Lack of Controllability in the Federal Budget

When viewed over a long period of time, there are few uncontrollable programs in the federal budget. The length of time needed to make the necessary changes depends upon the willingness of Congress and the executive branch to enact legislative changes. The short-term controllability problem largely reflects the growth of Federal entitlement programs, long-term demographic trends, and programs tied directly or indirectly to inflation. There are three major categories of uncontrollables in the current fiscal year budget: entitlement programs, net interest on debt, and liquidation of prior commitments and other fixed costs. The growth of uncontrollables and the prospects for their continued growth point to a critical need for Congress and the executive branch to take budget actions with a longer time horizon in mind. Consideration should be given to enhancing multiyear planning and budget actions and the organizational and procedural changes that may be required. In 1979, GAO issued a report analyzing the effects of indexing on Federal expenditures. Under an indexed program, payments increase automatically with inflation. At the time the report was issued, indexed programs represented more than 50 percent of the total Federal budget, and their share of Federal spending was increasing. As a result, the current inflation rate automatically increases Federal spending substantially even if no other change in the entitlement program occurs. There is little prospect for achieving budget restraint without some check on the programs which are indexed. GAO has recommended that the cost-of-living adjustments for Federal retirees should be made annually rather than semiannually. It may be wise to consider revisions in the indexing formulas to permit a temporary cap at less than the full adjustment, as is currently possible for Federal pay increases. Steps must be taken to assure that sacrifices are equitably distributed in the economy.