100 Years After Its Creation, the Federal Budget Process Needs Updating
The modern federal budget process began a century ago with the enactment of the Budget and Accounting Act (BAA), which requires the executive branch to submit a consolidated budget plan to Congress each year. The history of the law’s origins, and subsequent implementation, highlight the persistent challenge of establishing effective budgetary cooperation between the branches of government in the U.S. constitutional system.
As is often the case with landmark reforms, the BAA, which was signed into law by President Warren Harding in June 1921, was long in the making. In the nineteenth century, the federal government was small, decentralized, and dominated by Congress. Executive branch departments went directly to the House and Senate with their appropriations requests, with little coordination with each other or the president.
At the end of the Civil War, as the Treasury struggled with mounting debts, Congress embarked on a period of internal reforms. Most significantly, the House Ways and Means Committee lost jurisdiction over budgetary appropriations (while retaining authority over taxes and tariffs). The new House Appropriations Committee was charged with initiating all new spending bills, with a view to maintaining tighter control on total government costs.
Empowering the Appropriations Committee worked for a time but also caused a political rebellion. Committee chairmen with oversight authority over specific departments complained of inadequate budgets. In response, the House gradually shifted some spending control away from the general-purpose Appropriations Committee and toward the committees with agency-specific mandates.
Predictably, weakening centralized oversight of spending led to spiraling costs and growing deficits and debt. As the Progressive era dawned near the turn of the century, government reformers began urging the nation’s leaders to adopt more disciplined practices.
Republican President William Howard Taft came into office determined to enhance the executive’s role. In 1910, he convinced Congress to establish a Commission on Economy and Efficiency charged with, among other things, recommending a coordinated executive branch budget process. Taft’s objective was to centralize executive oversight over agency spending decisions, and thus provide an effective counter to congressional power in the policymaking process.
The commission’s report, issued in 1912, provides an interesting description of the challenge (from an executive branch perspective) and is worth quoting at length:
Generally speaking, the executive authority (apart from the United States) has been conceived of as possessing powers of initiation and leadership while the legislative authority is regarded as possessing merely powers of final determination and control. In the United States, however, the legislature is usually regarded as the authority which initiates and determines a policy which it is the duty of the Executive to carry out. The effect of this conception of the relations of the Legislature to the Executive has been that the budget has been primarily an affair of the Congress rather than of the President. The Congress makes use of administrative officers in order to obtain the information which it must have to determine important questions of policy devolved upon it by the American system. These administrative officers are acting as the ministerial agents of the Congress rather than as representatives of the President. The result is that while in most countries the budget is in the nature of a proposal or program submitted on its responsibility by the executive to the legislature, in the United States the Book of Estimates, our nearest approach to a budget, is rather a more or less well-digested mass of information submitted by agents of the Legislature for the consideration of legislative committees to enable the Legislature both to originate and to determine the policy which is to be carried out by the Executive during the coming budgetary period.
The commission called for a dramatic break from past practice: Federal agencies should submit their budget plans for review by staff working for the president, and not directly to Congress, and the president should then submit a consolidated budget to the legislature after thoroughly vetting the agency requests (and making revisions). Further, there should be regular oversight of expenditures by an independent auditor, to eliminate waste, inefficiency, and fraud throughout the government.
The Taft panel’s recommendations were eventually translated into legislation—the Budget and Accounting Act—that would have as its main focus the creation of two agencies with enduring roles in American government. The first was the Bureau of the Budget in the Treasury Department, with responsibility for overseeing a new executive branch budget process. (It later became the Office of Management and Budget, and was moved to be more directly under the president’s supervision.) The second was the General Accounting Office (GAO), an unusual independent auditing agency of the legislative branch (which was later renamed the Government Accountability Office). An initial version of the BAA was approved by Congress in 1920 but vetoed by President Woodrow Wilson because of a dispute over the removal powers for the head of the new GAO. The standoff was resolved in the 1921 version. The revision gave the president the power to appoint the head of GAO for a fifteen-year term, with removal allowed only through a joint resolution approved by both chambers of Congress and the president.
The BAA, while focused on the federal budget, ushered in a new era of presidential power and authority. Agency heads had to work through the president’s budget office to get their funding requests submitted to Congress, which created much tighter political alignment with the chief executive’s priorities.
Congress was forced to respond to the shifting balance of power with its own reforms. In 1921, it re-established centralized spending authority in the House and Senate Appropriations Committees, and, in successive steps over the ensuing years, built its professional capacity to establish policies and priorities independently of executive branch expertise. In particular, the 1946 Legislative Reorganization Act and the 1974 Congressional Budget and Impoundment Control Act vastly increased the number of personnel working for the legislative branch.
While the BAA empowered the executive branch with a centralized budget process, it did not resolve an ever-present tension in American government, which is that there is no regularized process for establishing a budget plan to which both the legislative and executive branches must adhere. Congress ceded none of its constitutional authority in the BAA; it simply allowed the president to submit an annual budget request, which the House and Senate can (and frequently do) ignore. At the same time, the president is under no obligation to accept the terms of congressional budget decisions (as expressed in budget resolutions that are not sent to the president for approval). He is free to approve or veto the appropriation measures and tax bills that are a consequence of congressional budget planning.
The closest American government ever gets to an agreed legislative-executive budget is through ad hoc negotiations, such as was the case with the 1990 budget agreement between a Democratic Congress and President George H.W. Bush. The law enshrining that bipartisan accord established enforceable targets lasting for five years.
The BAA was a necessary break from an era of congressional budgetary supremacy. The president is chief executive of the federal government, and the BAA enhanced his ability to direct and control the government over which he is held accountable by voters. However, presidential authority is not sufficient to solve the nation’s fiscal problems. For that, Congress’s cooperation is required too, just as Congress needs the cooperation of the president to secure passage of spending and tax changes.
The nation’s budgetary practices have evolved with the country’s needs. One hundred years after the BAA’s enactment, additional changes are necessary. The federal government’s fiscal policy is dangerously off course and needs to be corrected. Congress cannot solve this immense problem on its own; neither can the president. They will need to cooperate to develop an enduring solution. The nation’s budget procedures need to be updated to allow, and incentivize, Congress and the president to do so as part of the regular order of conducting the nation’s business.