NOTE CONTENTS INTRODUCTION 939 I. BUDGET BASICS 946 A. Discretionary and Direct Spending 947 B. Budget Limits 948 C. Budgetary Secondary Effects 951 II. THE DEVELOPMENT OF A SCOREKEEPING PRACTICE 956 A. The Origins of Congressional Scorekeeping 957 B. Shifting Budget Frameworks 959 C. The Balanced Budget Act of 1997: Fixing an Asymmetry 963 III. EVALUATING THE CAP ADJUSTMENT PROCESS 965 A. How Cap Adjustments Work 966 B. Why Cap Adjustments Have Not Worked 967 1. Failure To Provide Cap Adjustments 968 2. Inconsistent Use of Cap Adjustments 969 3. Failure To Deter Funding Cuts 970 C. Explaining the Shortcomings of Cap Adjustments 971 1. High Transaction Costs 971 2. Limited Political Support 972 3. Large Cuts to Discretionary Spending 973 IV. A PROPOSAL FOR SCORING SECONDARY EFFECTS 975 A. How To Score Secondary Effects 976 B. Maintaining Consistent Evidentiary Standards 978 V. FIXING THE PROBLEMS CREATED BY THE SCOREKEEPING GUIDELINES 983 A. Legislative Process 983 1. Increasing Funding 983 2. Limiting Enforcement Authority 986 3. Discouraging Unnecessary Privatization and 989 Contracting Out B. Agency Administration 994 1. Enhancing Bureaucratic Autonomy 995 2. Incentivizing Agency Enforcement 997 C. Distributional Consequences 999 1. Reducing Arbitrary Subsidies 1000 2. Limiting Program Retrenchment 1002 CONCLUSION 1004 APPENDIX 1006 INTRODUCTION
Nearly everyone--from former IRS commissioners (1) to taxpayer advocates (2) to comedians (3)--agrees that the IRS is severely underfunded. But between 2010 and 2016, Congress cut the IRS's budget by fifteen percent, (4) and there is little sign that it will increase the agency's funding in the near future. (5) Congress made these cuts despite robust evidence that increasing the IRS's funding would produce net savings. (6) Indeed, some have estimated that the return on investment for certain IRS enforcement initiatives could be up to nine dollars saved for each additional dollar spent. (7)
Significantly, the IRS is not alone. Congress often underfunds fraud enforcement and program integrity activities in other agencies that bring in more than they cost. For example, the Social Security Administration (SSA) saves three dollars for every additional one spent on "continuing disability reviews." (8) Yet, SSA had a backlog of 900,000 reviews in 2014. (9) Likewise, the Department of Health and Human Services saves $1.50 for every additional dollar spent on the Health Care Fraud and Abuse Control Program, (10) yet it has continued to be inadequately funded. (11) Congress has also underfunded--among other programs--the administration of unemployment insurance (12) and offices of inspectors general. (13) Some policy analysts may quibble with the exact figures, but there is no debate: increased funding in these areas would produce net savings. (14)
Although scholars and policymakers have recognized the problem of under-funding, few have acknowledged the budget scorekeeping guidelines as a key source of this problem. The budget scorekeeping guidelines direct the Congressional Budget Office (CBO)--the nonpartisan agency that estimates the budgetary impact of pending bills--and the other scorekeepers, such as the Office of Management and Budget (OMB) and the House and Senate Budget Committees, on how to estimate or "score" the budgetary impact of pending bills. The guidelines are meant to help the CBO and the other scorekeepers apply consistent methods and reach accurate results, but they actually force the CBO to reach inaccurate results when scoring enforcement and program integrity activities. The problem is that the CBO cannot treat funding cuts to enforcement and program integrity as deficit-increasing; instead, it must paradoxically treat them as deficit-reducing. The CBO must likewise treat increased funding for enforcement programs as deficit-increasing rather than deficit-reducing. (15)
The CBO knows that additional funding for these programs would reduce the deficit. (16) But when scoring legislation, the CBO follows a longstanding practice of not considering the secondary effects of funding enforcement and program integrity activities. (17) In other words, the CBO will score the "primary effect" of such programs--the direct effect of spending more or less money in the budget--but it will not score the "secondary effect"--the increase in revenue indirectly resulting from the funding change. (18) In the 1990s, Congress formalized this practice of not scoring secondary effects for agency enforcement and program integrity in Scorekeeping Guidelines #3 and #14. (19) As a result of those guidelines, the CBO does not account for any indirect savings or costs that result from increasing or decreasing funding for these programs. To be clear, the score-keeping guidelines are largely the product of the congressional Budget Committees. The CBO itself has no position on the merits of scoring the secondary effects of changes in program administration spending. (20)
Scorekeeping Guidelines #3 and #14--when combined with the zero-sum nature of the budget process--have created numerous problems. Most obviously, the guidelines encourage Congress to underfund program integrity and, thus, cause the government to lose billions of dollars to fraud and waste each year. But the guidelines have also distorted congressional decision making in subtler ways. For example, because the CBO recognizes savings from the creation of new enforcement authorities but not the funding of existing enforcement programs, Congress has a strong incentive to grant underfunded agencies additional statutory authority rather than additional funding. In the long run, agencies end up with broad enforcement authority but with few resources for implementing their authority--a state of affairs that leaves them less effective and vulnerable to criticism. (21) Put more broadly, the scorekeeping guidelines skew congressional deliberations in such a way that important policy considerations, like efficiency and equity, fall by the wayside. (22)
For the past twenty-five years, Congress has tried to correct the problems caused by the scorekeeping guidelines by creating "program integrity cap adjustments." Cap adjustments incentivize Congress to fund enforcement programs by providing additional funding that is only available for enforcement. That is, if Congress does not spend the money on enforcement, it loses the extra funding. Unfortunately, though, despite success in the 1990s, cap adjustments have failed to resolve the problems created by the guidelines. Over the years, the adjustments have produced inconsistent spending increases and, just as importantly, have done little to discourage cuts to enforcement.
To solve the problems created by the guidelines, this Note argues that Congress should repeal Scorekeeping Guidelines #3 and #14. Under this proposal, the CBO would account for well documented and significant secondary effects when scoring changes in funding. Cuts to IRS enforcement programs, for instance, would show up as costing money; increased funding for health care fraud enforcement would reflect its cost savings.
Both big-government Democrats and tax-cutting Republicans would (as well as budget hawks in both parties) have good reasons to support this proposal. Once the savings are generated, Congress can use them in service of any policy agenda--these savings could be used to pay for a new anti-poverty program, finance new tax cuts, or reduce the deficit. Perhaps due to this flexibility, the bipartisan National Commission on Fiscal Responsibility and Reform recommended in 2010 that Congress revisit the program integrity scorekeeping practices to address whether CBO scores should reflect savings from program integrity. (23)
While the Commission's recommendation reflects nascent political support to rethink the congressional scoring process, this Note is the first piece of scholarship to comprehensively evaluate the scoring of secondary effects. But it adds to a rich literature identifying and analyzing the pathologies created by the congressional budget process. For example, past scholarship has criticized budget scorekeeping and accounting concepts, (24) congressional budget procedures, (25) and legislative budget structures. (26) Some scholars have argued that the budget process undermines fiscal discipline, encourages inefficient policy, reduces democratic accountability, encourages short-term thinking, and leads to poor distributive outcomes. (27) In contrast, others have claimed that the budget process encourages fiscal discipline, provides valuable information about tax expenditures, and encourages congressional review of tax policy. (28)
But amidst this literature, scholars have given little attention to the scoring of secondary effects. A few policy analysts have observed that Congress has underfunded enforcement and program integrity, allowing for potentially preventable fraud and waste. (29) But their solutions have been narrow. Some analysts have treated the scoring of secondary effects as a problem solely for the IRS and have therefore only argued that congressional scorekeepers should recognize secondary effects for tax enforcement. (30) John Hudak and Grace Wallack are the notable exception. (31) They propose that Congress create revolving funds to finance revenue-generating programs, while exempting these programs from the annual appropriations process and sequestration. (32) But Hudak and Wallack overlook the simpler solution of changing the scorekeeping guidelines.
Beyond its policy and political appeal, this Note's proposal has broader implications for our system of lawmaking and enforcement. Repealing Guidelines #3 and #14 would, among other things, discourage the privatization of public services (33) and prevent arbitrary public subsidies. (34) Moreover, the proposal provides a new method for increasing agency independence. Scholars have increasingly focused on the relationship...