Summary and Analysis of the
President's 2005 Budget

Budget Process Proposals

The President's budget includes a number of provisions that if, enacted or enforced, would alter congressional consideration of budget-related legislation. Following is an overview of the President's proposed changes.

• Budget Enforcement that Ignores the Impact of Revenue Losses — The Administration proposes a rule that it claims is largely based on the Pay-As-You-Go (PAYGO) provisions that were adopted under the Budget Enforcement Act of 1990 (BEA) and expired in 2002. In actuality, the Administration's proposal is only a partial reinstatement of PAYGO since it ignores key enforcement provisions relating to tax cuts.

  The BEA's PAYGO provisions required that tax cuts as well as increased mandatory spending be completely offset by either tax increases or decreases in mandatory spending. PAYGO was enforced through sequestration of mandatory programs. The Administration's proposed rule significantly guts PAYGO because it provides budgetary enforcement solely on the spending side, offsetting mandatory increases with mandatory cuts. Thus, under the proposed rule, tax cuts would not have to be offset by tax increases or mandatory reductions. Additionally, mandatory increases could not be offset by tax increases.

  PAYGO rules under the BEA have been widely credited with helping to convert massive deficits into record surpluses during the 1990's. Unlike the PAYGO rule under the BEA, the proposed rule fails to recognize that fiscal discipline means constraints on both spending and tax cuts, particularly at a time of record deficits.

• Discretionary Spending Limits — The Administration proposes to reinstate discretionary spending caps. Discretionary spending caps were first established under the BEA and expired in 2002. The caps set limits on appropriations, but make automatic adjustments for a few items including emergencies, International Monetary Fund contributions, and international arrearages. The caps are enforced through sequestration of non-exempt programs. The proposed caps include a firewall between transportation programs and all other discretionary programs. The proposal discontinues the conservation cap established under the 2001 Interior Appropriations Act.
  
  The Administration proposes spending caps over the next five years at discretionary levels in the President's budget. The President's budget, however, cuts non-homeland security domestic appropriations below the 2004 level and leaves out some of the President's major initiatives such as the full cost of space travel to Mars. Therefore these caps set unrealistic levels for appropriated funding. (See also section on Harmful Cuts.)
  
  
• Directed Scorekeeping of Select Tax Cuts — The budget proposes that CBO and OMB assume in their baselines the extension of all tax cuts expiring under the Economic Growth and Tax Relief Reconciliation Act of 2001, and certain tax provisions expiring under the Growth and Tax Relief Reconciliation Act of 2003. Under current scoring rules, these tax provisions would expire in the baseline at the time they expire in law. This proposal presents two problems. First, the rule is inconsistent since it applies only to certain expiring tax provisions favored by the Administration but not others. Second, since the rule would ensure that extensions of these tax provisions are never scored as revenue losses, the rule masks the budgetary impact of making these tax cuts permanent.
  
  
• Point of Order Against Entitlement Legislation — The budget proposes a point of order against legislation expanding major entitlement programs such as Social Security, Medicare, veterans disability compensation, Supplemental Security Income, and federal civilian and military retirement. The budget further proposes that both OMB and CBO issue annual reports on any legislative action expanding these programs. The budget states that these proposals are necessary in order to prevent additional increases in long-term obligations. However, the budget fails to propose any mechanisms addressing the long-term revenue losses resulting from tax cuts.
  
  
• Joint Budget Resolution — Under current law, the Congressional budget resolution is an annual concurrent budget resolution that does not go to the President for his signature. Instead, it is an internal document governing Congressional budget decisions. The budget proposes that Congress enact a joint budget resolution that would require the President's signature and enforce the budget totals. Opponents to such proposals argue that joint budget resolutions skew negotiating power toward the Administration by allowing the President an opportunity to veto Congressional budget priorities. In addition, critics add that tax and spending bills might be delayed since enactment of the budget resolution would present such high political stakes. Additionally, the budget resolution could become a vehicle to adopt non-budget related items.
  
  
• Biennial Budgeting and Appropriations — The budget includes a proposal to adopt budgets and enact appropriations every two years, in odd-numbered years, with the even-numbered years spent on authorizing legislation. Under current law, Congress adopts a budget resolution and enacts appropriations on a yearly basis. In the past, biennial budgeting proposals have been defeated since many argue that Congressional oversight may be weakened if programs are appropriated half as often. In addition, constant and significant changes in budget estimates may cause policies to become outdated by the second year. Finally, biennial budgeting may lead to even more supplemental funding, which is routinely held to less scrutiny. Since the Bush Administration has been in office, eight supplemental bills have been enacted under the current yearly budgeting process.
  
  
• Line Item Veto — The budget proposes a constitutional line-item veto to replace the Line Item Veto Act of 1996, which the United States Supreme Court ruled unconstitutional in 1998. The Administration's proposal would grant the President authority to cancel new appropriations, new mandatory spending, and limited tax benefits, and use all savings for deficit reduction.
  
  
• Automatic Continuing Resolution — The budget proposes an automatic continuing resolution to prevent a government shut-down if neither a regular appropriations measure nor a temporary continuing resolution is in place at the start of a fiscal year. The proposal would automatically fund programs at the lower of the funding levels proposed in the President's budget or the funding levels of the previous year. This proposal could encourage Members of Congress who favor spending cuts to oppose regular appropriations bills that include higher levels of funding.
  
  
• Emergency Designations and Baselines — The discretionary spending caps, which expired in 2002, exempted emergency designations from their totals. The budget, which proposes to extend discretionary caps at levels set in the President's budget for years 2005 through 2009, also proposes to include provisions in the BEA that define emergencies. Under the proposal, both Congress and the President would have to agree that a spending item is "necessary, sudden, urgent, unforeseen, and not permanent" in order for that item to be exempt from budget totals.

  The budget also proposes that baselines exclude designated emergency spending. Under current guidelines, baselines include emergency spending in the outyears.

• Baseline Proposals for Expiring Housing Contracts and Social Insurance Administrative Expenses — The budget proposes to eliminate BEA sections that make adjustments in the baseline for expiring housing contracts and social insurance administrative expenses. This provision is particularly problematic in calculating funding for Section 8 housing programs. Under current law, the baseline for Section 8 housing is adjusted to reflect the costs of renewing expiring, multi-year subsidized housing contracts. Without this adjustment, the current services baseline estimate for the housing contract part of the program would be artificially low and would underestimate the amount of funding necessary to maintain the current level of services in the program.
  
  
• Scoring of Pell Grants —The President's budget includes a proposal to change scoring of Pell Grants by charging appropriators for the total amount necessary to cover all Pell Grant costs for the upcoming year, based on the economic and technical assumptions in the President's budget. Currently Congress establishes a maximum award for the Pell Grant program for the upcoming year and funds the amount through annual appropriations. However, the program functions as an entitlement program because the government provides the total amount necessary to fund the maximum award, even if the total is in excess of what Congress provided. This often results in the Pell Grant program running a deficit, or a surplus, from year to year. Because participation in the Pell Grant program has grown dramatically and faster than the government expected, the program currently has a shortfall of $3.7 billion.

  The budget's proposal, therefore, could result in the appropriations bill for the Department of Labor, Health and Human Services, and Education being scored at a much higher cost than Congress intended, if Congress was using other assumptions about student eligibility.

• Limits on Pay Raises for Federal Employees —The budget proposes a rule to limit pay raises for federal employees. The rule would provide that the budget resolution specify pay raises for military and federal civilian employees, and create a point of order against any legislation that assumed a pay raise for federal civilian employees above the President's amount. For 2005, the budget establishes a 1.5 percent pay raise for federal civilian employees, and a 3.5 percent pay raise for military personnel.
  
  
• Accrual Accounting of Federal Retiree Costs — The budget again proposes accrual accounting of federal retiree costs. Under this plan, agencies are required to pay up front all retirement pension and health costs for federal employees. Current federal accounting procedures include these retirement costs as future mandatory payments that do not show up in agency costs. The budget proposes to change this practice so that each agency shows these retirement costs as current discretionary costs, therefore increasing the need for discretionary appropriations to cover these payments.
  
  
• Advance Appropriations — The budget proposes to freeze all advanced appropriations, excluding BioShield, over years 2005 through 2009 at the 2002 level. The levels would be enforced by counting additional advance appropriations above the 2002 level against the discretionary caps in the year enacted.
  
  
• Project BioShield Category — The budget proposes to create a separate category under the BEA to provide funding for BioShield to prevent reductions in the program and disallow its use as an offset.

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