Since the middle of the last century, spending and debt in the United States have increased. The dramatic growth can be attributed to many factors, but the passage of the 1974 Budget Reform and Impoundment Control Act represents a key turning point in United States’ fiscal history. It is time for serious reconsideration of the system that has developed in the years since Congress last remade its budgeting process.
The Budget Act passed after conflict between the Executive and the Legislature. The President’s ability to ignore congressional will by refusing to fund projects, programs, or reforms was restricted heavily, but the resulting congressional budgeting process has become increasingly complex.
Scholars have suggested that the 1974 Budget Act fundamentally changed the rules of the game to favor increased spending and a growing deficit. And indeed, since the 1970s, the budget deficit has grown from about 1 percent of U.S. GDP to an average of 3.1 percent over the past three decades and is currently at historic highs.
Responsible, on-time budgeting is almost unheard of in modern times. In the words of Heritage Foundation scholar Patrick Knudsen, “lawmakers no longer miss budget deadlines; they breach them deliberately and regularly.” Instead of being able to attempt substantial budgetary reform or discipline, legislators often avoid money-saving reforms in favor of legislation that avoids total impasse.
For this reason, the Institute for Spending Reform produced a groundbreaking two-part study, first examining the impact of the Act with an original synthetic control study, and then studying one of its potential unintended consequences: The partisan allocations of federal dollars. Summaries of each appear below.
The 1974 Budget Act marked a turning point in U.S. budgeting history. With the Act, Congress decisively asserted its fiscal power, becoming more independent from the President in developing the budget and appropriating funds. Lawmakers at the time believed that the status quo, wherein Congress approved the budget in a piecemeal fashion, improperly limited their authority. While rising deficits and debts put pressure on Washington to restrain them, the President’s most direct method for cutting spending – impoundment – caused the conflict between Congress and the President that boiled over and led to the Budget Act. In this paper, we set out to discover how this compromise, the 1974 Congressional Budget and Impoundment Control Act (or 1974 Budget Act), ultimately impacted spending and debt. More specifically we use a synthetic control model to test the alternative – what would have happened without the Act? In short, we find that after 1974, public debt-to-GDP and public expenditures-to-GDP both increased, but less than what they would have without it.
In passing the 1974 Budget Act, Congress fundamentally reshaped the federal budgeting and appropriations process for generations to come, but along with this change came several related, unintended consequences that continue to have an impact today. The Act asserted Congressional power and independence from the Executive after a history marked with piecemeal decision-making and overriding Presidential power. Part I of this study suggested that the 1974 Budget Act decreased federal spending the years immediately following the passage – after which federal spending increased, but by less than it would have otherwise.
In this paper, we consider another potential outcome: Whether the new power structure made federal grantmaking more partisan. In other words, was the Executive branch incentivized to use these grants to curry favor and encourage passage of Presidential budget priorities? We find evidence that having both Senators or the Governor in the same political party as the President has increased grants given to states after the 1974 Budget Act.