Washington Update: The Evolving Power of the Purse
The “power of the purse.” It was a hotly debated topic at the Constitutional Convention, which convened 232 years ago as of this past Memorial Day weekend (the convention began on May 25, 1787 and concluded that September) and remains one even two-and-a-half centuries hence.
According to the U.S. House of Representatives’ historian, convention attendees had two main goals when it came to federal spending: in the interest of avoiding an all-controlling, monarch-like Executive Branch, make sure the president could not appropriate money without Congress’ consent – the whole checks and balances thing – and determine the specific roles the U.S. House of Representatives and Senate would play in setting fiscal policy.
The bias among the founders was that the lower chamber of Congress – the House of Representatives – should have the most control. Benjamin Franklin said, “It was a maxim that those who feel, can best judge. This end would . . . be best attained, if money affairs were to be confined to the immediate representatives of the people.” Massachusetts delegate Elbridge Gerry agreed, arguing the House “was more immediately the representatives of the people, and it was a maxim that the people ought to hold the purse-strings.” (Who knew maxims had such a significant impact on the structure of the America system of government?)
This precept ultimately won the day and is still a tenet of the American political system today. Legislation to raise revenues, more commonly referred to as “taxes,” must originate in the House and, at the founding, the Senate also was given limited authority over budget bills.
Congress passed the first federal appropriations bill in 1789. It was a total of 13 lines long and allotted a sum of $639,000 for the federal government’s functions. (For reference, last year’s omnibus spending bill clocked in at 2,232 pages…and a significantly higher price tag. But more on that later.) The House Ways and Means Committee, at this point, was in charge of both taxing and spending. It wasn’t until the Civil War that the two functions were separated.
Today, of course, the federal government spends far more and, while Congress still is in charge of government spending on paper, lawmakers have lost a lot of their power over the purse since that first Congress – largely because, over time, they voted themselves to cede that power.
The expansion of the executive branch’s power of the purse started in 1921 with passage of the Budget and Accounting Act, which required the president to submit a budget outline to Congress for consideration. Hitherto this act of Congress, the Legislative Branch was solely responsible for determining the appropriate funding levels for the various federal government agencies and departments. The White House now uses this document to outline its domestic and foreign policy priorities for the year and set the parameters of the budget debate.
The executive branch’s power expanded in 2011 when Republicans in Congress successfully pushed a ban on the practice of congressional earmarking. That practice had allowed members of Congress to request funding for specific projects, often in their own districts or states. GOP lawmakers, led by Tea Party advocates, argued this practice was inherently corrupt, and there is little doubt the process was abused (the infamous “Bridge to Nowhere” in Alaska began as an earmark).
Banning earmarks, however, had another, longer-term impact. Because earmarks were simply the congressionally-directed use of funds under already-funded programs to specific projects or groups, prohibiting earmarks created something of a vacuum. The funding for the overarching programs continued to be approved, but specific direction from Capitol Hill regarding recipients of the funding was banned. Since 2011, therefore, decisions about what groups and organizations receive federal grants rest solely in the hands of executive branch agency personnel, more commonly referred to as bureaucrats. As Franklin and Gerry would point out, these individuals, being unelected, are about as far from “the people” as possible.
Democrats today are channeling Franklin, and trying to take power back.
Arguing the ability to earmark falls under Congress’s constitutional duty to decide how federal revenues are spent, some House lawmakers have argued it’s time to bring back the practice. (President Trump, and some Republicans, also have expressed support for this idea in the past.)
One reason? Banning earmarks hasn’t improved public trust in the federal government. (Earmarks or not, Americans just don’t trust Congress.)
It also hasn’t reduced federal spending. In fiscal year 2011, the federal government spent $3.6 trillion. Just seven years later, in fiscal year 2018 (the fiscal year that ended September 30, 2018), the federal government spent $4.11 trillion, or about 21 percent of the size of the entire U.S. economy. That figure was 14 percent higher than the fiscal year 2011 spending level.
According the Congressional Budget Office, the total budget for the current fiscal year (2019) is expected to exceed $4.4 trillion, and despite President Donald Trump’s pledges to reduce the federal bureaucracy, his own budget outline that was released earlier this spring calls for continued increases in federal spending for the foreseeable future. Indeed, the commander in chief has proposed a $4.75 trillion budget for fiscal year 2020.
Only about 30 percent of that figure, $1.4 trillion, actually will be spent by Congress. The rest will go to so-called “mandatory” programs – Medicare ($679 billion), Medicaid ($418 billion), Social Security ($1.1 trillion), interest on the national debt ($479 billion) and other programs whose funding is on autopilot.
As recently as 1970, the ratio of mandatory to discretionary spending was reversed. In that year, only about 38 percent of all federal revenues went to Social Security, Medicare and other mandatory programs while Congress got to determine how the rest was spent. By 2048, Congress will have an even smaller slice of the federal budget pie under its purview. Given the current rate of growth in mandatory programs, they will make up about four-fifths of the federal budget within the next 30 years. Lawmakers will control appropriations of just 19 percent of the federal budget three decades from now.
The shrinking portion of discretionary spending potentially has contributed to the acrimony of the congressional spending process, and this year’s debate promises to be filled with fireworks.
Lawmakers’ debate about how to allot the $1.4 trillion in fiscal year 2020 discretionary funding already has begun and the pace will quicken once members of Congress return from the Memorial Day recess. So far, the House Appropriations Committee has approved eight of the 12 annual spending bills. Its Senate counterpart hasn’t approved one. (At this point last year, the House panel had approved only six. The Senate had approved two.)
House Democratic lawmakers have approved generous spending increases for most of the departments for which they have passed appropriations legislation. The Republican-controlled Senate is unlikely to go along with these increases.
Democrats also will use the spending bills to limit other White House priorities, including the president’s border wall. Before leaving for the Memorial Day recess, the House Appropriations Committee passed a fiscal year 2020 defense spending bill that is $8 billion below what the Trump administration requested for the military and that also, if adopted, would restrict the use of defense dollars to build a wall on the border between the United States and Mexico.
According to The Fiscal Times, Democrats also are contemplating whether to add provisions to spending bills that would restrict funds to agencies that aren’t “complying with congressional subpoenas.”
That assertion of power might not exactly be what the founders had in mind, but Franklin and Gerry likely would approve.
Steve Boms is the founder and President of Allon Advocacy, LLC, a Washington, D.C.-based public policy consulting firm. Steve has spent his career focused on complex financial services public policy issues, having worked in the United States Congress on the committee with jurisdiction over banking. He has led advocacy efforts and public policy teams globally for equity options exchanges, large U.S.-based financial institutions, and leading fintech firms. In addition to working directly with Allon's clients, he is a frequent conference panelist and his perspective is solicited by reporters on the technology, financial services, and regulatory beats.
The content and opinions expressed herein are provided by a third party, Allon Advocacy, LLC. This commentary is provided for informational purposes only and does not necessarily reflect the views of Envestnet. The information, analysis and opinions expressed herein reflect the judgment of the author as of the date of writing and are subject to change at any time without notice. It is not intended to constitute legal, tax, securities or investment advice.