the time the commitment is made. Using present value accounting to move forward the time when the cost of long-term commitments is recognized in the budget improves incentives for policy makers to take timely action if it is needed to address their costs.
The federal government
the time the commitment is made. Using present value accounting to move forward the time when the cost of long-term commitments is recognized in the budget improves incentives for policy makers to take timely action if it is needed to address their costs.
The federal government similarly could adopt accrual budgeting for such commitments as federal employee pension and retiree health care costs, which are currently recognized as liabilities on the federal financial balance sheet. It would also be valuable to consider adopting accrual approaches to estimating the budgetary costs of such contingent liabilities as insurance programs. Moving to accrual for insurance would require additional research and complex modeling to capture the longer-term risks assumed by government for uncertainties, such as natural disasters and other unpredictable events.
The committee believes that establishing a set of fiscal goals and targets is essential to gaining control of the fiscal future. Setting fiscal goals is a critical first step in institutionalizing consideration of the long-term outlook. Above all, it would force acknowledgement of the unsustainability of current policies.
In recent years, many nations have adopted fiscal targets and frameworks that helped them become fiscally responsible. In New Zealand, for example, the adoption of overall fiscal targets, in concert with market pressures, reframed policy debates; see Box 10-3. Sweden followed a similar approach. Fiscal targets had an impact not through formulaic cuts, but by providing a compelling way to frame budget debates on the basis of the long-run implications of current budget choices. In both countries, earlier fiscal and economic crises made fiscal goals important, and leaders risked criticism if their fiscal outcomes fell short.
In the United States, Congress last set overarching fiscal goals under the 1985 Gramm-Rudman-Hollings Act, which prescribed declining deficit targets for the federal budget. However, the goals were applied in a mechanical fashion that proved to be politically unsustainable, as unprecedented economic fluctuations moved the goals further away regardless of the actions taken by the policy makers. Chastened by this experience, policy makers turned to spending targets under the Budget Enforcement Act (BEA) of 1990, with a focus on holding themselves accountable for decisions they controlled, namely, the overall size of discretionary spending and new entitlements and tax cuts. Although this approach was more realistic and feasible for the United States, the BEA regime did not address the growth of spending or revenue losses for existing programs. That is, it prevented legislative acts from making things worse when in force, but contained no