Laws passed by Congress impact the economy, but Congress has no systematic way to comprehensively track and assess the economic impact of legislative actions. This is especially difficult when laws empower federal agencies to regulate. While the current budget process scores and tracks the economic impact of spending and taxes, it does not account for the economic consequences of regulation.

1. Tools for Tracking
the Economic Impact of Legislation
Dr. Jason J. Fichtner, Dr. Jerry Ellig & Dr. Patrick McLaughlin
Senior Research Fellows
Mercatus Center
July 22, 2015

2. What we’re going to discuss today:
 How the budget process assists Congress in exercising
its tax and spending powers.
 Elements of the budget process that weaken Congress’s
management of government spending.
 How the power to regulate operates like the powers to
tax and spend but without a defined process for
Congressional management.
 How budget and regulatory process reforms can
advance good governance practices.
Overview

3. Congress and the Federal Budget Process
 The budget process enables Congress to manage revenue and
discretionary spending.
 Provides a feedback loop to determine if the expenditures
authorized by Congress achieved the intended results and how
those expenditures impacted the economy.
 Opportunity to compare results and set priorities for the coming
year.
 Weaknesses
 Outputs are measured rather than outcomes.
 Major spending and debt obligations are under managed.
 Current process does not account for the economic impact and
costs of regulations.
 No current lookback ability for Congress to determine if cost of
regulations match its original expectations.

5.  The budget process puts the Executive Branch and Congress “on
the same page.”
 Stage 1 – The President’s Budget
 Office of Management and Budget manages the formulation of
agency budget requests and the evaluation of agency
performance and strategic plans.
 President’s proposed budget request submitted to Congress.
Due by the 1st Monday of the first full week of February.
 OMB’s Mid-Session Review report to Congress outlines any
economic or legislative changes that impact the President’s
budget proposal. Due by July 15.
Development of the Budget

6.  Stage 2 – Concurrent Budget Resolution
 A budget resolution frames the “big picture” - aggregate
spending and revenue levels.
 Legislative committees submit jurisdictional “views & estimates”
of spending and revenues to their chamber’s budget committee.
 No spending, revenue, debt-limit legislation can be considered
before a budget resolution passes unless this rule is waived or
resolution is not passed by May 15.
 House and Senate to agree on a concurrent budget resolution.
This is not a law so no signature by the President required.
Development of the Budget

7.  Concurrent budget resolution includes
 Aggregate levels of federal revenue
 Aggregate levels of new Budget Authority and Outlays
 Budget authority – the amount Congress allows a federal
agency to commit to spend
 Outlays – the amount of revenue allowed to flow from the
U.S. Treasury
 Target levels for surplus/deficit and debt ceiling
 Sec. 302 Allocations
Sec. 302(a) allocation provide the aggregate spending levels
to the House and Senate Appropriations Committees.
Sec. 302(b) allocations are the levels of spending assigned
to each appropriations subcommittee.
Development of the Budget

8.  Stage 3 – Budget Reconciliation
 Process to achieve the revenue, mandatory spending and debt
limit levels assumed in the concurrent budget resolution.
 Legislative committees provide the statutory changes necessary
to meet the budget instructions.
 Subject to expedited procedures that limit debate and
amendments.
 Requires the President’s signature.
Development of the Budget

9.  “Point of Order” – Floor procedure that prevents Congress
from passing legislation not in line with the budget resolution.
House – can waive by simple majority.
Senate – subject to filibuster – need 60 votes to waive.
 Pay As You GO – Requires tax cuts and entitlement spending
increases to be fully offset unless they fit within targets of the
budget resolution.
PAYGO as defined by the Budget Enforcement Act 1990,
expired after FY2002.
House and Senate Rule in 111th Congress.
CUTGO – Mandatory spending be offset by mandatory
spending cuts alone; House rules exempt tax reductions from
mandatory offsets.
Budget Enforcement

10.  Policy Drives Budget versus Budget Drives Policy.
 Economic impacts are difficult to track because
Minor management of entitlements which are 2/3’s of
the budget.
Several types of “spending” are left out:
Loan guarantees,
Future costs of entitlement obligations,
Regulation.
 Opportunity to consider Legislative Impact
Accounting.
Problems

11. Taxing and Spending via Regulation
TSA budget (ticket tax)
$4.3 billion (2005)
Increased
waiting time
Reduced air travel
116 Fatalities (4th quarter 2002)
$2.76 billion (2005)
$2.35 billion (2005)

12. What Decision-makers Should Know
mercatus.org
 What’s the root cause of the problem that must be
solved to achieve the desired outcome?
 What are alternative solutions that address the
root cause?
 What are the social benefits and costs of each
alternative?
 What goals and measures indicate whether the
desired outcomes are actually achieved?

13. Most Analysis is Confined to the
Executive Branch
mercatus.org

14. Only a Handful of Regulations Get Analyzed
mercatus.org
 3000-4000 final regulations issued annually.
 200-400 “significant” final rules overseen by OIRA.
 60-100 “economically significant” final rules (>
$100 million annual impact) require a full
Regulatory Impact Analysis.
 Regulations with impact exceeding $1 billion must
have a formal uncertainty analysis.

15. Independent Agency Rulemaking
mercatus.org
Independent agency

16. Regulatory Analysis Standards for
Independent Agencies are Rare
mercatus.org
Paperwork Reduction Act: Paperwork burden.
Regulatory Flexibility Act: Effects on small
businesses.
Specific benefit-cost analysis requirements for
specific agencies (Consumer Product Safety
Commission, Federal Trade Commission).
Specific laws mandates the implementing
regulations must “consider” costs, benefits,
efficiency, or competition.

17. Weak Enforcement
Executive
OIRA review is helpful, but effectiveness is limited.
Congress
No process for independent analysis of regulatory
legislation or individual regulations.
Judiciary
Statutory requirements for analysis nonexistent or
vague
Review under highly deferential “arbitrary and
capricious” standard.
mercatus.org

18. Analysis of Regulatory Results is Rare
mercatus.org
No congressional process for assessing actual
results of regulations.
Periodic presidential initiatives, but no regular
review (except NHTSA).
Annual OMB Benefit-Cost report.
Based on agencies’ prospective estimates
Just 116 of the 37,000 regulations adopted in
the past decade had estimates of both benefits
and costs.
Estimates often seriously incomplete.

19. Problems
 Congress often passes regulatory legislation
without systematic analysis of the underlying
problem, alternative solutions, or the likely benefits
and costs.
 Agencies often write regulations based on seriously
incomplete analysis of these factors.
 No systematic process for identifying actual results
of regulations and eliminating nonfunctional ones.
mercatus.org

20. “We were hoarders before hoarding was cool.”
-- Jase Robertson
mercatus.org

21. mercatus.org

22. Regulation is a Linear Process
mercatus.org
Bill Statute
Agency
budgets
Analysis Regulations

23. Comprehensive Reform
Analyze legislation prior to enactment,
and use to inform budgeting.
Improve quality of prospective analysis.
Add retrospective analysis.
Update analysis of legislation and adjust
budgets accordingly (the feedback loop).
mercatus.org

24. Picture of Comprehensive Reform – with a
Feedback Loop
mercatus.org
Bill
Legislative
Impact
Assessment
Statute
Prospective
Analysis
Regulation
Retrospective
Analysis
Update Leg.
Impact
Assessment
Agency
Budgets

25. Concluding Remarks
Obligation to know whether legislation is
achieving its goals.
Analysis of legislation would require statements
of goals and budget setting.
Improved prospective analysis  better chance
of achieving goals.
Retrospective analysis  eliminate or modify
nonfunctional rules.
Budgetary adjustments return control to
Congress.
mercatus.org

26. Bridging the gap between academic ideas and real-world problems