What is the Responsible Budget Targets Act?

Jun 21, 2023 by Kurt Couchman

Congress doesn’t have to balance the federal budget, nor does it try. It doesn’t pursue debt-to-GDP targets, deficit targets, or any other comprehensive budget targets.

Without an anchor, federal deficits and debt burdens are spiraling. Congress lacks discipline or anything resembling a management structure for weighing tradeoffs. Stealing from the future to benefit current voters is lazy and morally bankrupt.

Congress has set budget targets before, often as part of a debt limit deal. Earlier versions haven’t worked, however, and Congress abandoned them. All had design flaws, which I explained in a 2022 paper. The Fiscal Responsibility Act of 2023’s discretionary caps can be a bridge to better approaches, but they cover less than one-third of spending and are not linked to revenue.

Enter the Responsible Budget Target Act

On the other hand, the Responsible Budget Targets Act proposed by Senator Mike Braun and House Majority Whip Tom Emmer is a comprehensive, well-written, and exceptionally promising approach to statutory fiscal goals.

Experts at the National Taxpayers Union, Americans for Tax Reform, and the Cato Institute have made favorable comments.

It balances the Government Accountability Office’s seven key considerations for designing, implementing, and enforcing fiscal rules and targets:

1) Alignment with fiscal policy goals and objectives

2) Design tradeoffs and features

3) Legal framework and permanence

4) Integration with budgetary process

5) Flexibility to address emerging issues

6) Clear roles for supporting institutions

7) Transparency and communication

Other reforms would complement RBTA (see below) on these factors.

The RBTA resembles the statutory side of the successful debt brake in Switzerland. The constitutional part of this rule had 85% voter support in 2001, and it helped them reverse a debt buildup and keep debt levels low since.

The RBTA would set annual targets for a gradual transition—a glide slope—to structural primary balance over 15 years or a little less. Primary balance means that non-interest spending equals revenue. It’s more politically viable because it requires about half as much deficit reduction as going to full balance.

Structural balance means that the trends of spending and revenue align over the medium term, not every year. Annual balance would force policymakers to choose between policy uncertainty and instability on the one hand and dodging the rules on the other.

Structural balance provides economic and policy stability in the near term and fiscal responsibility in the medium and long term.

Figure 1 contrasts the volatility of revenue and therefore annual balance (green) and the stability provided by structural balance (yellow).

My report, Structural Balance Can Help States Unleash Freedom and Reclaim Sovereignty, discusses growing interest in the states for upgrading from annual to structural balance.

In addition, the RBTA lets Congress respond to emergencies immediately without including offsets. To keep emergency response from becoming a loophole, however, it generally requires offsets in the following six years.

How does the Responsible Budget Targets Act work?

Basic rule: The RBTA would let non-interest spending grow as fast as a rolling average of economic growth. Specifically, primary budget authority could grow at the average rate of GDP growth over the prior five calendar years. Prior data gives Congress a predictable and stable spending topline so members can plan accordingly.

If primary spending exceeds revenue, it can grow at or above the GDP rolling average indefinitely. Stronger economic growth increases spending growth or reduces belt-tightening, gently encouraging Congress to consider and enact pro-growth policies.

Deficit brake: After a primary deficit, however, the GDP-based-rolling-average growth rate declines a little: 0.2 percentage points in the next beginning fiscal year, not the fiscal year immediately following the deficit year.

Final deficit figures become final a month or so after a fiscal year ends—partly into a new fiscal year.

That’s too late to change plans in a thoughtful way, as the budget ideally would have been settled months before then. It’s the perfect timing, however, to inform the soon-to-be-finalized President’s budget request for the following fiscal year, as Figure 2 illustrates.

Each subsequent primary deficit would tighten the debt brake a bit more, slowing primary spending growth compared to the GDP-based rolling average. Conversely, primary surpluses would let up on the debt brake, letting spending growth return to GDP growth and even above.

Over the initial transition to primary structural balance, this deficit brake would create the glide slope. When the primary budget first reaches balance, the RBTA’s deficit brake would reset at zero, so primary spending growth would reset at the rolling average of recent economic growth. After that, the deficit brake would reflect primary deficits and surpluses. At each stage, Congress could phase out deficits through a wide range of spending restraint and revenue options.

Figure 3 illustrates the counterfactual between actual primary spending (green) and revenue (yellow) and the RBTA primary spending cap (light green) if it had been enacted in 2000. It takes revenue as given, and emergency spending would have come on top of the green line in response to the 2008 financial crisis and Great Recession as well as the 2020 COVID-19 pandemic.

Figure 4 illustrates the RBTA transition toward primary structural balance if Congress were to begin down that path in FY2024, again taking revenue as given.

Adjustments: The RBTA anticipates four adjustments that are not reflected in figures 2 and 3. First, the spending cap can adapt to technical changes in GDP, revenue, spending, and other related factors. Second, it adjusts for so-called automatic stabilizer policies like safety net programs that reflect, and some say counter, booms and busts over the business cycle.

Third, raising revenue lets Congress adjust the caps. Getting and keeping broad political support for a governance institution hinges on the possibility of accommodating diverse visions of government’s role.

In general, spending restraint has far better outcomes than revenue increases, but sorting that out belongs within the frameworks set up by fiscal rules, not as features of those rules.

Emergency response: This fourth adjustment would let Congress respond to emergencies without immediate offsets. When confronting danger and alleviating suffering, most members of Congress want to respond quickly and often should.

RBTA would keep emergency response from becoming a budget loophole by requiring cap reductions over the following six years. A $6 billion emergency, for example, would reduce the caps in the following six years by $1 billion each year. The aversion to unnecessary spending restraint or new revenue in the near future would help Congress limit emergency response to what’s actually needed and be less of a vehicle for waste.

The following list shows scenarios for the basic rule and several of these additional factors.

Primary spending cap grows with a rolling average of GDP growth over the last five years.

Year 1 spending = $100
Year 2 spending = $104, if average GDP growth in the last five years was 4%.

If primary budget surpluses occur, spending grows faster than GDP (assumed at 4% here).

Year 1 spending = $100
Year 2 spending = $104.20 = $100*(1.04+0.002*1)
Year 3 spending = $108.78 = $104.20*(1.04+0.002*2)
Year 4 spending = $113.79 = $108.78*(1.04+0.002*3)

If primary deficits occur, spending grows slower than GDP.

Year 1 spending = $100
Year 2 spending = $103.8 = $100*(1.04-0.002*1)
Year 3 spending = $107.54 = $103.8*(1.04-0.002*2)
Year 4 spending = $111.19 = $107.54*(1.04-0.002*3)

If primary surpluses follow a primary deficit, spending growth slows, then rebounds.

Year 1 spending = $100
Year 2 spending = $103.8 = $100*(1.04-0.002*1) [Year 0 primary deficit.]
Year 3 spending = $107.95 = $103.8*(1.04) [Year 1 primary surplus: reverses growth reduction.]
Year 4 spending = $112.27 = $107.95*(1.04) [Year 2 primary surplus.]

Emergency spending is offset in equal amounts over subsequent six years (illustration excludes surplus or deficit effects).

Year 1 spending = $106 = $100 base + $6 emergency
Year 2 spending = $103 = $100*(1.04)-$1 [Emergency spending not in baseline.]
Year 3 spending = $107.16 = $103*(1.04)-$1 [Emergency offset also not in baseline.]
Year 4 spending = $111.49 = $108.16*(1.04)-$1

Revenue increase can increase spending (illustration excludes surplus or deficit effects).

Year 1 spending = $101 = $100 + $1 permanent annual revenue increase
Year 2 spending = $105.04 = $101*(1.04)
Year 3 spending = $109.24 = $105.04*(1.04)
Year 4 spending = $113.61 = $109.24*(1.04)

Complements: Statutory budget targets are part of an agenda to restore federal budgeting, not a silver bullet. Other pieces may include:

A well-crafted constitutional amendment: For example, Senator Braun’s principles-based balanced budget amendment (J.Res.19) would create a national consensus for a balance goal and establish an enforceable supermajority for emergency spending.
A comprehensive budget: Rather than the balkanized current process where less than one-third of spending gets a regular review, Congress could empower all committees to build an annual budget Act that includes all spending and revenue. A real budget would give Congress more degrees of freedom for meeting the targets while engaging many more members in the policymaking process and providing a platform to manage and coordinate programs in the context of everything else.
An end to shutdowns: Jamming most members with secretly negotiated omnibus appropriations acts against a shutdown and holiday deadline means that the new legislation only has to be better than a shutdown. Taking shutdowns off the table, like before 1980, and as Senators James Lankford and Maggie Hassan have proposed with the Prevent Government Shutdowns Act ( 135), would mean that new legislation would have to be better than current policy, which would promote a more inclusive process.
Incremental automatic enforcement: The across-the-board sequester model hasn’t worked. Congress should replace it with incremental, surgical adjustments to specified provisions of laws. Such changes would make more sense as policy and would be easier to sustain.

Updates: Congress could build on statutory frameworks as needs change and as lessons are learned. Distinct from constitutional provisions, the RBTA may not be the perfect fiscal rule for all time to come, and that’s okay. It’s far, far better than today’s complete absence of effective budget targets, and Congress could update it by statute.

Interest rates have already risen in the last few years and could rise further, perhaps much faster than CBO projects. If so, following the RBTA’s primary structural balance targets would improve substantially on the status quo but might not be enough to keep the debt burden from growing. In that case, amending the RBTA to target a primary structural surplus, full structural balance, or even a full structural surplus could be useful.

The development of federal budgeting is itself the product of a long series of political clashes and adapting as we go. In recent decades, various countries and U.S. states have actively refined the institutions that shape their budgeting. There’s no reason that Congress can’t do the same. In fact, the RBTA would upgrade current budget institutions by adding better budget targets.

Conclusion: The Responsible Budget Targets Act is a smart, serious approach to statutory fiscal goals. Members of Congress should consider replacing discretionary caps with the RBTA or something similar , especially in conjunction with any changes to the debt ceiling itself.

Members of Congress, staff, other policy professionals, and concerned citizens should get to know the Responsible Budget Targets Act. All will find a lot to like, and that’ll be important to communicate. Reasonable fiscal goals can be a useful tool to help Congress confront and defeat the debt threat facing our country.