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Most US federal retirement plans are now fully funded, but since plan assets must legally be invested in federal securities, fund surpluses are used to reduce overall federal budget deficits. As a result, current taxpayers are not charged with the cost of future federal retirement obligations. Nevertheless, federal rules do require the employing federal agency to budget for current personnel’s accruing liability of retirement promises. Therefore, policy decisions regarding the number of federal civilian and military personnel and the design of their retirement benefits may be made with a better understanding of the costs.

This chapter analyzes how the interlocking problems of taxation and the federal budget set the stage for the contentious politics of business in the 1980s. During the Reagan administration, ideological small-government conservatives clashed openly with the heads of manufacturing and other traditional capital-intensive business firms. In spite of their superficial common opposition to Keynesian demand stimulus and organized labor, these disparate groups of conservatives held sharply divergent priorities. Their struggle produced a tale of two tax cuts. One, supported by industrialists, aimed to revitalize manufacturing by providing incentives for investment and savings. The other, an antistatist quest to lower all taxes, garnered greater populist appeal. Although not mutually exclusive—both found a way into Reagan's tax reduction legislation in the summer of 1981—these competing visions marked an emerging schism within the ranks of conservatism.

This chapter analyzes transparency in the setting of the national budget process in the United States Congress. It argues for selective transparency, in which some decision-making processes are opaque, and in which some information is disclosed to some constituents at some times but not to others at other times. It suggests that selective transparency should be instituted through a regime of delayed disclosure of legislators' actions, to promote sound legislative deliberation and to liberate legislators from undesirable accountability to narrow interests.

During the postwar era, para-public institutions were used to loosen the ties that binded the state to organized interests, and to create disharmony in the social policy field by making it subject to economic and political competition. These changes were driven by tightening resource constraints, with a larger share of the federal budget being consumed by subsidies to social security when increases in the contribution rates become no longer productive for the economy and no longer politically viable. Corporatist sharing and the delegation of control over the postwar welfare state in Germany ended when governing bodies and other political parties could not control social policy and how this crowded out other political concerns. This chapter discusses what happened to public finance, specifically the fiscal crisis, in Germany during the postwar era.

This chapter lays out the economic case for incorporating the cost of market risk in government decision making, describes how risky securities are currently accounted for in the federal budget and how this likely biases real resource allocations, and surveys the results of recent research on the cost of market risk for federal obligations. The analysis begins by addressing both the philosophical and practical impediments to incorporating the cost of risk into federal budget estimates. While the idea that market risk is a legitimate cost is now widely accepted in the private sector and by most academic economists, the concept has not gained such wide acceptance among policymakers nor in the federal budgeting community. The chapter revisits the lively debate that took place in the late 1960s and early 1970s between the leading economists of the time over whether the risk of activities undertaken by the government should be treated as a cost.

This chapter examines the financial status of the U.S. banking sector in early 2009 by considering the ongoing debates from five perspectives. The first argument holds that banks around the country failed to extend loans to small and medium businesses that could provide job opportunities to the unemployed. The second argues that the federal budget deficit posed a staggering challenge of bringing the deficit under control soon enough. The third claims that the monetary policy of the Federal Reserve has become more or less steadfast and easy. The fourth monitors the recovery of the U.S. real gross domestic product (GDP). The fifth perspective projects the uncertainties faced by the U.S. economy at the time of the rise of unemployment benefits, decline in home sales, and slow-paced manufacturing activities.

This chapter documents policy punctuations evident in the US federal budget. It develops a methodology for sorting programmatic areas of the US budget based on the complexity of underlying issues. Similarly, the chapter introduces a measure of institutional capacity, and demonstrates that, based on this measure, the capacity of the federal government to process and respond to policy information has varied considerably over time. Using quantile regression techniques, the chapter shows that large budgetary changes (either sudden increases or dramatic cuts) are more likely in complex programmatic areas and less likely during periods of heightened institutional capacity. These relationship are statistically robust to the inclusion of potentially confounding factors in the regression models.

Especially since passage of the Employment Act of 1946, American presidents have used the federal budget to promote economic growth. They frequently raised or lowered taxes to stimulate or curtail investment. Thus, the creation of budget deficits and surpluses became major tools for presidents in their stewardship of the U.S. economy.

This chapter suggests that the time is right for a new model for U.S. highways. Factors that will disrupt the status quo are the looming insolvency of the federal government, large-scale state fiscal problems, and the decline of fuel tax revenues. Positive factors for change are the growing track record of the P3 highway industry and large amounts of equity capital eager to invest in U.S. infrastructure by global infrastructure investment funds and public pension funds.

In Chapter 3, we show that the increase in the scope of the national government coincided with an increase in a variety of established quantitative indicators of political activity, including Mayhew’s landmark enactments, forming what Samuel Huntington called a great horseshoe-shaped arc. We trace the path of the great broadening across a range of institutional outputs, including bill introductions, congressional hearings, roll-call votes, laws, the federal budget, and supreme court cases.

Ruth Braunstein’s chapter examines the Nuns on the Bus campaign, launched by a group of Catholic Sisters in 2012 to raise awareness of the harm that federal budget cuts would cause struggling American families. The chapter focuses on the Nuns’ use of storytelling during this campaign. Through their storytelling performances, the Nuns framed religious communities as morally superior carriers of knowledge about the effects of cuts in government spending; framed vulnerable people and the programs that serve them as morally worthy beneficiaries of government spending; and asserted the moral necessity of taking stories seriously alongside other forms of more abstract and impersonal data that inform the policymaking process. Overall, the chapter argues that this communications strategy helped the Nuns overcome challenges they faced as progressive religious actors seeking to influence public policy debates.

In contrast to the United States or other federations, the euro area does not have a meaningful federal budget. The budget of the European Union amounts to only one percent of its GDP, lacks flexibility, and plays no role in macroeconomic stabilization. Indeed, in the Maastricht Treaty, all responsibility for macroeconomic stabilization was assigned to national budgets. But when bad times came, the buffer proved perilously small; it may prove even smaller in the future, now that investors pay more attention to state solvency. Stabilisation concerns and financial-stability concerns, therefore, suggest that the repair agenda should not stop with banking union. To create a stabilisation capacity in the euro area, a first solution would be to revisit the MacDougall proposal and equip the monetary union with a true budget. An alternative would be to mimic the operation of a budget, with a purely macroeconomic automatic stabilisation scheme. A last solution would be to make states able to borrow even in situations of stress, in other words letting states issue limited amounts of Eurobonds. European leaders already played with the idea of equipping the euro with a fiscal capacity at the end of 2012, but the idea was forgotten before having been seriously discussed. The issue, however, has not gone away and European leaders would be well-advised to explore the options as the current fiscal regime remains several incomplete.

The three systems affecting the elderly—health, Social Security, and employer-based retirement plans—have not been reformed substantially in decades. Reform of retirement and health care entitlements is inevitable, but its ultimate format remains uncertain. Any entitlement reform should take advantage of the additional resources provided by economic growth and the rise in demand for and supply of older workers. This chapter proposes that recognizing the potential from those two forces argues for constructing reforms aimed largely at three goals: better orientation of public sector retirement resources to needier and older populations; removal of obstacles to increased employment of older workers; and private pension reform that provides the long-sought second tier of support in older ages.

This chapter examines three distinct perspectives on the current condition of the retirement system in the United States. Some argue that the system is too hot, costing more of the nation’s public and private resources than is reasonable or that we can bear. Others claim that it is too cold, not providing the level of retirement security that other developed nations manage to provide to their seniors. The third view is that, while the system might not be “just right,” things are not as grim as the news media and surveys on retirement preparedness would have us believe. With regards to the first perspective, the implications of retirement costs for the federal budget are a major concern. Health care costs in particular represent a major threat to future federal budgets. For advocates of the second perspective, Social Security has never been more important to more Americans than it is now. The chapter also considers how lower earners have fared in employer-sponsored pension plans compared to higher earners.

Even as the U.S. economy hums along, problems loom in the future. Government debt is growing along an unsustainable path, potentially mortgaging the country’s economic future. At the same time, after several decades of stagnating wages and living standards for much of the population, the nation faces increasing needs to invest in education and healthcare, and to bolster public infrastructure and research. How can the United States meet both today’s needs and tomorrow’s obligations? This book offers solutions resting on five guideposts. First, facts and evidence should play a key role in policy analysis and choices . Second, public policy should reflect our values as a people, including freedom, fairness, opportunity, and individual and social responsibility—toward one another, between rich and poor, and from generation to generation. Third, both the private sector and the government can—and must—be part of the solution to our problems. Fourth, taxes and spending are inextricably linked, and policymakers should consider them together. Fifth, we should focus on realistic solutions. The proposals offered here have three core themes: control entitlement spending; invest in the future; and raise and reform taxes. Taken together, the proposals would restore fiscal balance, boost economic growth, reduce economic inequality, improve economic mobility, and raise living standards for future generations.

Chapter 13 examines the size of the social safety net in the United States. Compared with European and other OECD countries, the United States has a fairly small safety net. The amount spent is approximately 2 percent of our GDP. In particular, programs aimed at protecting children from poverty are minimal. These programs have also been reduced over time, especially since the 1996 welfare reform changes. Challenging the myth of the bloated welfare state requires tackling multiple intersecting misperceptions, including erroneous portrayals of U.S. welfare expenditures as exorbitant and low-income programs as driving up the national debt. It will also require shattering myths that legitimize keeping welfare benefits low.