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Can Congress Use Budget Rules To Improve Tax Policy?

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Document date: October 23, 2006
Released online: October 23, 2006

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

© TAX ANALYSTS. Reprinted with permission.

Note: This report is available in its entirety in the Portable Document Format (PDF).


Ovid said that "Gods have their own rules." So does Congress — a vast multitude of rules. The history of the Budget and Impoundment Control Act of 1974 and the Budget Enforcement Act of 1990 is one in which rules have been promulgated; Congress has found loopholes in those rules; more rules have been designed to plug the loopholes; and then the process starts over again. The end result is a set of budget rules that is so complicated that no single human understands them all. I have heard budget committee staffs admit that they sometimes make mistakes in knowing what actions are permitted and what actions are not.

This is extremely important, because Congress is the true 500-pound gorilla that can do whatever it wants. It can follow the rules, or it can break them, if it finds them inconvenient. The only restraint is public opinion as shaped by the media. If the rules are so complex that no one understands them, it is impossible for the public and the media to know whether Congress is behaving responsibly or irresponsibly.

That is not to say that rules are totally useless. There are limited circumstances in which they can nudge Congress into behaving better than they would otherwise. The pay-as-you-go rule (PAYGO) established in 1990 was one that worked extremely well for a time. It required that all tax cuts or entitlements be paid for, both in the first year and over whatever time horizon was being used by Congress for its budget resolution. Another successful rule helped shape the Tax Reform Act of 1986. It required that the act be revenue neutral and that all amendments be revenue neutral while the act was being written.

What made these rules successful when so many others failed or have been easily circumvented? First, these rules were backed by a broad bipartisan consensus. Second, while they helped encourage responsible actions, neither rule imposed significant political pain.

Note: This report is available in its entirety in the Portable Document Format (PDF).



Topics/Tags: | Economy/Taxes


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