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THE BROKEN BUDGET PROCESS: 

PERSPECTIVES FROM FORMER CBO DIRECTORS 

HEARING 

BEFORE THE

COMMITTEE ON THE BUDGET 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

HEARING HELD IN WASHINGTON, DC, SEPTEMBER 21, 2011 

Serial No. 112–15 

Printed for the use of the Committee on the Budget 

( 

Available on the Internet: 

www.gpo.gov/fdsys/browse/committee.action?chamber=house&committee=budget 
(II) 

COMMITTEE ON THE BUDGET 

PAUL RYAN, Wisconsin, Chairman 

SCOTT GARRETT, New Jersey 

MICHAEL K. SIMPSON, Idaho 

JOHN CAMPBELL, California 

KEN CALVERT, California 

W. TODD AKIN, Missouri 

TOM COLE, Oklahoma 

TOM PRICE, Georgia 

TOM MCCLINTOCK, California 

JASON CHAFFETZ, Utah 

MARLIN A. STUTZMAN, Indiana 

JAMES LANKFORD, Oklahoma 

DIANE BLACK, Tennessee 

REID J. RIBBLE, Wisconsin 

BILL FLORES, Texas 

MICK MULVANEY, South Carolina 

TIM HUELSKAMP, Kansas 

TODD C. YOUNG, Indiana 

JUSTIN AMASH, Michigan 

TODD ROKITA, Indiana 

FRANK C. GUINTA, New Hampshire 

ROB WOODALL, Georgia 

CHRIS VAN HOLLEN, Maryland, 

Ranking Minority Member 

ALLYSON Y. SCHWARTZ, Pennsylvania 

MARCY KAPTUR, Ohio 

LLOYD DOGGETT, Texas 

EARL BLUMENAUER, Oregon 

BETTY MCCOLLUM, Minnesota 

JOHN A. YARMUTH, Kentucky 

BILL PASCRELL, JR., New Jersey 

MICHAEL M. HONDA, California 

TIM RYAN, Ohio 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin 

KATHY CASTOR, Florida 

HEATH SHULER, North Carolina 

PAUL TONKO, New York 

KAREN BASS, California 

PROFESSIONAL STAFF

AUSTIN SMYTHE, Staff Director 

THOMAS S. KAHN, Minority Staff Director 
(III) 

C O N T E N T S 

Page 

Hearing held in Washington, DC, September 21, 2011 ........................................ 1 

Hon. Paul Ryan, Chairman, Committee on the Budget ................................ 1 

Prepared statement of ............................................................................... 2 

Hon. Chris Van Hollen, ranking minority member, Committee on the 

Budget ............................................................................................................ 3 

Prepared statement of ............................................................................... 4 

Alice M. Rivlin, Brookings Institution and Georgetown University ............. 5 

Prepared statement of ............................................................................... 8 

Rudolph G. Penner, institute fellow, the Urban Institute ............................ 10 

Prepared statement of ............................................................................... 11 

(1) 

THE BROKEN BUDGET PROCESS: 

PERSPECTIVES FROMFORMERCBODIRECTORS 

WEDNESDAY, SEPTEMBER 21, 2011 

HOUSE OF REPRESENTATIVES, COMMITTEE ON THE BUDGET, Washington, DC. 

The Committee met, pursuant to call, at 10:00 a.m., in room 210, 

Cannon House Office Building, Hon. Paul Ryan, [Chairman of the 

Committee] presiding. 

Present: Representatives Ryan, Calvert, Price, McClintock, Stutzman, Lankford, Black, Mulvaney, Huelskamp, Young, Amash, 

Guinta, Van Hollen, Doggett, Blumenauer, McCollum, Pascrell, 

Wasserman Schultz. 

Chairman RYAN. The committee will come to order. Welcome all 

to this hearing. The purpose of today’s hearing is to highlight the 

need to reform our broken budget process. This summer, we got a 

first-hand look at how bad things have gotten. After a request from 

the president to increase the debt limit, Congress was seemingly 

faced with basically two impossible choices. Either hand the president a blank check to continue these unsustainable spending policies, or let America default. Fortunately, Congress was able to 

chart a middle course that coupled immediate spending restraints 

with a process to cut at least a dollars worth of spending for every 

dollar increase in the debt limit. But it should not have gotten to 

this point and that is the point. Congress created a budget process 

that was intended to prevent this kind of ad-hoc policy making. 

Clearly, the process is not working. 

The budget proposed by the president in February offered no 

plan to deal with what he has since acknowledged as the nation’s 

growing physical challenges. Meanwhile, it has been 874 days. I 

will say that again. It has been 874 days since the Senate even 

bothered to try to pass a budget. Congress has struggled with this 

process for a long time. This year’s breakdown in the federal budget process, however, could not have happened at a worse time. 

Right now, it is contributing to the crippling uncertainty about fiscal policy that is discouraging businesses from making the kind of 

long-term investments that create jobs. There are parts of the 

budget process that are irredeemably broken, but other parts still 

work well, even if they could use some improvement. 

In the 1974 Budget Act, it called on Congress to review the entire federal budget to both ascertain the economic impacts of our 

budget decisions and to help us make informed choices about how 

to raise revenue and how to allocate spending. To accomplish this, 

the Act established the House and the Senate Budget Committees 
2 

and charged them with the responsibility to develop and enforce 

annual budget resolutions. 

In addition, it created CBO, to give us non-partisan, objective 

budget estimates and economic projections. CBO is far from perfect, but it is important to note that before CBO was created, Congress was reliant on the executive branch for budget projections 

and cost estimates of legislation. I do not agree with everything 

CBO produces, but I do think CBO strives to provide us with nonpartisan, independent analysis to help us do our jobs. 

Today, we are going to be hearing from two former CBO directors. Actually, the first two former CBO directors. In addition to 

being former CBO directors, Alice Rivlin and Rudy Penner, are witnesses here today, have had long careers as budget experts in 

Washington, and we are fortunate to have the benefit our their 

wisdom today. Before I yield, I want to emphasize one point. There 

is a lot we can do to fix our broken budget process, but process reform alone cannot work unless members of Congress have the will 

to make it work. Reform or no reform it will take political courage 

and leadership to get our fiscal house in order. I am proud to have 

worked with members of this Committee to pass this year’s budget 

on time and even those members who disagreed with our reforms 

contributed to that process for which I am grateful. To his credit 

Mr. Van Hollen offered a substitute budget during floor consideration of the budget resolution. That is how the process is supposed 

to work. Americans deserve a real debate about our fiscal future 

and the budget process is an appropriate form for that debate. Let’s 

fix what is broken and build upon what is working and with that 

I would like to yield to the Ranking Member, Mr. Van Hollen. 

[The prepared statement of Chairman Paul Ryan follows:] 

PREPARED STATEMENT OF HON. PAUL RYAN, CHAIRMAN, 

COMMITTEE ON THE BUDGET

Welcome all, to this hearing. 

The purpose of today’s hearing is to highlight the need to reform our broken budget process. 

This summer, we got a first-hand look at how bad things have gotten. 

After a request from the President to increase the debt limit, Congress was seemingly faced with two impossible choices: Either hand the President a blank check 

to continue his unsustainable spending policies, or let America default. 

Fortunately, Congress was able to chart a middle course that coupled immediate 

spending restraints with a process to cut at least a dollar’s worth of spending for 

every dollar increase in the debt limit. 

But it shouldn’t have gotten to this point. Congress created a budget process that 

was intended to prevent this kind of ad hoc policymaking. 

Clearly, that process isn’t working. 

The budget proposed by the President in February offered no plan to deal with 

what he has since acknowledged are the nation’s growing fiscal challenges. 

Meanwhile, it has been 874 days since the Senate even bothered to pass a budget. 

Congress has struggled with this process for a long time. This year’s breakdown 

in the federal budget process, however, could not have happened at a worse time. 

Right now, it is contributing to the crippling uncertainty about fiscal policy that 

is discouraging businesses from making the kinds of long-term investments that create jobs. 

There are parts of the budget process that are irredeemably broken, but other 

parts still work well, even if they could use improvement. 

The 1974 Budget Act called on Congress to review the entire federal budget to 

both ascertain the economic impacts of our budget decisions and to help us make 

informed choices about how to raise revenue and allocate spending. 
3 

To accomplish this, the Act established the House and Senate Budget Committees 

and charged them with the responsibility to develop and enforce annual budget resolutions. 

In addition, it created CBO to give us non-partisan, objective budget estimates 

and economic projections. 

CBO is far from perfect. But it is important to note that before CBO was created, 

Congress was reliant on the Executive Branch for budget projections and cost estimates of legislation. 

I don’t agree with everything CBO produces, but I do think CBO strives to provide 

us with non-partisan, independent analysis to help us do our jobs. 

Today, we will be hearing from two former CBO directors—the first two, in fact. 

In addition to being former CBO directors, both Alice Rivlin and Rudy Penner, 

our witnesses today, have had long careers as budget experts in Washington. We 

are fortunate to have the benefit of their wisdom today. 

Before I yield, I want to emphasize one point: There’s a lot we can do to fix our 

broken budget process, but process reform can’t work unless members of Congress 

have the will to make it work. 

Reform or no reform, it will take political courage and leadership to get our fiscal 

house in order. 

I am proud to have worked with members of this committee to pass this year’s 

House budget on time. And even those members who disagreed with our reforms 

contributed to that process, for which I am grateful. 

To his credit, Mr. Van Hollen offered a substitute budget during floor consideration of the budget resolution. 

Americans deserve a real debate over our fiscal future, and the budget process 

is an appropriate forum for that debate. Let’s fix what’s broken and build upon 

what’s working. 

With that, I yield to the Ranking Member, Mr. Van Hollen. 

Mr. VAN HOLLEN. Thank you, thank you very much Mr. Chairman, and thank you for calling this hearing to explore ways that 

we might be able to improve the budget process and I join my 

friend the Chairman in welcoming our distinguished witnesses 

here today, two veterans of the budget process. And I do think 

there are some budget process measures that can help to improve 

the process. The Chairman mentioned the establishment of the 

Congressional Budget Office. I have introduced, along with many 

colleagues on this Committee, a piece of legislation that would expedite congressional consideration of spending cut proposals and 

other measures proposed by the president, by the Executive Branch 

to give those an expedited review in certain areas of the budget. 

I also believe that the PAYGO rule that has been in effect at different periods has played a useful, even though limited, role in trying to prevent the deficit from getting even worse. However I want 

to now turn to the Chairman’s concluding point. 

Our rules, our congressional rules, our congressional process are 

like flashing yellow lights like stop signs. When Congress chooses 

to ignore them they do not do any good and unlike stop signs that 

are enforced by an external police power, Congress of course, is the 

ultimate enforcer of its own rules. Which means when it decides to 

blow through the yellow flashing lights or the stop signs it can decide to do that, which brings me to my main point and the point 

the Chairman concluded on which is the real challenge we face is 

not a change in the rules. There may be some things we can do to 

modify and improve them. I do not disagree with that and I welcome the opportunity to explore this but our fundamental problem 

is not the budget process rules; it is the lack of political consensus 

and it is the lack of political will. We are now in an era of divided 

government. We have a Democratic president. We have a very close 

Democratic majority in the Senate. We have Republican control in 
4 

the House. In the era of divided government the only thing that 

stands between divided government that works for the country and 

dysfunctional government is the willingness to compromise. And I 

do not mean just find common ground because all of us have very 

different views on how to tackle some of these issues. So it is going 

to require a compromise in order to move some of these issues forward and I will just conclude with that because this is the Budget 

Committee; we spend a lot of time looking at the deficit. 

We have within the last 18 months had three groups, three bipartisan groups that looked at ways to try and address our deficit 

problem over the long run. We had Rivlin-Domenici. We had Simpson-Bowles. We have the Gang of Six that does not have a piece 

of legislation but has a concept. All three of those situations represent the kind of framework that is put together when you have 

bipartisan compromise. Nobody liked every provision in those recommendations. I certainly did not, but the overall framework addressed the way forward in a bipartisan way. Again not finding 

common ground because not everybody agreed with every provision 

in those reports but tough compromises made to try and advance 

the good of the country. 

So again I welcome the opportunity to explore ways to improve 

the budget process but as you said Mr. Chairman I think we all 

recognize at the end of the day, especially in the areas of divided 

government, only principled compromise can help move us forward 

for the good of the country and I thank you. 

Chairman RYAN. Thank you and since you are the only two witnesses we will not restrict you to the hard five minutes. So Dr. 

Rivlin why do we not start with you and then Rudy we will go with 

you. 

[The prepared statement of Chris Van Hollen follows:] 

PREPARED STATEMENT OF HON. CHRIS VAN HOLLEN, RANKING MINORITY MEMBER, COMMITTEE ON THE BUDGET

Thank you, Mr. Chairman, for holding this hearing on the budget process. And 

I join my friend, the Chairman, in welcoming our distinguished witnesses here 

today, two veterans of the budget process. 

I do think there are some measures, budget process measures, that can help improve the process. The Chairman mentioned the establishment of the Congressional 

Budget Office. I’ve introduced, along with many colleagues on this committee, a 

piece of legislation that would expedite Congressional consideration of spending cut 

proposals and other measures proposed by the President and by the executive 

branch, to give those an expedited review in certain areas of the budget. 

I also believe that the PAYGO rule that has been in effect during different periods 

has played a useful, even though limited, role in trying to prevent the deficit from 

getting even worse. However I want now to turn to the Chairman’s concluding point. 

Our rules, our Congressional rules on Congressional process, are like flashing yellow 

lights, and like stop signs. When Congress chooses to ignore them they don’t do any 

good, and unlike stop signs that are enforced by an external police power, Congress 

of course, is the ultimate enforcer of its own rules. Which means when it decides 

to blow through the flashing yellow lights or the stop signs it can decide to do that. 

That brings me to my main point that the Chairman concluded on, which is that 

the real challenge that we face is not a change in the rules, there may some things 

that we can do to modify and improve, I don’t disagree with that and I welcome 

the opportunity to explore this, but our fundamental is not the budget process rules, 

it’s the lack of political consensus and it’s the lack of political will. We’re now in 

an era of divided government. We have a Democratic president, we have a very close 

Democratic majority in the Senate, and we have Republican control in the House. 

And in an era of divided government the only thing that stands between divided 

government that works for the country and dysfunctional government is the willingness to compromise. And I don’t mean just finding common ground because some 
5 

of us have very different views on how to tackle some of these issues. So, it is going 

to require compromise in order to move some of these issues forward. 

And I’ll just conclude with that because this is the Budget Committee, we’ve spent 

a lot of time looking at the deficit. We have, in the last 18 months, had three 

groups, three bipartisan groups that looked at ways to try and address our deficit 

problem over the long run. We had Rivlin-Domenici, we had Simpson-Bowles, and 

we have the Gang of Six—who doesn’t have legislation but has a concept. All three 

of those situations represent the kind of framework that’s been put together when 

you have bipartisan compromise. Nobody liked every provision in those recommendations; I certainly didn’t, but the overall framework addressed the way forward in a bipartisan way. Again, not finding common ground because not everybody 

agreed with every provision in every one of those reports, but tough compromises 

were made to try and advance the good of the country. 

So, again I welcome the opportunity to explore ways to improve the budget process but as you said, Mr. Chairman, I think we all recognize at the end of the day, 

especially in the era of divided government, only principled compromise can help 

move us forward for the good of the country. Thank you. 

STATEMENTS OF ALICE M. RIVLIN, SENIOR FELLOW, BROOKINGS INSTITUTE; AND RUDOLPH G. PENNER, INSTITUTE 

FELLOW, URBAN INSTITUTE 

STATEMENT OF ALICE M. RIVLIN 

Dr. RIVLIN. Thank you very much Mr. Chairman, Mr. Van Hollen. There is no doubt that the budget process is broken. The clearest evidence is the fact that we are all counting on this Joint Select 

Committee with its extraordinary powers and its unusual composition to avoid total gridlock or a replay of the near catastrophic debt 

ceiling brinkmanship of this summer. Now I am an optimist about 

the chances that the Joint Select Committee with the strong support of the president and the leadership in both Houses and both 

parties will be able to agree on actions that will stabilize the rising 

debt and set the Federal budget on a sustainable path. 

However, even if the Joint Select Committee succeeds the budget 

process has failed. Our much vaunted democracy should not have 

to abandon its normal decision processes and concentrate power in 

the hands of ad hoc group even if one of them is Mr. Van Hollen, 

to solve a budget problem. The regular budget process of which this 

Committee is an essential part should have functioned long before 

now to put in place both a near term budget and a sustainable long 

term plan. 

Congress has no choice; you have to fix the budget process but 

as the Chairman pointed out in his opening remarks a better process will not make budget decisions easy or create the will to compromise and solve problems without which a diverse democracy 

cannot move forward. Process can either hamper decision making 

or facilitate it but only at the margins. The current congressional 

process makes it harder to make fiscally responsible budget decisions for reasons I will get to in a minute, but bad process is a 

symptom not a cause of unwillingness to make the compromises 

necessary to solve hard problems. No process will work unless the 

participants want it to work. 

Now budget making, as no one needs to tell you, is inherently 

hard. Even the budget of a small town or a small company is difficult to agree on because there are always more claims than resources. The budget of a huge country presents added dimensions 

of difficulty since the government’s budget affects the economy and 
6 

is affected by it in ways that are hard to document and provide 

room for sharp disagreement. 

In the United States we have a special problem. The checks and 

balances built into the Constitution make budgeting especially 

complex and require a multistage process that greatly compounds 

the difficulty of getting budget decisions made. Countries with a 

Westminster type parliamentary system do not consume as much 

time and energy or rhetoric in making budgets as we do. The results may not be better but the process is far more efficient. The 

prime minister’s party or coalition writes the budget and the parliament after a short debate approves it, sounds great. Voting down 

the budget means a new election so it is not done lightly, but our 

Constitution was not designed for efficiency. On the contrary the 

founding fathers designed a system of checks and balances that 

disburses power and slows the decision making process sometimes 

to the point of gridlock. 

Moreover since the power centers or sub-power centers such as 

executive agencies and congressional committees rarely want to relinquish their particular piece of decision making authority as new 

actors and responsibilities are added the process tends to accrete 

complexities over time until it becomes dysfunctional. The congressional budget process is at that point. It needs a complete overhaul 

to enable it to function effectively within the limits of our Constitution. 

The Budget Act of 1974, which created the Budget Committees 

and the Congressional Budget Office, which I am glad to hear good 

things spoken about because I am very proud of it as I know Rudy 

is too, it created the framework for the decisions. Before its enactment, as the Chairman noted, Congress had the power of the purse 

but no organized way of exercising it and was very dependent on 

the administration for analysis. 

The weakness of the 1974 reforms, however, contributed to the 

breakdown of the process that we are witnessing today. 

First, the process was unnecessarily complicated and hard to understand. The schedule for making budget decisions was lengthy 

and complex and, in fact, in the beginning it was worse; there were 

two budget resolutions. Even slipping the fiscal year to October 1, 

did not allow time for all the complex steps to be completed on 

time. Moreover the new process had been layered on top of an already redundant committee structure. As far back as 1971, I testified that the distinction between authorizing and appropriating 

had blurred over the years and that budget reform should involve 

abolishing that distinction altogether. My proposed committee 

structure had program committees with jurisdiction over spending 

areas, defense, health, et cetera, a revenue committee and a budget 

committee in each House. You can imagine how well that went 

over. 

Second, much of the spending side of the budget, the mandatory 

programs was essentially unaffected by the budget process. In 

1974, mandatory programs not counting interest were only 11 percent of total spending. In 2010, however, the mandatory portion 

was 55 percent of the total. Moreover these programs especially 

Medicare and Medicaid are the main drivers of projected spending 

over the next decade and beyond. 
7 

Third, the time horizon for many decisions was too short. The 

budget impact of spending programs and tax changes may build up 

slowly and become increasingly expensive over time or it may be 

deliberately designed to do that. Over the years the participants 

have struggled with different ways of taking a longer view. Five 

year window, 10 year window, you know the history but never 

solved the problem. Moreover the major retirement programs which 

now drive the budget can only be changed with substantial lead 

time and are not part of the regular budget process. 

So that leads me to a few very general principles of how to reform. First, include all spending and revenue in the budget process. 

Under the current process a dwindling portion of the budget is subject to annual scrutiny and increasingly complex rules while major 

mandatory programs and the tax code operate on automatic pilot. 

No wonder the process broke down and the Joint Select Committee 

had to be created to bring revenues and mandatory spending into 

a comprehensive decision process. And no wonder the Congress has 

chosen to put increasing proportions of spending into the mandatory category and into the tax code. 

Now I am not suggesting that you review Medicare or Social Security laws or the Tax Code in detail every year. That would be 

chaotic. In fact changes in retirement programs and taxes should 

be made as infrequently as possible with long lead times so that 

people and businesses can plan their lives. But the Congress must 

bring the retirement programs and tax expenditures into a process 

of periodic review and decision so that you can actually control the 

major drivers of the budget and the deficit and the debt. It should 

vote a comprehensive long term budget, review actual spending 

and revenues in relation to the intended long term budget, and 

have a process for deciding what to do if the numbers are veering 

significantly from the intended track. 

Second, take a longer view. Discretionary spending should be reviewed less frequently, moving to a biennial appropriations process 

would help, it would give the Congress more time for oversight and 

the Executive Branch more time for planning and implementation. 

Mandatory spending and tax expenditures should be reviewed, perhaps, every five or six years. 

Third, simplify the structure and reduce the number of decision 

points. Reforming the budget process will be next to impossible unless the Congress is willing to revamp the whole committee structure with respect to activities that impact the budget. I still believe 

that authorizing and appropriating are no longer meaningful distinctions and having the major mandatory programs under the jurisdiction of the tax writing committees is not sensible. Too much 

work for them. A better structure would be to create six or eight 

program or spending committees, a revenue committee and a budget committee to put it all together. 

Finally, recognize that our Constitution requires willingness to 

compromise as both the Chairman and the Ranking Member have 

eloquently said. The founding fathers bequeathed us a system of 

checks and balances that make it very hard to get decisions made 

unless the participants work tirelessly to make it work. It requires 

negotiation between the Executive and Legislative Branches, between the two Houses of Congress even when all are controlled by 
8 

*Alice M. Rivlin is a Senior Fellow at the Brookings Institution and a Visiting Professor at 

Georgetown University. The views expressed in this statement are strictly her own and do not 

necessarily reflect those of staff members, officers, or trustees of the Brookings Institution or 

Georgetown University. 

the same party. I am a veteran of the first two years of the Clinton 

Administration. Believe me it is harder to negotiate with your own 

folks. It requires negotiation and compromise between the political 

parties especially but not exclusively when different parties are in 

control. No budget process reform will work well until participants 

realize that making this complex structure function requires a patient willingness to try to understand each other and to work together to make sustainable budgets. Thank you Mr. Chairman. 

[The prepared statement of Alice M. Rivlin follows:] 

PREPARED STATEMENT OF ALICE M. RIVLIN,* 

BROOKINGS INSTITUTION AND GEORGETOWN UNIVERSITY

MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE: There is no doubt that the 

budget process is broken. The clearest evidence is the fact that we are all counting 

on the Joint Select Committee (JSC)—with its extraordinary powers and unusual 

composition—to avoid total gridlock or a replay of the near-catastrophic debt ceiling 

brinkmanship. I am an optimist about the chances that the JSC, with the strong 

support of the president and the leadership in both houses and both parties, will 

be able to agree on actions that will stabilize the rising debt and set the federal 

budget on a sustainable path. However, even if the JSC succeeds, the budget process has failed. Our much-vaunted democracy should not have to abandon its normal 

decision processes and concentrate power in the hands of an ad hoc group to solve 

a budget problem. The regular budget process, of which this Committee is an essential part, should have functioned long before now to put in place both a near-term 

budget and a sustainable long term plan. 

Congress has no choice: you have to fix the budget process. But a better budget 

process will not make budget decisions easy or create the will to compromise and 

solve problems, without which a diverse democracy cannot move forward. Process 

can either hamper decision-making or facilitate it, but only at the margins. The current congressional budget process certainly makes it harder to make fiscally responsible budget decisions, for reasons I will get to in a minute. But bad process is a 

symptom, not a cause of unwillingness to make the compromises necessary to solve 

hard problems. No process will work well unless the participants in the process 

want it to work. 

Budget-making is inherently hard. Even the budget of a small town or a small 

company is difficult to agree on because there are always more claims than resources. The budget of a huge country presents an added dimension of difficulty, 

since the government’s budget affects the economy and is affected by it in ways that 

are often hard to document and provide room for sharp disagreement. Moreover, in 

the United States the checks and balances built into the Constitution make budgeting especially complex, and require a multi-stage process that greatly compounds 

the difficulty of getting budget decisions made. 

Countries with Westminster-type parliamentary systems do not consume as much 

time, energy, or rhetoric in making budgets as we do. The results may not be better, 

but the process is far more efficient. The prime minister’s party or coalition writes 

the budget and the parliament, after a short debate, approves it. Voting down the 

budget means a new election, so it is not done lightly. 

But our Constitution was not designed for efficiency. On the contrary, coming off 

a revolution against a king they perceived as dictatorial, the Founding Fathers designed a system of checks and balances that disperses power and slows the decisionmaking process, sometimes to the point of gridlock. Moreover, since the power centers (or sub-power centers, such as executive agencies or congressional committees) 

rarely want to relinquish their particular piece of decision-making authority as new 

actors and responsibilities are added, the process tends to accrete complexities over 

time until it becomes dysfunctional. The budget process is at that point. It needs 

complete overhaul to enable it to function effectively within the limits of our Constitution. 
9 

WHY THE PROCESS BROKE DOWN

The Budget and Impoundment Act of 1974, which created the Budget Committees, 

the Congressional Budget Office (CBO) and the current framework for budget decisions, was a much-needed reform. Before its enactment, Congress theoretically had 

the power of the purse under the Constitution, but no organized way of exercising 

it. The executive branch, whose power was much better centralized by the Office of 

Management and Budget for the benefit of the President, wielded disproportionate 

budgetary power. But weaknesses in the 1974 reforms contributed to the breakdown of the process we are witnessing today. 

First, the process was unnecessarily complicated and hard to understand. The 

schedule for making budget decisions was lengthy and complex. (In fact, originally 

there were two budget resolutions.) Even slipping the fiscal year to October 1 did 

not allow time for all the complex steps to be completed on time. Moreover, the new 

process had been layered on top of an already redundant committee structure. I testified in 1971 that the distinction between authorizing and appropriating had 

blurred over the years and budget reform should involve abolishing the distinction 

altogether. My proposed committee structure had ‘‘program committees’’ with jurisdiction over spending areas (defense, health, etc.), a revenue committee and a budget committee in each house. You can imagine how well that went over! 

Second, much of the spending side of the budget—the mandatory programs—was 

essentially unaffected by the budget process. In 1974 mandatory programs, not 

counting interest, were only 11 percent of total spending. In 2010, the mandatory 

portion was 55 percent of the total. Moreover, these programs, especially Medicare 

and Medicaid, are the main drivers of projected spending over the next decade and 

beyond. 

Third, the time horizon for many decisions was too short. The budget impact of 

spending programs and tax changes may build up slowly and become increasingly 

expensive over time (or may be deliberately designed to do that). Over the years, 

the participants struggled with different ways of taking a longer view (five-year window, ten-year window), but never solved the problem. Moreover, the major retirement programs, which now drive the budget, can only be changed with substantial 

lead time and are not part of the regular budget process. 

ESSENTIAL INGREDIENTS OF AN EFFECTIVE BUDGET PROCESS

Process reform is normally incremental, but the time for incremental reforms in 

the budget process is over. The Congress should blow it up and start over from first 

principles. Let me offer some general prescriptions. 

• Include all spending and revenue in the budget process 

Under the current process, a dwindling portion of the budget (discretionary spending) is subject to annual scrutiny and increasingly complex rules, while major mandatory programs and the tax code operate on automatic pilot. No wonder the process 

broke down and the JSC had to be created to bring revenues and mandatory spending into a comprehensive decision process. And no wonder the Congress has chosen 

to put increasing proportions of spending into the mandatory category and into the 

tax code. 

I am not suggesting that the Medicare or Social Security laws or the tax code be 

reviewed in detail every year. In fact, changes in retirement programs and taxes 

should be made as infrequently as possible and with long lead times, so that people 

and businesses can plan their lives. But the Congress must bring the retirement 

programs and tax expenditures into a process of periodic review and decision, so 

that you can actually control the major drivers of the budget, the deficit and the 

debt. It should vote a comprehensive long-term budget, review actual spending and 

revenues in relation to the intended long-term budget, and have a process for deciding what to do if the numbers are veering significantly from the intended track. 

• Take a longer view 

Discretionary spending should be reviewed less frequently. Moving to biennial appropriations would help. It would give the Congress more time for oversight and the 

executive branch more time for planning and implementation. Mandatory spending 

and tax expenditures should also be reviewed, perhaps on a five or six year cycle. 

• Simplify the structure and reduce the number of decision points 

Reforming the budget process will be next to impossible unless the Congress is 

willing to revamp the whole committee structure with respect to activities that impact the budget. Authorizing and appropriating are no longer meaningful distinctions, and having the major mandatory programs under the jurisdiction of the taxwriting committees is not sensible. A better structure would be to create six to eight 
10 

program or spending committees, a revenue committee and a budget committee (to 

put it all together). 

ABOVE ALL, RECOGNIZE THAT OUR CONSTITUTION

REQUIRES WILLINGNESS TO COMPROMISE

The Founding fathers bequeathed us a system of checks and balances that make 

it extremely difficult to get decisions made unless participants work tirelessly to 

make it work. It requires negotiation between the legislative and executive branches 

and between the two houses of Congress, even when all are controlled by the same 

party. It requires negotiation and compromise between the political parties, especially but not exclusively when different parties are in control of one house or one 

branch. No budget process reform will work well until participants realize that making this complex structure function requires a patient willingness to try to understand each other and to work together to make responsible, sustainable budgets. 

Thank you, Mr. Chairman, and members of the Committee. 

Chairman RYAN. Thank you Alice. Dr. Penner. 

STATEMENT OF RUDOLPH G. PENNER 

Dr. PENNER. Thank you Mr. Chairman and thank you Mr. Van 

Hollen and other members of the Committee for this opportunity 

to testify. It is tempting to believe that if only we could come up 

with some clever budget rules, fiscal prudence would follow. But as 

you implied Mr. Chairman and Mr. Van Hollen as well, it does not 

work that way. The desire for fiscal responsibility must come first 

then rules can be important in strengthening the efforts of those 

supporting fiscally responsible policies. 

Rules can also protect those who are fiscally responsible from the 

special interest that will inevitably oppose them. The problem in 

recent years has not been a lack of rules. It has instead been the 

failure of the Congress to follow rules that are already on the 

books. You said Mr. Chairman the Senate has not passed a normal 

budget in two years so I guess the Budget Control Act is now their 

budget. Last year the House failed to pass a budget for the first 

time in the history of the modern budget process and also it is a 

very rare event for appropriations to be finished on time. 

This suggests to me that it may be more productive to think 

about changes in the structures of spending programs and tax policies that would allow us to control deficits more easily. For example, my colleague Gene Steuerle and I have written on how automatic triggers could slow benefit growth to raise revenues when Social Security is forecasted to have financial problems. Such triggers 

have been used in many other countries. It is possible to structure 

a broad based low marginal rate tax that yields revenues growing 

more rapidly than GDP. But nothing is foolproof. The Congress put 

an automatic trigger for Medicare in the Prescription Drug Bill. It 

later suspended it before it took full effect. 

As Alice emphasized we have to find better ways of controlling 

mandatory spending. Now that is especially true of Medicare and 

in my view it is necessary to alter Medicare so that it is subjected 

to a fixed budget. The premium support system suggested by you 

Mr. Chairman and in the Domenici-Rivlin Report would serve that 

purpose. We can argue about how large the Medicare budget 

should be, but once that is settled we would have a lever with 

which to control it. 

Turning to issues more directly related to the existing budget 

process I will discuss three commonly proposed rules changes that 
11 

1The views expressed are those of the author and should not be attributed to the Urban Institute, its trustees, or its funders. 

I think are bad, two that I would adopt, and one I am not so sure 

of. 

I used to think it would be a very good idea to replace the concurrent budget resolution with a joint resolution that would be 

signed into law or vetoed by the president, thus getting agreement 

on the outlines of the budget early in the process. But given the 

difficulty that Congress has faced in recent years about passing 

any budget at all, I guess I now think it totally impractical to get 

agreement with the president in a timely fashion. 

I rarely, rarely disagree with Alice but one of her ideas that I am 

not too enthusiastic about is the notion of biennial budgeting. As 

Alice said budgets are extremely complex. They are never perfect. 

I think we should try to improve them every year and besides economic and other conditions often change unexpectedly and by large 

amounts. 

Third, the Balanced Budget Amendment is not a good idea. The 

first response of a state when it feels constrained is to engage in 

some outrageous budget gimmickry and over the long run states 

have created a host of independent agencies and off-budget accounts that make state budgets extremely hard to understand. Admittedly, balanced budget provisions exercise restraints in a severe 

recession but that is not a good time to have it. 

Two things that should be done, here I very much agree with 

Alice that the budget horizon should be lengthened to deal with the 

long run and the Congress should set an explicit target for stabilizing the debt GDP ratio and the date for doing it. The Committee 

for a Responsible Federal Budget has suggested techniques for enforcing such a target using a sequester as a last resort. 

Second, we badly need a new baseline. The current law baseline 

as CBO must now compute it is useless because so many tax cuts 

and spending increases have passed on a temporary basis even 

though we are essentially certain that they will be extended. Most 

groups suggesting fiscal reforms start with the current policy baseline but different groups tend to interpret current policy differently. 

Codifying of current policy version which admittedly will not be 

perfect could help end much confusion. 

The last idea that I am not so sure about has often been suggested, it is the notion of creating a joint House and Senate budget 

committee. Congress can then start the debate with one resolution 

but I defer with those with legislative experience to assess whether 

this would really be a good idea, but I certainly think it should be 

given considerable thought. Thank you Mr. Chairman. 

[The prepared statement of Rudolph G. Penner follows:] 

PREPARED STATEMENT OF RUDOLPH G. PENNER, INSTITUTE FELLOW, 

THE URBAN INSTITUTE1

It is tempting to believe that if only we could come up with some clever budget 

rules, fiscal prudence would follow. Unfortunately, it does not work that way. The 

desire for fiscal responsibility must come first. Then rules can be important in 

strengthening the efforts of those supporting fiscally responsible policies. They also 

can protect those who are fiscally responsible from the special interests that will inevitably oppose them. 
12 

2 Rudolph G. Penner and C. Eugene Steuerle, ‘‘Stabilizing Future Fiscal Policy: It’s Time to 

Pull the Trigger,’’ an Urban Institute Research Report, August 2007. 3Debt Reduction Task Force 2010, ‘‘Restoring America’s Future: Reviving the Economy, Cutting Spending and Debt, and Creating a Simple Pro-Growth Tax System’’, Washington, DC, Bipartisan Policy Center. 4 Committee on the Fiscal Future of the United States (National Academy of Public Administration and National Research Council of the National Academy of Sciences, 2010, ‘‘Choosing 

the Nation’s Fiscal Future’’, Washington, DC, National Academies Press. 

The problem in recent years has not been a lack of rules. It has instead been the 

failure of the Congress to follow rules that are already on the books. The Senate 

has not passed a normal budget in 2 years (The caps imposed by the Budget Control 

Act of 2011 have recently been deemed to constitute a budget.) and last year the 

House failed to pass a budget for the first time in the history of the modern budget 

process. It is hard to think up useful rules governing the development of a budget 

resolution when no budget resolution passes the entire Congress. 

The Congress almost never passes appropriations on time. That makes it very difficult for the bureaucracy to make rational plans. 

RULES VERSUS CHANGES IN THE STRUCTURE OF PROGRAMS

The difficulty in following rules and schedules may imply that it is more promising to think about changes in the structure of spending programs or in the tax 

structure that would make deficits easier to control. It is Social Security and health 

spending that now create our biggest budget challenges. The two areas constitute 

almost half of noninterest spending. Both areas are growing faster than tax revenues. 

Part of the problem is that Social Security, Medicare and Medicaid, along with 

some less important health programs, are open-ended. That is to say, they are not 

subjected to a budget. The law defines an eligible population and the benefits to 

which they are entitled and then we pay for everyone who shows up. A lot more 

people are showing up these days as baby boomers retire in larger and larger numbers. 

My colleague Eugene Steuerle and I have written about automatic triggers that 

might be used to make Social Security more secure financially.2 Upon a finding by 

the actuary that the program is in trouble, the spending and/or tax structure could 

be altered automatically to put the program on a more sustainable course. For example, the full retirement age could be increased automatically, indexing could be 

changed to reduce benefit growth, or the tax base could be raised. Sweden has designed a system in which the generosity of the index applied to new and future retirees is automatically made less generous whenever the present value of future revenues falls short of the present value of future expenditures. 

Steuerle and I also wrote favorably regarding the automatic Medicare trigger that 

was embedded in the Prescription Drug Act. Upon a finding that indicated that the 

system was in financial trouble, the president was to issue recommendations that 

would improve the program’s financial outlook, and the Congress was supposed to 

consider the recommendations in an expedited manner. The actuary found that the 

system was in trouble; President Bush made some money saving recommendations; 

and then nothing happened. The Congress passed a new rule that relieved them of 

the burden of considering the recommendations. The experience shows that nothing 

is foolproof. The Congress can create laws and change laws at any time. 

Medicare can be put on a budget through a premium support approach and Medicaid can be controlled through a block grant, as suggested in the budget you put 

forward Mr. Chairman and in the Domenici-Rivlin report.3 The amount of money 

that should be put behind these ideas can be debated, but once the debate is resolved Congress has a more direct way of controlling total expenditures. 

On the revenue side, a revenue neutral tax reform that broadens the tax base and 

lowers marginal rates can be designed to provide a revenue stream that grows faster than GDP in the long run. Such a system was designed by a committee that I 

co-chaired for the National Academies of Science and Public Administration.4 Admittedly, the revenue growth was largely fueled by the elimination of the exclusion 

from taxable income of the cost of employer provided health insurance. The exclusion is currently a major drag on revenue growth because of rapidly growing health 

costs. However, we designed our system before health reform passed. Now one has 

to worry that the removal of the exclusion would drive many more people into subsidized exchanges. 
13 

5 Committee for a Responsible Federal Budget, Getting Back in the Black, November 2010. 

PROPOSALS FOR CHANGING THE BUDGET PROCESS

There are some proposals for changing the budget process that I oppose, some 

that should be adopted, and others that deserve more study. 

A Joint Resolution—It has often been suggested that the Congress pass a Joint 

Budget Resolution that would replace the Concurrent Budget Resolution called for 

in present law. A Joint Resolution is a law that would be signed or vetoed by the 

president. A Concurrent Resolution is not a law and is not signed by the president. 

Proponents of this change argue that it would be useful for the president and the 

Congress to agree to a budget early thus avoiding time consuming debates later in 

the year. Because it would have the force of law, the budget resolution should be 

easier to enforce. 

I must confess that I was for a Joint Resolution before I was against it. I now 

believe that it would be impractical to reach an agreement between the president 

and the two houses of Congress early in the year. As noted earlier the Congress has 

had problems reaching an agreement itself. Finding an agreement with the president would probably involve a protracted bargaining session that would take far too 

much time. 

A few years ago, then Chairman Nussle and Representative Cardin put forward 

a proposal for a Joint Resolution that had a fallback provision. If the president and 

the Congress did not reach agreement within a specified time period, the Congress 

would then revert to a Concurrent Resolution. This would be a better approach than 

not having a fallback, but I suspect it would be necessary to revert to a Concurrent 

Resolution almost every year. 

Biennial Budgeting—Many have suggested that the Congress prepare a budget 

only every two years, thus leaving more time for oversight of programs. I have never 

liked this idea. I see budgeting as an iterative process in which we are constantly 

groping for a better allocation of resources. It is an extremely complicated process 

that we never get quite right and it useful to return to the problem at least once 

a year. I would say that even if conditions remained constant, but they don’t. There 

tend to be significant unpredicted changes in the economy each year and budget 

projections can vary dramatically. One might diminish the problem by relying more 

on supplementals, but supplementals tend to be hard to discipline. Besides, what 

if political conditions suddenly favored some budget consolidation, but it happened 

in an off year. One might miss an important opportunity. 

A Balanced Budget Amendment—Forty nine states have laws or constitutional 

provisions that favor a balanced budget. They vary greatly from state to state. Some 

only require that balanced budgets be proposed and some only require that budget 

for current operations be balanced and allow borrowing for capital projects. 

Such laws have greatly distorted state budgets. First, they have driven many 

state activities off budget. There are more than 30,000 independent agencies and 

off-budget accounts at the state and local level that are not subjected to a balanced 

budget requirement. Second, they promote the use of accounting gimmicks as a first 

response when states get into trouble. For both reasons state budget become very 

hard to understand. 

It is true that governments eventually run out of gimmicks in a severe recession 

and balanced budget rules start to have a real restraining effect, but it is not a good 

time for restraint. Over the longer run the main restraint on states comes from the 

rating agencies whose rulings can have a significant impact on the interest rates 

on state debt. In my view, balanced budget rules only have a sporadic restraining 

effect that generally comes at just the wrong time. 

A balanced budget amendment would reduce the ability of the Federal government to respond to recessions and other emergencies. If exceptions are put in the 

amendment, they will almost certainly be abused. It was not so long ago that the 

Congress declared the 2000 census to be an emergency, even though we knew that 

we had to have one since 1789. 

Lengthening the Budget Time Horizon—The Committee for a Responsible Federal 

Budget has proposed a series of process changes that would take a longer term view 

of the budget.5 Most important the Congress would set a target at which it would 

stabilize the debt-GDP ratio and announce the year in which the target would be 

achieved. It sets out a number of enforcement mechanisms with an automatic sequester as a last resort. 

Choosing a New Baseline—The current law baseline now used by the Congress 

in budget deliberations has become almost totally useless. The problem arises because of Congress’ propensity to pass deficit increasing measures for short time periods. Consequently, all the Bush tax cuts are now scheduled to expire at the end of 
14 

2012, including those for the middle class; it is assumed the alternative minimum 

tax will soon afflict millions more taxpayers; numerous other tax provisions that are 

routinely renewed every year are assumed to expire; and Medicare reimbursements 

will be cut to the bone. These unrealistic assumptions lead to unrealistically rosy 

deficit projections. 

This is not an easy problem to fix, because there is no such thing as a perfect 

baseline. However, I believe that it would be more sensible to have a new baseline 

that assumed that all temporary tax measures are renewed. On the spending side 

of the baseline, it is now assumed that authorizations for programs, such as TANF, 

highways, etc., are automatically renewed when necessary. The most important 

problem with my approach is that it does not take account of instances where the 

Congress truly wants a tax or spending measure to be temporary, but this is rare. 

My proposed baseline has the major advantage that it is much better predictor of 

where policy and deficits are going than the current law baseline. 

A Joint Budget Committee—It has often been suggested that the House and Senate combine to form a Joint Budget Committee. The same resolution would be put 

before each house of the Congress and even if the resolution was successfully 

amended, the end results should be easier to reconcile than if you start with two 

different resolutions from two separate committees. 

I am not absolutely convinced that this proposal is a good idea. I would defer to 

those with actual legislative experience who are in a better position to judge, but 

I do think it worthy of consideration. 

Chairman RYAN. Thank you very much. Dr. Rivlin, when we 

wrote the 1974 Budget Act mandatory spending was 11 percent of 

spending and back in those days it was called backdoor spending. 

It was 11 percent then now it is approaching 60 percent. You both 

suggest that we should budget for these, that we should put these 

on budget. How exactly do you think we ought to doit? Should we 

put hard caps with sequesters? What do you think is the best way 

to bring this category, the largest category of government on budget? And I will just ask Dr. Rivlin and then Dr. Penner. 

Dr. RIVLIN. Well first I think it is hard, but a way you could go 

is to have the Congress vote on a long term budget. I mean really 

long like 20, 30 years for those mandatory programs, and I believe 

also for tax expenditures. Those are the two big categories that are 

on automatic pilot and not that really dealt with in the budget 

process. And then you look at it periodically, every five years or 

even oftener and you decide what to do. Now you could have some 

kind of automatic enforcement mechanism if you are veering off 

track, say on Medicare, then you could have some kind of sequester. That is hard. 

I would really like to have the Congress without a sequester or 

a sort of Damocles. Have an explicit vote on what you are going 

to do about this veering off track when it happens and in the case 

of Medicare if you do have something that is a defined contribution 

plan then at that moment you could say costs are going up and it 

seems to be faster than we anticipated and we have got to decide 

what we are going to do about that. Do we raise the cap, et cetera? 

But you need an explicit decision moment on the mandatory programs and these tax expenditures in which you review what you 

thought was going to happen, what has happened and what to do 

about it. 

Chairman RYAN. So Dr. Penner both of you said we should go to 

a defined contribution which is the type of system premium support is. We can debate how you do it, growth rates and all of those 

things on Medicare but lock in that growth rate and then revisit 

it to make sure that it is sticking within trend. 
15 

And Dr. Penner you mentioned that the debt-to-GDP ratio triggers with some kind of an enforcement mechanism such as a sequester behind that. Is that what both of you are basically saying? 

So Medicare’s the big problem with respect to drivers of our debt. 

That is the biggest unfunded liability. You are saying take an entitlement like this, put it on the kind of track you just mentioned 

and then if you are veering off that path then have a backup mechanism to make sure you get back on the track. 

Dr. RIVLIN. Right. With respect to Medicare if you really did premium support you would not be veering off track. 

Chairman RYAN. Right. 

Dr. RIVLIN. But for others like Medicaid or tax expenditures I 

mean those are really big and they are expenditures and you have 

to look every once in a while at what is happening there and the 

present process does not give you a moment for doing that. 

Chairman RYAN. Dr. Penner? 

Dr. PENNER. I just very much agree with everything Alice said 

and if you did indeed have a premium support system for Medicare 

you could vote on the budget every year. I mean other countries, 

Canada, United Kingdom they have fixed budgets for their health 

system. In Canada every hospital has a budget and has to live 

within that. So you can set long run targets and you can adjust 

continually depending on conditions. 

With regard to Social Security it was really not on a completely 

automatic pilot until the mid-1970s. Before that it was assumed 

that benefits would be fixed in money terms and that, of course, 

with growing payroll tax revenues meant that the Congress could 

every now and again increase those benefits depending on conditions. 

In the late 60s and early 70s the Congress increased benefits 

enormously and there was a feeling that I believed in at the time 

that the Congress could not discipline itself with regard to Social 

Security. So instead they put it on automatic pilot thinking that 

would save money in the long run. Now I am very dubious about 

that theory. I wish we were back in a system where the Congress 

had more discretion depending on what is happening to wages in 

the economy and all sorts of other things to alter these benefits. 

And you would want to design the program so they altered them 

in a good direction so they were not in a position of having to cut. 

Now with this automatic system it becomes sort of symmetrical. 

Sometimes you would be in a position where you should cut them 

and sometimes maybe increase them but the bottom line is that we 

have not done anything at all and we just let the automatic pilot 

fly on. 

Chairman RYAN. Dr. Rivlin you said something that really 

peaked my interest about the way we organize ourselves here on 

committees and things like this and you have been at this for a 

long time. It is a fairly dysfunctional way: the separation between 

authorizing and appropriation. Are you suggesting that we go to 

more of a streamline system where, say, jurisdiction is clean, broken up by budget function or something like that, and authorizers 

also do the appropriating as well? Is that the kind of system you 

are talking about? 
16 

Dr. RIVLIN. Exactly. And I am not sure it is a very meaningful 

distinction. But if it is it is done by the same people. 

Chairman RYAN. Right, so I remember there was a Dryer Commission in 1995, I think, that did this and they said break it up 

by budget functions. Budget Committee sends the numbers to the 

authorizers/appropriators and authorizers have a subcommittee, an 

appropriations subcommittee, so the people who are doing the oversight and looking at these programs for the long term and short 

term also do the appropriating. Is the kind of system you are talking about? 

Dr. RIVLIN. Yes. I thought of it just as there is a Defense Committee. 

Chairman RYAN. Yeah. 

Dr. RIVLIN. And it spends its time worrying about defense strategy and how much money we want to spend for defense and its relationship to the Budget Committee as you describe. 

Chairman RYAN. Okay, I am going to get some pretty nasty looks 

from some people here in a minute because I keep going down this 

path. 

Dr. RIVLIN. It is not a popular idea. 

Chairman RYAN. No I know it is not. Let me ask you about baselining. So Dr. Penner you talk about the base, let’s put aside the 

assumptions within the baseline. You know doc fix and tax policy. 

I want to quote Governor Cuomo who called the baseline budgeting 

process in New York a sham and deceptive and a contributor to the 

dysfunctional budget process. Here is his quote. 

Who was responsible for setting the growth in the state’s budget, 

the answer is shockingly no one. It is dictated by hundreds of rates 

and formulas that are immobilized throughout New York State 

laws that govern different programs, formulas that have been built 

into the law over decades without regard to fiscal realities, performance or accountability. 

We face the same problem here in Washington. The assumptions 

of what ought to be in the baseline whenever there is a reduction 

in the growth of a program like mandatory it is considered a cut. 

When in real terms it actually is an increase. Should we go after 

that? Should we revisit the actual composition of a baseline which 

is really the definition of autopilot? 

Dr. PENNER. I think that would be very useful. I mean what is 

going on now is that we have a discriminatory budget structure. 

We look at discretionary and mandatory quite separately and when 

you cut a discretionary program it is really not cut usually in real 

terms. Whereas as you said Medicare can be growing at an extremely rapid rate and any slowdown in the growth is called a cut 

and the same tends to be true of Social Security. 

So I think that would be very useful. I think it would be helped 

if, in fact, we had fixed targets for Medicare that would help control it. Another way of helping I think would be a change in the 

way we display the budget, where every year you have a kind of 

source and uses of funds and then you can see very clearly how 

much of your tax revenues and boring goes to Medicare, how much 

it has increased or to Medicaid and that would be very helpful as 

well. 

Chairman RYAN. Yes, Doctor? 
17 

Dr. RIVLIN. I think Rudy goes too far. You need a baseline. If you 

are going to sit down and look at the budget you need to say where 

do we start? And in terms of Medicare and Social Security for instance it does not make any sense to say we start with what we 

are spending this year because next year there are going to be 

more old people and 10 years from now there are going to be a lot 

more old people. So it makes a lot of sense to compute what would 

be the spending given the number of claimants that we expect. 

Chairman RYAN. A per capita adjustment in the baseline. I 

heard. 

Dr. RIVLIN. Well not necessarily. I am saying that with respect 

to entitlement programs, programs that depend on the characteristic of the beneficiaries you really need to know how many 

beneficiaries there are and so you need to adjust for that. 

With respect to discretionary spending it is essentially arbitrary. 

You could decide we are going to start with this year’s budget or 

you could decide a lot of these programs will have higher cost because of inflation. Now we are not in an inflationary period now 

but suppose you were and that they are going to need to provide 

the same service, they are going to need more money and you could 

start there. It does not matter so long as you decide and everybody 

understands what it is. But you do need a baseline. 

Dr. PENNER. Well I was not implying Mr. Chairman that we 

should not compute the kinds of things that Alice says we should 

compute. That is to say what are the spending implications of the 

current law? But I am suggesting additional displays which make 

it clearer than in our present system just how much that is costing. 

Chairman RYAN. Right. Thank you. Mr. Van Hollen. 

Mr. VAN HOLLEN. Thank you Mr. Chairman. Let me thank again 

the witnesses for their testimony. As I listen to your testimony it 

sort of led me back to some of the comments that you made early 

on, the chairman and I made in which Dr. Rivlin ends her written 

testimony on essentially in big bold letters in the sentence. ‘‘Above 

all recognize that our Constitution requires a willingness to compromise’’ because we can invent all the budget rules that we want 

but if at the end of the day there is not a willingness to compromise especially in the area of divided government it becomes a 

very difficult. 

And Dr. Penner as I look at your testimony and I have to say 

I agree with your review of some of the budget processes. Joint resolution no, I think the key points there, biennial budgeting. Frankly I am kind of agnostic on that. I am willing to listen to people. 

Balance budget amendment, you pointed out that there are a lot 

of gimmicks that are played with that. Ultimately with that as well 

it is a matter of enforcement. I mean I do not think anyone should 

kid themselves thinking if there was a balanced budget that it 

would not be subject to the same kind of game plan you see at the 

state level. But also ultimately who is going to enforce it, the 

courts? They are not going to get in the middle of a big battle over 

that. 

Lengthening the budget time horizon? I think all of us in this 

Committee realize that the time structure is designed in a way 

that you do not get very much credit for politically tough decisions 

because you only look in the 10 year window while a lot of changes 
18 

take place over a period of time, whether it is on the revenue side 

or cutting spending. So I think that is something we should look 

at. 

Baseline, I am happy to engage in a conversation on baseline, 

too. But I think if you look at both your testimony you would acknowledge, and this is my point, that really the recommendations 

you are making for addressing this issue are really beyond the purview of budget process. You are really making decisions with respect to fundamental policy choices. 

For example, when you set up a sequester mechanism, if we were 

to do that, you have to decide now. What subject to sequester? Are 

you going to include revenue when you miss your debt to GDP target, or deficit to GDP target? All those questions come into play 

right up front. We have sort of all discovered that as you go 

through these different exercises. Dr. Penner, you mentioned the 

Rivlin-Domenici Commission recommendation regarding premium 

support. You did not mention that their overall approach is sort of 

50 percent on the revenue side 50 percent on the cut side, and that 

other bipartisan groups that have looked at these challenges have 

come up with similar frameworks. You mentioned one of the tax 

approaches broadening the base that was discussed in choosing the 

nation’s fiscal future. Great piece of work, but as you know you 

outlined four different fiscal scenarios here and had a lot of different proposals with respect to how you raise revenue including 

raising payroll taxes, right? 

Dr. PENNER. That is right. 

Mr. VAN HOLLEN. Okay, so the point here is that biennial budgeting, some of this little stuff we can work around the edges but 

the fundamental crunch comes with making the political choices. 

And I just throw that question, is that not the case? 

Dr. RIVLIN. Absolutely. 

Dr. PENNER. No disagreement here. 

Dr. RIVLIN. If you are criticizing us for not making your job easy, 

you are right. 

Mr. VAN HOLLEN. I am not. I just I think that we can and I am 

willing to engage in you know process and discussion and looking 

into how we can change this as I have said. I have introduced legislation cosponsored by a number of our colleagues with respect to 

expedited rescission. It can I think make a little difference around 

the margins potentially. But with respect to the fundamental 

issues every one of the proposals that you have put forward, the 

two of you, with respect to really changing the direction is not really a budget process proposal. It presumes fundamental political 

choices about how we are going to get there I believe. 

Dr. RIVLIN. I think that is right, if I may chime back in, but 

there are things that you can do to make it easier to grapple with 

the hard choices and right now the fact that entitlements and tax 

expenditures are sort of outside your purview and you are spending 

enormous amounts of time on a small part of the budget. That is 

silly and you can fix that. 

Mr. VAN HOLLEN. Well I think there are things you can do to 

focus more attention and discussion on as you said tax expenditures. The other thing is as someone who is on temporary leave 

from the Ways and Means Committee I am happy to vote now for 
19 

all your proposals with respect to my other colleagues on other 

committees. 

But I do think that all of these issues should be subject to more 

scrutiny and I think there are things we can do as you say to make 

it easier. I am just making the point that you are making too, 

which is there is no budget process magic bullet here, and the point 

I made in my testimony, when you look at the different groups that 

have grappled with it, it is not as if this has not been part of our 

national conversation for the last 18 months in terms of looking at 

these fundamental choices. I mean we have Dr. Rivlin and the 

Rivlin-Domenici Commission. Dr. Penner you were part of the National Academy of Sciences study and grappled with these exact 

issues. Simpson-Bowles did, Gang of Six did and my point is if at 

the end of the day we take Dr. Rivlin’s advice, and what I think 

Dr. Penner’s advice, which is that you have got to make these 

tough political decisions and be subject to compromise. 

My only point is we now look to the bipartisan groups that have 

grappled with this and what kind of compromises did they frame? 

Again not with respect to every particular piece of it, people will 

differ but in terms of the fundamental approach. There are three 

clear products that demonstrate and reflect what happens when 

people of good will and good faith get together and grapple with 

these questions. Would you agree with that, Dr. Rivlin? 

Dr. RIVLIN. I would. I mean there are differences obviously but 

the basic arithmetic of the problem drives you to similar solutions. 

Mr. VAN HOLLEN. Dr. Penner? 

Dr. PENNER. Yes, the problem now is not a lack of options. We 

have literally dozens of them as you say from various committees. 

The problem is a matter of compromising among those options. 

Mr. VAN HOLLEN. Thank you. 

Chairman RYAN. It is Mrs. Black. 

Mrs. BLACK. Thank you Mr. Chairman and I want to thank both 

the witnesses for your very enlightening remarks that you did 

make. I want to go to the regulatory increases and spending that 

piece. In formulating the baseline CBO makes so-called technical 

adjustments to account for regulatory policies that would change 

direct spending. Do you think that this process is significantly 

transparent to Congress so that we are made fully aware of the 

spending policy changes that are being made administratively 

without further congressional enactment? Ms. Rivlin. 

Dr. RIVLIN. I do not really know. I mean I would talk that 

through with Dr. Elmendorf but I assume they are trying as hard 

as they can to make it as clear as possible. If there are other things 

you need to understand, ask. 

Dr. PENNER. They do report on a regular basis in terms of their 

estimate, both of the private spending implications and public 

spending implications, the regulatory changes. It is pretty dense 

stuff I will admit, but I think as Alice said if it is not clear enough 

you could work with CBO to change the format. 

Mrs. BLACK. Let me go to another subject on the CBO versus the 

Joint Tax Committee or Joint Committee on Taxation. Responsibility for estimating the budgetary effect of legislation is divided 

between CBO and JCT with JCT responsible for providing estimates from most revenue measures while CBO is responsible for 
20 

all the legislative. From your experience at CBO what challenges 

do you think that this arrangement poses or are there challenges 

there? 

Dr. RIVLIN. Well I was the first director so I inherited this division of responsibility and as we staffed up in our tax division we 

tried to figure out how do we do this best? But my experience was 

pretty good. I think it worked reasonably well. The staff of the 

Joint Tax Committee is very competent and they have been doing 

this for a long time and there was a lot of back and forth between 

the two staffs and I do not remember it being especially difficult. 

Dr. PENNER. I would agree. The division of responsibilities was 

actually codified on my watch and made clear in the legislation. I 

did not object to that. I thought it was a good idea to clarify these 

things. I cannot say that I ever experienced real difficulties because 

of this division of responsibilities. It worked very well. They always 

cooperated very well with us. Sometimes we had disagreements but 

that was a rare event. 

Mrs. BLACK. Well I appreciate both your testimony and also in 

the questioning because we certainly want to find things that work 

well and then fine tune the things that do not. Thank you very 

much. Mr. Chairman I yield back my time. 

Chairman RYAN. Mr. Blumenauer. 

Mr. BLUMENAUER. Thank you Mr. Chairman. I must say I have 

appreciated the food for thought that you are offering up. Just sort 

of take a moment to exhale amongst some of the activities around 

here. I am looking at some big picture items. I particularly appreciate your putting before us the potential of changing the dysfunctional congressional structure itself. I was taken by your proposal 

to sort of merge authorizing and appropriating. I think you were 

right 40 years ago and I think, certainly, you are correct today. It 

is interesting how authorizers increasingly are attempting to sidestep appropriators and with mixed success and how our friends in 

the Appropriations Committee routinely weigh into the policymaking. I am hopeful that there may be an opportunity for us at 

some point to step back and look at this because ultimately this is 

a notion of broader congressional dysfunction, the size of committees and the inability to actually get things done. You are suggesting, not only I think, fiscal restraint but an opportunity to exercise what policymakers should do which is actually policy make. 

Dr. Penner, I appreciate your reference to not falling victim to 

gimmicks. I note the late Senator Hatfield recently passed away 

and one who stood tall against the so-called Balanced Budget 

Amendment, which is something sidestepping our responsibility. 

And I am particularly interested in the notion of our being on autopilot with the mandatory spending with tax expenditures. 

I am thinking about ways that we might be able to break the 

cycle and I would like to just put one item before you. Dr. Rivlin, 

we talked briefly before the hearing about the infrastructure issue. 

An area that is not given much attention sadly is the infrastructure deficit. We have user fees that have gotten all out of cycle that 

have required trust funds to be propped up by general funds and 

these are areas, particularly the Highway Trust Fund, where we 

are talking about long term investments. Do you think that there 

is some approach that would involve a capital budget in trying to 
21 

zero in separately on the user fees that support some of the infrastructure that could maybe help get out of the budget conundrum 

and be able to lead towards better policymaking? 

Dr. RIVLIN. Well I think they are two separate issues. One is how 

do you get more investment in infrastructure? And I think everybody thinks we need that and how do you fund it in a way that 

is more conducive to efficiency? And you and I have talked about 

road use pricing and congestion fees and that sort of thing. And I 

think more shifting to user fees in infrastructure is a good thing. 

However, I think of that as a separate conversation. I do not 

think that a capital budget for the federal government would be 

particularly helpful and for a couple of reasons. Unlike states and 

cities the federal government actually does not do much direct investing in capital goods except in the military. Most of the investment in what you would really think of as capital goods, battleships, whatever; we do not use them anymore; aircraft carriers or 

our military hardware. 

On the domestic side it is mostly grants to state and local governments, a grants from the Highway Trust Fund or whatever, 

matching grants. That makes it much more difficult to have them 

in the capital budget but the more important thing is immediately 

everybody who is conscious of not just the infrastructure deficit but 

the skills deficit and other deficits will say, ‘‘But wait a minute infrastructure is an investment but so is investment in the skills of 

the workforce.’’ And you get an ever expanding definition of what 

is investment which leads me to believe it is not a terribly useful 

concept at the Federal level. 

Dr. PENNER. I agree completely. You talk about budget gimmickry; if the presumption is that it is okay to borrow to finance 

capital, whereas you should pay for current expenditures up front 

then I think experiences show on that almost everything gets defined as being capital. In the case of the New York City bankruptcy 

long ago they went so far as to call janitor salaries capital because 

they worked on buildings after all. 

So it is just very hard to control that and also there are all kinds 

of measurement problems. The fact that you do not really know 

what you get from a grant. The way most of the highway grants 

are constructed, they do not really provide much incentive to states 

to actually build highways. 

And then of course you have the much more difficult measurement problems if you consider education to be capital or research 

and development to be capital. And if you do not, then you have 

a capital budget then you are discriminating against those things. 

Chairman RYAN. Thank you. Mr. Stutzman. 

Mr. STUTZMAN. Thank you Mr. Chairman and thank you for 

being here today. I want to touch a little bit on biennial budgeting 

and Dr. Rivlin your comments you mention supporting the concept. 

I am a big fan of biennial budgeting. I come from the State of Indiana. 

Dr. RIVLIN. I am a Hoosier, too. 

Mr. STUTZMAN. That is right; from Bloomington. And we have biennial budgeting there and our Governor Mitch Daniels, former 

OMB director, has done a fantastic job and we have a balanced 

budget in Indiana. I will say this, I think gimmicks can always 
22 

happen whether you have a balanced budget amendment, whether 

you have a biennial budget. It is up to decision makers to make 

wise decisions and it does not matter what parameters we put 

around ourselves, anybody can still go around those rules. 

I would like, if you could Dr. Rivlin, to kind of give us an idea 

what a federal biennial budget could look like? Could work like? 

And also what some of the benefits and maybe some of the 

downsides are? 

Dr. RIVLIN. I think the main benefit is that it saves everybody 

time. The Congress does not have to do this every year, it can do 

other things in the other year, and especially the Executive Branch 

which spends an enormous amount of time working on the budget 

every year and presenting it to Congress and appearing before 

these unnecessarily duplicative committees to defend the budget 

and chews up a lot of time when they ought to be running their 

programs. So I think that is the main benefit and there are always 

problems. The Indiana Legislature is notorious for holding the 

clock and running longer than they are allowed to and all those 

things. And that would maybe happen here, but the other thing is 

Rudy is right that conditions change and if you have a hurricane 

or something you have to deal with it, and you have to deal with 

that now. You have to do that, but I think the saving that you 

would get and the ability to have a longer planning horizon. 

Members of the Appropriations Committee with whom I have 

discussed this over the years have always thought they had more 

control if they appropriated every year. I think they would have 

more control if they did not because you cannot change things. It 

gets back to incremental budgeting. You cannot change things very 

much if the fiscal year is about to start. And you can change them 

more if you have a little longer planning horizon. 

Mr. STUTZMAN. Go ahead. 

Dr. PENNER. I am against them mainly because changing conditions. I think if you had a biennial system you would have enormous number of supplementals and supplementals are extremely 

difficult to discipline. 

Mr. STUTZMAN. In Indiana we can always open the budget back 

up in the off year and if there is a situation that needs to be addressed the governor can always call us back and we can address 

that issue in particular. And I think if we continue to keep the earmark controls, the self-will of making sure that we do not spend 

more money than what is necessary in a particular situation 

whether we are dealing with emergency spending on a hurricane 

or any natural disasters, any of those things. We can always come 

back and address those particular issues and I think oversight is 

needed more today than ever before in our budgeting process and 

that is obviously why we are having this hearing. Dr. Rivlin, could 

you touch a little bit on a balance budget amendment and your position on a balance budget amendment? 

Dr. RIVLIN. I am against it. The difference between a state and 

the federal government is the State of Indiana basically does not 

have to worry about the impact of its budget on the national economy; the federal government does. And so it is not always desirable 

to have balance in the Federal budget. Now we should balance over 

the cycle and when you start thinking about writing a balanced 
23 

budget amendment then you start writing in lots of exceptions. 

Suppose a war starts in the middle of the year. Suppose we have 

a sharp recession and you get so many exceptions written into the 

law. My colleague Charlie Schultz said all of a sudden you are 

writing algebra into the Constitution and I think that is undesirable. That you should simply try to do the best you can to have a 

sensible fiscal policy and that means that you balance over the 

cycle and you have a sustainable budget going forward, but I would 

not put it in the Constitution. 

Chairman RYAN. Thank you. Mr. Pascrell. 

Mr. PASCRELL. Mr. Chairman thank you for putting us together 

today and I found something that you and I do agree on, and I felt 

I should make that announcement. 

Chairman RYAN. Take note. 

Mr. PASCRELL. I think in your discussion and your remarks 

about real growth, you used the term in the budget which are 

marbleized, cemented, whatever term you want to use. And I think 

that may be an important area for compromise and resolution. I 

think we ought to take a look at that very seriously and I think 

there is a lot of money involved that we can debate and come to 

some kind of agreement. So I would not make that an addendum 

to what you said. I think it is very important and this is an area 

I think we should take a look. 

Chairman RYAN. I will make sure I quote more Democrats that 

I agree with, like Governor Cuomo in the future to get the consensus, so thank you. 

Mr. PASCRELL. Well that helped. I would also take a look at 

something folks on both sides of the aisle have talked about and 

distinguish between the mandatory part of the budget and discretionary parts of the budget. If you take a look at, and we have two 

very prominent panelists today, that perhaps looking at a longer 

term budget for the mandatory and a yearly budget in terms of discretionary. So what if we had a two-year budget? And I think it 

is utter nonsense. We can have a skeleton, we can have protocol, 

we can have this model of a 10-year budget, but you saw what happened the last time we did this and it did not work out. And we 

were moved from 2000 to 2008 and 2009, and you go back at the 

prognostications about what would be produced, what would not, 

and then what really happened. So there is a real danger here. 

Our side of the aisle took tremendous hits last year because we 

certainly did not pass a budget. It does not look like it is going to 

be happening this year either and it is beyond our control almost 

because on the other end of the Capitol is an arcane society that 

we need 60 votes to get something to vote on. 

Chairman RYAN. We keep agreeing with each other. There is 

something happening here. 

Mr. PASCRELL. It will get better or maybe not. So I would like 

to ask a question Ms. Rivlin. Let me give you an example of that 

on health care, mild subject for a Wednesday morning. I want to 

ask about the delivery system reforms that were included in the 

Health Care Reform Act. How do we save Medicare money? In February, before the Ways and Means Committee, I asked a question 

to the CMS actuaries, Rick Foster, I think his name was, and this 

is what he said to me: He testified that he did, indeed, believe that 
24 

the reforms in health care had the potential to create great savings 

in Medicare. We are talking about process, here. I like results. We 

are talking about process today and how we get to those results. 

Unfortunately, we cannot score the actual savings very well because these reforms are innovative ideas, we do not really know 

how they are going to turn out. There is no data to project the savings, so we have to give it a few years before we find out. Ms. 

Rivlin, do you agree with this assessment? In your estimation, is 

this correct? 

Dr. RIVLIN. Yes. I do. I think that many of the delivery system 

reforms and mechanisms for getting delivery system reforms that 

are being talked about now and that are actually embedded in the 

Affordable Care Act are very good ones, very promising ones. It is 

likely that we will get some serious improvement in the cost-effectiveness of health care, but the evidence is too weak for it to be 

counted on. 

Mr. PASCRELL. But does it not reflect, really, the weakness of the 

scoring system of legislation, that we ask CBO to reflect upon? This 

is both sides of the aisle, I think, are involved in this. I really think 

that when you are talking about examining the process, by which 

we put the budget forward, that scoring legislation needs to be reviewed and perhaps changed, do you think? 

Dr. RIVLIN. No, I do not. Let me defend my former colleagues at 

the CBO. I think you must have scoring for the reasons we have 

been talking about that you need to know to a reasonable degree 

of certainty what something will cost or how much it will save. And 

the CBO does the best it can to rely on hard evidence and if there 

were, for example, a set of experiments that said a particular delivery system changed, what these results, and you could measure 

them, CBO would use that information, but there are not. And once 

you loosen the rules and say it is anybody’s guess, then you have 

lost the usefulness of having a scorekeeper. 

Mr. PASCRELL. Mr. Chairman, would you not say, and this is my 

final question if I may, if these experiments that I am referring to 

in the Health Care Act, which you are not particularly thrilled 

about, but if these experiments created a substantial service, and 

we could be talking about anything, any legislation, now; I am talking about Healthcare. Does this mean Medicare’s solvency would 

have to be reevaluated? That is the point that I am trying to make. 

Chairman RYAN. We are out of time, but the same debate occurs 

on the tax side of the ledger, which is do we get reality based scoring based on dynamic changes in personal behavior because of 

changes in the law? So, can we do things that create preventative 

medicine, disease management, which will ultimately save money? 

Well, they do not know how to quantify that at CBO right now. 

Maybe we will learn how to do that. Do we increase economic 

growth and therefore revenues of the federal government by lowering tax rates and broadening the tax base? We think so, based 

on evidence, but they do not quantify it that way right now. Perhaps, we ought to try having these models speculate on what they 

think the world might be under these policies, then we use a static 

analysis and track the measurement of those over time and then 

see which one proves to be more close to reality and then go with 

that. So, Dr. Price. 
25 

Mr. PRICE. Thank you, Mr. Chairman, and I want to thank the 

panelists for their service and for their testimony. And I do not 

want to get too sidetracked here, but I have to pick up on this 

health care issue because as a physician, I could tell you that I 

adamantly oppose the quote reforms that were put in place. And 

CBO was pretty doggone clear about where the savings were coming from, at least $500 billion of it, $150 billion, essentially, for decreasing the choices for seniors in the Medicare Advantage Program, and $350 billion through the opportunity to have a 15 member panel of individuals here in Washington to deny care to seniors 

if they did not meet the bottom line. So, the CBO was pretty doggone clear about where that money was coming from and it is the 

denial of care for seniors. 

I am in my fourth term here and have been frustrated from the 

very moment I arrived, that all of the inertia here in Washington 

is to spend money. So when people say that nobody wants to talk 

about process, that it is not an attractive issue at all, but process 

in our spending drives policy. And so I want to commend the chairman for calling this hearing, because I think it is incredibly important. 

Dr. Rivlin, you said something that I think is absolutely to the 

point, and that is that we need to make it, ‘‘Easier to grapple with 

the hard choices.’’ And we have all touched on, I think, the frustration that we have with CBO and the scoring mechanism that appears to be less dynamic or realistic in reflecting the policies that 

have already been put in place. I think we basically agree that is 

a challenge or a problem. What are the solutions that could be put 

in place to allow the CBO to have greater capability to reflect the 

dynamism of the policies that are put in place? Dr. Rivlin? 

Dr. RIVLIN. I think they are trying as hard as they can and they 

produce analyses, for example, of the impact of tax cuts, and there 

is some evidence, certainly, that reducing some kinds of taxes contributes to economic growth, but there is also evidence that a higher deficit is bad for economic growth, and if you are getting both, 

they sort of cancel each other out. 

Mr. PRICE. And I want to talk about the policy side. I am truly 

interested in the process, because CBO, they are good folks that 

are working over there. They are trying as hard as they can under 

the rules that they have, but sometimes, oftentimes, they are tens 

or hundreds of billions of dollars off in what actually has occurred, 

if you go back in history. That is not their fault. I would suggest 

it is the fault of the process. So, help me understand how we can 

improve the process, Dr. Penner, if you will maybe. 

Dr. PENNER. Well, let me make a very general point about all of 

this, the last two interchanges. All of these estimates are very uncertain as you are implying. We do not have good data, we do not 

have good models or maybe we have too many models. And the 

Congress does not deal well with uncertainty. I am always amazed 

how the 10 year baseline projections are taken as so we know with 

100 percent certainty that we are going to go right along there and 

the whole deliberations over the budgets assume that. I think other 

countries do a better job of dealing with uncertainty and I think 

the thing to do is to build mechanisms into programs, I would call 

them trigger mechanism, so that if things do not turn out the way 
26 

you expect, especially if something costs much more than you expect, that there would be an automatic mechanism for slowing 

down the spending in that kind of program. But we will never 

eliminate the problem of huge uncertainty, especially in the medical area. 

Mr. PRICE. So an automatic sequestering in any program? 

Dr. PENNER. Well, there need not be a sequester. I mean, most 

countries apply these mechanisms to Social Security where you 

might have an automatic, very gradual increase for the retirement 

age, for example, if the system goes astray. Some would like to do 

it on the tax side, maybe with an automatic increase in the tax 

base. Again, things that would bring the system into line. 

Mr. PRICE. Dr. Rivlin? Any comments on the dynamism? 

Dr. RIVLIN. Well, I agree with Rudy. There is a great deal of uncertainty and people who are very strong proponents of a particular 

thing, whether it is a tax cut or a delivery system change in health 

care, always believe that it is going to work. And the evidence is 

not as strong as they often think it is. I mean, for example, in the 

middle of the 1990s, we raised taxes at the top bracket. Any modeler would have said that is going to cut into economic growth and 

we got a burst of economic growth. So it is very hard to make sure 

that you have got these dynamic things right. 

Mr. PRICE. Thank you. Thank you, Mr. Chairman. 

Chairman RYAN. Mr. Lankford? 

Mr. LANKFORD. Thank you, and thank you for being here as well. 

In your testimony the dynamic part of it I am with you. It is difficult because I have seen multiple models. I just left a meeting before where one of the members was saying if we change the particulate levels a little bit, again, then it will save $350 billion next 

year in health care costs. It is just one of those things that is very 

interesting. How do you determine that? Just a raw guess in the 

middle of it, but being able to find some way to have a trigger, 

some way to be able to manage that. 

Let me bounce a couple questions off of you. Let’s be optimistic 

that we can both balance our budget and get on top of it. And I 

am a proponent of a balanced budget amendment, I understand 

where your coming from on that, I can see both sides on it. I would 

love to see Congress be responsible and be able to do it on their 

own, I just do not see a tremendous level of long-term responsibility year after year. And just maintaining that and having a parent in the legislative room, I think, is an asset. Just saying, I know 

you are going to do the responsible thing because you are going to 

do the responsible thing. 

Dr. RIVLIN. Well, I think both of us are for the Congress forcing 

itself to do the responsible thing. I am only saying that I would not 

write it into the Constitution. 

Mr. LANKFORD. I understand that. Optimistically out there, is 

there a benefit to having a rainy day fund, for a disaster mentality, 

something that is set aside and that is funded, or does that just 

mandate every year? You are going to always spend that because 

you will make up a disaster because you have got the money set 

aside? 

Dr. RIVLIN. No, I think that disaster funding should be done on 

the basis of taking as careful a look as you can at the average cost 
27 

of disasters, and pre-funding it and if you run out of money then 

that is another problem. Many disasters, the average frequency, 

over several years, is pretty predictable. 

Dr. PENNER. I agree with that. We should have some sort of allocation for emergencies of that sort. 

Mr. LANKFORD. We just talked about supplementals and I understand that supplementals will always be an issue. I think it is just 

one of those things that we can assume, we are going to have a 

hurricane, a set of tornadoes, or an earthquake pretty reliably at 

any given point based on our history on it. 

Let me ask you as well, some of our committee structures, and 

some of your statements I really appreciate on how the committee 

structure itself seems to slow down oversight and managing budget, dealing with appropriations, authorizations, the tax, the budget, 

all of those things, as well as an oversight. If you want to have 

oversight over an agency, it is almost impossible to have real oversight over an agency, because the oversight is spread out over multiple different committees because our agencies are not aligned up 

with our committee structure. Whether that is by design, or whether that is by accident, it is working still the same. It is very difficult to do an oversight. 

Broadening out from the budget and tax areas, is there a need 

to do a broad-scale reform of how we do committees in the House 

to align it better with our agencies and also to align it better with 

an efficient budget process? 

Dr. RIVLIN. I think so. The testimony I referred to was, I believe, 

and then this is back when the chairman was in diapers, it was, 

I believe, it was before a select committee on committees. This was 

a moment at which the Congress decided it should reform its committee structure and did not end up doing it, or only partially, I 

guess. But, yes, I think it is time to revamp the whole thing. 

Mr. LANKFORD. Okay. 

Dr. PENNER. I must confess, when I was CBO director, there was 

nothing I feared more than to get into an argument about committee jurisdiction. Certainly, there is a logical case. If you want 

a really radical view, the budget process was invented because we 

have this peculiar custom of making spending and tax decisions in 

separate committees. Before the Civil War, Ways and Means was 

Ways and Means. They did both spending and taxes at the same 

time. And most countries do that, most countries have a kind of 

super, let’s call it a Budget Committee, that makes appropriation 

decisions and tax decisions all at the same time. And I think ultimately, that is where you should go, but there are, as Alice suggests, more modest ways of better aligning the committee structure 

with departments and programs. 

Mr. LANKFORD. That is my other question. Is there a way to be 

able to get a year ahead in our planning process, going back to 

1920 and before, is there a way to be able to get to a number? That 

when the president presents a number, the House, the Senate and 

the president have already agreed on what that top line number 

is and we are really arguing about the details within and how to 

shuffle that. So that the president does not submit one number, the 

Senate does another, the House does a number, and this drags all 
28 

the way out and creates tremendous uncertainty until the fiscal 

year and then we bump up against it. 

Dr. RIVLIN. That really is the concept of the Joint Budget Resolution signed by the president, which Rudy once favored and now 

does not. I think only because he thinks it would not happen. But, 

that is the basic idea that everybody agrees on the top line even 

by functions and then works within it. Sounds like a very good idea 

if you could do it. 

Mr. LANKFORD. It is just trying to get that done. 

Dr. PENNER. The first step is to do appropriations on time, I 

think. I think it really adds to the inefficiency of government when 

bureaucrats do not know what they are going to have to spend 

until after the fiscal year has already begun. 

Mr. LANKFORD. I would completely agree with that. I yield back. 

Chairman RYAN. Thank you. I, too, was for it before I was 

against it, as well. Mr. McClintock? 

Mr. MCCLINTOCK. Thank you, Mr. Chairman. I would like to just 

test out a theory that I have evolved over the last few years since 

I arrived here at the Congress, and that is that we have a parliamentary system that has evolved over centuries. And it has become very good at distilling many diverse viewpoints into a common direction for a nation. Each House reflecting different elements of decision making and independently arrives at a decision. 

The differences between those two Houses are then resolved 

through a conference process, which itself has become very good at 

resolving differences between the two Houses, when it is used properly, not to draft new legislation, but simply to identify the differences. If the House says $5 billion and the Senate says $10 billion, the only question is where between $5 billion and $10 billion 

do we end up? We do not go under $5 billion, we do not go over 

$10 billion. When it is used in that way, it seems to me the system 

works very well. The problem is it is not being used. We have not 

passed a budget in the Senate in nearly three years. The House 

failed to fulfill that responsibility last year. How much of this is 

failure of process and how much of it is a failure to follow process? 

Dr. RIVLIN. Well, I think very much of it is a failure to follow the 

process, and there have been times in the history of the budget 

process when it worked quite well. 

Mr. MCCLINTOCK. When it was followed. 

Dr. RIVLIN. When it was followed, yes, absolutely. 

Mr. MCCLINTOCK. Well, the question I come to is are we running 

a file of the old maxim, if it is not broke, do not try and fix it? 

Dr. RIVLIN. Well, I think that are many elements of the current 

process which make it hard to get done on time because of the complexity and the number of committees and so forth. 

Mr. MCCLINTOCK. I did not say it was not hard; it is really hard 

work. But, when it is followed, it seems to produce reasonably good 

work products. But what I am watching is the system has completely disintegrated. I mean, the super committee, this constitutional abomination, which sidelines 523 representatives of the people in favor of a closed process that short circuits all of the independent mechanisms that were built into a bicameral, legislative 

process. 
29 

Dr. RIVLIN. I could not agree more. It is the failure of the Congress to follow its own rules to get the job done that has lead us 

to this point. 

Mr. MCCLINTOCK. So, all of this discussion about changing the 

process is simply averting the responsibility that we all have to follow that process. 

Dr. PENNER. Well, I think you are right on that the major problem is not following the rules that we have, but that does not mean 

that we should not work on the rules some. I think one of the problems with the budget process, as Alice implied, is that to try to 

close various loopholes in the rules, we have added more and more 

rules and the whole process has become as complicated as our tax 

system, almost. And it is beyond the understanding of 99.9 percent 

of all Americans, at this point. 

Mr. MCCLINTOCK. But all of the accretions we built onto that, 

but the basic system, which works well, is known to every reasonably well-educated school child. 

Dr. PENNER. Well, I am not so sure of that. 

Mr. MCCLINTOCK. The problem is we are not following it. Let me 

go on because my time is brief. The balanced budget amendment: 

Dr. Rivlin, you say you oppose it because it is a fool’s errand to try 

to look hundreds of years in the future and anticipate the conditions that a future Congress might face. Was that essentially what 

you were saying with the comment about it requires us to build algebra into the Constitution? 

Dr. RIVLIN. No, it was that you do not always want to balance 

the budget. And there are certainly times when you are falling into 

a recession, when a requirement to balance the budget would require you, at that moment, to cut spending and raise taxes, and 

that is exactly the wrong thing to do. For that reason, the balanced 

budget amendments that make sense write all these exceptions in. 

Mr. MCCLINTOCK. Why not just say no more borrowing, except by 

extraordinary majority vote of the Congress, say three-fourths of 

the Congress, for a single object or work? Future Congress by three 

quarters vote is going to be able to recognize a real emergency, as 

opposed to the simple urge just to keep spending. And a single object or work means that you have to identify what it is that you 

are borrowing for by that extraordinary majority. 

Dr. RIVLIN. Well, maybe, I just think there are better ways of 

getting fiscal responsibility than writing it into the Constitution. 

And super majorities give an awful lot of bargaining power to people who are on the margin of being part of the super majority. 

Mr. MCCLINTOCK. Well, they require a certainty of action the 

higher that super majority has expended. 

Dr. RIVLIN. Well yes, but you also see people bargaining, ‘‘I will 

join the super majority if you will build a bridge in my district.’’ 

That is not what you want to encourage. 

Chairman RYAN. Thank you, let me just follow with one final 

questions. Dr. Penner, I understand your views of biennial, and it 

is a fairly common criticism to the idea. Both of you talked about 

the need to pre-fund emergencies on sort of a rolling average basis. 

If Congress could come up with a suitable system to define and 

more or less pre-fund emergencies so that the supplemental process 

is as airtight as it can get, would that alleviate your concerns on 
30 

going towards a biennial system? If that is fixed are you in the 

Alice Rivlin camp, where then it has virtues to it? 

Dr. PENNER. Well, that would help a lot to somehow figure out 

a way of disciplining supplementals, but I think there are all kinds 

of other things that change. It is not only a matter of national 

emergencies. Your revenue estimates are, frankly, very bad; they 

can change radically from year to year, even in the absence of recession. There are all sorts of spending issues, or spending programs, that can go off in surprising directions. So, I think I would 

still not favor biennial budgeting. 

Chairman RYAN. All right, thank you very much. Thank you for 

your indulgence and your time. This is something we have to wade 

into, because I think all of us agree the system is not working to 

the extent that it needs to. Congress has to have discipline first for 

any system to work, but if we could get a system that makes it as 

easy as possible for us to exercise discipline, that is what we want 

to achieve. Thank you very much for your wisdom. Hearing is adjourned. 

[Whereupon, at 11:31 a.m., the Committee was adjourned.] 

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