Policy Seminar on Perspectives on Budgeting in the US: Four Issues

Wednesday, September 8, 2010
George Shultz Conference Room, Herbert Hoover Memorial Building

PARTICIPANTS

Michael Boskin, Dave Brady, John Cogan, John Gunn, Matthew Gunn, Keith Hennessy, Dan Kessler, Pete Klenow, Ed Lazear, Ron McKinnon, Henry Rowen, George Shultz, Johannes Stroebel and John Taylor.

ISSUES DISCUSSED

Barry Anderson, former Head of the Budgeting and Public Expenditures Division at the Organization for Economic Cooperation and Development (OECD), addressed the group on perspectives for budgeting in the US. Anderson began by discussing the current treatment of tax expenditures, that is, of provisions that reduce or postpone revenue for a comparatively narrow population of taxpayers relative to a benchmark tax. Anderson recommended to start counting these tax expenditures (which include employer health care exclusion and mortgage interest deduction) as spending. While this would not change the operation of the programs, it would allow measures of government spending to more accurately reflect the true size of government. In addition, it would help the political debate about removing some of these tax expenditures, since under the new system, the removal of a tax expenditure would count as lowering spending, rather than as a tax increase.

Anderson also argued that if a fiscal rule was desired, a spending rule would be preferable to a debt/deficit rule, since spending rules are countercyclical. He reviewed a number of OECD countries with spending rules, pointing to the positive experience that the Netherlands had with such rules. Anderson then commented on the desirability of dynamic scoring of legislative proposals, which would take full account of all their economic effects when estimating their budgetary impact. While reliable, accurate dynamic scoring may be out of reach, he argued, this is not a sufficient reason to not be attempting it. Anderson emphasized the importance of transparency in any dynamic scoring process. Lastly, he addressed the issue of performance indicators for government budgeting. This would move the debate away from questions such as “How much money can I get” towards questions such as “What can I achieve with this money?” While such an approach towards government is desirable, few countries have successfully integrated performance indicators into their budget process.

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