Federalist No. 30: What Is to Be Done About the Federal Budget?

• Published date: 01 December 2011
• Author: Paul L. Posner
• Date: 01 December 2011
• DOI: http://doi.org/10.1111/j.1540-6210.2011.02462.x

Paul L. Posner is the director of the

public administration program at George

Mason University and formerly was

president of the American Society for Public

Administration. He led the Government

Accountability Off‌i ce’s federal budget work

for 14 years and consults with federal

budget commissions, the Organisation for

Economic Co-operation and Development,

and other organizations on budget issues.

E-mail: pposner@gmu.edu

What Is to Be Done about the Federal Budget? S53

Paul L. Posner

George Mason University

Federalist Nos. 12 and 30–36 describe the benef‌i ts of a

national f‌i scal system with independent revenues, arguing

that a strong national government cannot exist for long

without the means to raise revenues on its own.  is

essay examines the national f‌i scal policy process during

this period of economic crisis and rising national debt.

It provides a detailed assessment of needed reforms in the

budget system that would meet the tests imposed by an

increasingly uncertain global economy.

Budget processes frame the most important

decisions made by a political system in a given

year. How much of the economy to devote to

government through taxes and how to allocate the

spending of limited resources are the most important

decisions that political leaders at all levels of govern-

ment must make each year. It is no wonder that

Wildavsky (1961) called budgeting the lifeblood of

government, the f‌i nancial ref‌l ection of what govern-

ment does and intends to do.

Over the more than 200-year life of the nation, the fed-

eral budget process has evolved through several distinct

f‌i scal policy regimes. For much of our history, f‌i scal

policy was an island of stability for a government that

perennially was challenged by economic volatility, de-

mographic and territorial change, and war. Challenged

at the outset to overcome the f‌i scal impotence that

hamstrung the national government during the Revolu-

tionary War and after, the balanced budget and public

f‌i nancing regime instituted by the founders became the

foundation for f‌i scal policy for the next 150 years.

 e second regime had its origins in the New Deal,

but it came to full f‌l ower in the late 1960s through

the present time.  e federal role in balancing the

economy supplanted older balanced budget rules as

the watchword for f‌i scal policy makers. Failing to

adhere to norms of balance or surplus during periods

of economic expansion and inf‌l ation, def‌i cits became

deeply embedded and were transformed from cyclical

to more permanent structural imbalances between

spending and revenues. Traditional policy-making

institutions and rules that anchored federal budgets

to incremental norms were unseated by increasingly

novel open-ended entitlements and tax expenditures

that grew according to their own gyroscopes.

We stand on the precipice of a potential third shift

in f‌i scal regime brought about by the unprecedented

f‌i scal challenges arising from an aging population and

higher health care costs. Already facing the highest

def‌i cits in peacetime arising from the f‌i nancial crisis,

the budget will remain in structural imbalance even

when the economy returns to full employment. Un-

like previous recoveries, the budget faces escalating

and economically unsustainable def‌i cits for decades to

come, absent dramatic policy reforms in spending and

revenues. Burgeoning def‌i cits and debt will consume

nearly all of the savings that private markets rely on

for their own capital investment and growth. In sharp

contrast to the f‌i rst f‌i scal regime, the federal budget

will become a destabilizing force for the nation’s po-

litical and social order.

 e founders’ system, which was designed to curb

the exercise of power, now must be mustered to foster

broad support for the unwinding of tax and spending

policies that have undergirded our political coalitions

for the past 80 years. Other nations have succeeded in

achieving reforms in pensions and f‌i scal reforms, but

they may have the advantage of doing so within more

cohesive parliamentary settings and more insistent

bond market pressures.

Solving these vexing problems requires seemingly he-

roic acts of collaboration across the institutional sepa-

rations and conf‌l icting interests of our system. It calls

for policy makers to do what many think is a politi-

cally unnatural act—administering f‌i scal sacrif‌i ce today

for the benef‌i t of future generations. And they must

do this in a system featuring greater electoral anxiety

by public of‌f‌i cials, party polarization, and 24/7 media

coverage, which conspire to undermine the governance

by insulated elites that may very well be necessary to

make the hard choices facing the nation.

Federalist No. 30: What Is to Be Done About the Federal

Budget?