CONGRESSIONAL RESEARCH SERVICE LTBRARY OF CONGRESS «m G J . -M. ‘:51; ‘‘'**<1 ‘ M _ ‘ PAT . R P vs .1 ,3. e 6.3 R: Ev ‘E? ”7?“- 1‘ ; F v‘ ‘. V -‘ ‘s .5 .."*> . - - F‘ . 2 “ ' - " r’ ,. Am}! I!‘ i ‘‘{\\j 72' ‘*1 ‘.4 Si? 55* '3 E‘. 1 I . 3 if ~' 4 W“?‘5*h5?*Q€!»r: 1 i..5n:we::=;§‘h.: ini Brief FEDERAL BUDGET LIMITATIONS MINI BRIEF NUMBER MB7928fl AUTHOR: ‘Winters. Philip Econcmics Division THE LIBRARY or CONGRESS CONGRESSIONAL RESEARCH SERVICE MAJOR ISSUES SYSTEM DATE ORIGINATED 12512579- DATE UPDATED O2g01(80— FOR ADDITIONAL INFORMATION CALL 287-5700 OZOH CRS- 1 MB79284 UPDATE*O2/O1/80 fSUE¥DEFINITION- The public clamor for some restrictions on the growth of the federal sector has been reflected in Congress by the frequent introduction of proposals designed to restrict spending, taxes, credit activities, and tax expenditures. The most widely known proposals are those bills or resolutions calling for a constitutional amendment to balance the budget. Another type of proposal attracting increasing attention calls for a link between federal spending (and sometimes taxes) to the gross national product (GNP). Proposals of this type would put a percentage-of-GNP lid on the level of federal spending, generally in the range of 18 to 20% of GNP. The belief is that this type of limitation would restrict the growth of the federal sector— more effectively than a balanced budget rule, since under balanced budget requirements growth in spending can be covered by growth in taxes. In addition, the feeling exists that this type of spending limitation could prove more flexible in times of emergency than a constitutional amendment requiring a balanced budget. For most of the Nation's history the generally small role of the federal government allowed it to follow and maintain the principle of a balanced budget, as propounded by the classical economics of the late 18th and early 19th Centuries. During war or severe economic distress, they federal vernment at times found itself unable to follow its traditional balanced budget rule. After such periods, efforts were made to operate the government Awith a surplus in its budget to retire the recently acquired vdebt. only mixed success in this effort was achieved, as is .clear from examining the growth of the public debt. The Depression years of the 1930s chipped away at the belief in the necessity of maintaining a balanced budget at all costs. The extent of the hardships caused by the economic disruptions forced the federal government to take actions thaty resulted in unbalanced budgets and. by historical standards, large deficits. The World war II and post-war responsibilities of the United States and the growing acceptance of new economic theories helped produce large deficits. The end of the Korean War in the early 1950s saw attempts to return to a balanced budget; these attempts met with little success. The 1960s saw only limited efforts to maintain a balanced budget, as the government used deficit spending to attempt to end a recession at’ the beginning of the decade; to vastly. expand the scope of federal social programs. and to engage in the conflict in Southeast Asia. A continuation of this pattern was evident in the 19703:, the federal budget continued ito be used in attempts to reverse any recession that appeared; the programs seti in motion in the 1960s continued to expand; and‘ the involvement in Southeast Asia continued for a number of years. ~ As the federal budget and deficits grew, along with even more dramatic growth in state and local budgets, the concern over the effectsi of this g wth in the government sector also grew. Continuing a long tradition at the state and local level, the last few years have seen a number of widely publicized spending and taxing limitation proposals enacted. Proposition 13 in California, the most famous, led a surge of interest and popular support for establishing some limits on federal spending or taxes. Attempts to amend CRS- 2 MB7928fl UPDATE-02/O1/80 the Constitution to require a balanced federal budget have received the most publicity, and between 26 and 30 states have petitioned Congress to call a constitutional convention to deal with the issue. In 1978, the congress passed an amendment requiring a balanced federal. budget for 1981. This amendment which was attached tow a bill authorizing U.S. participation in a facility of the International Monetary Fund, was signed into law (P.L. 95-H35) on Oct. 10, 1978. In the first session of the 96th Congress the law increasing the temporary public debt limit, P.L. 96-5, contains language requiring balance in the federal budget but sets no deadline for compliance. P.L. 96-S also requires, as an alternative to the regular budget, the submission of balanced budget proposals by the President and the congressional budget committees for FY80, FY81, and FY82. The alternate balanced budget prepared by the President is to contain information on the changes made to bring the regular budget into balance. This procedure by the President is scheduled for FY81 and FY82. In response to the pressures to do something about the imbalance in the federal budget and the expanding role of the federal sector, over 150 bills and resolutions were introduced in the first session of the 96th Congress to limit federal spending to taxing ability. Many have been variations on the proposed amendment to balance the budget, but many others would link federal spending, taxes, or both to some percentage of the Gross National Product (GNP). The spending limitation proposals follow similar patterns. Federal outlays usually are limited to some yset percentage of the GNP for the rnlevant'fiscal year, the percentage usually being in the 18 to. 20% range. .ny of the proposals provide a three-year transition period in which the percentage limit drops each year until the permanent percentage is reached in the third year. In some cases, the percentage limit applies to federal revenues as well as outlays. Generally, there isi a waiver provision that allows the Congress to override the restrictions on spending, or receipts, in times of national emergency. These waivers are usually restrictive and cannot be.activated by simple majority votes: passages in mostn cases would require a two-thirds or three~quarters vote. Finally, these proposals to date have received more serious attention as federal legislative proposals than as constitutional amendments: should any become law, that status would. leave open‘ they possibility of their alteration or repeal by future Congresses.‘ I with the number of bills and resolutions introduced in the first session, the possible and actual _variations onw spending limitation proposals are numerous. The expected continued weakness of the economy in 1980 and the possibility of a growing budget deficit are likely. to bring .into open conflict the forces supporting government efforts to alleviate the hardships resulting from recession and the forces attempting to restrict the continuing expansion of federal spending. Although little action was taken on any of these bills during the first session, legislative activity is expected to quicken in the early months of 1980 on one or more of the already introduced spending limitation proposals. . ugvgucuuurzxfina LJ$.x§Z1W MB 1 I @:«.:§+.RY UNN §3.fi‘? H van’/ll" J, 9,“. \...o... L. vzfi. l13.l_"‘J’_‘§._ - .-i V ‘CZ'»s. §N€Zfi'é'0N §.‘“:F‘.*§'§i'T‘.j’ ‘ QUEIS Nam. {Eng