysis.

Add retrospective analysis.

Update analysis of legislation and adjust budgets accordingly (the feedback loop).

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Picture of Comprehensive Reform – with a Feedback Loop

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Bill

Legislative Impact

AssessmentStatute

Prospective Analysis

Regulation

Retrospective Analysis

Update Leg. Impact

Assessment

Agency Budgets

Concluding Remarks

Obligation to know whether legislation is achieving its goals.

Analysis of legislation would require statements of goals and budget setting.

Improved prospective analysis better chance of achieving goals.

Retrospective analysis eliminate or modify nonfunctional rules.

Budgetary adjustments return control to Congress. mercatus.org

Bridging the gap between academic ideas and real-world problems