Dominik Lett
Read the new paper here.
The Cato Institute has just released an updated version of the emergency spending paper I co-authored with Romina Boccia last year. The key takeaway: Congressional abuse of emergency spending designations is worse than we initially thought. Adjusted for inflation and including interest costs, Congress has spent a whopping $15 trillion through the use of emergency designations. As I explain in the new policy analysis:
Over the past three-and-a-half decades, Congress has increasingly used emergency spending designations as a workaround to sidestep budget rules, avoid trade-offs, and pass massive spending bills with minimal congressional and public scrutiny. Emergency designations have expanded from their original purpose—narrow exemptions for unforeseen and urgent events—to become a routine means of unaccountably expanding the federal budget.
From the wars in Iraq and Afghanistan to disaster relief and the COVID-19 pandemic, emergency designations have enabled more than $12.5 trillion in spending since 1991—comparable to the entire amount spent on Medicaid and veterans’ programs combined. This surge in off-the-books spending has added an estimated $2.5 trillion in new interest costs, accelerating the growth of the national debt and weakening the US fiscal position. Congress has spent $15 trillion altogether through emergency spending designations since 1991.
Congress is incentivized to use emergency spending to bypass budget controls because there are no real constraints on what can be classified as an emergency. As a result, emergency spending has spiraled out of control, accelerating our nation’s fiscal decline.
Congress desperately needs a budget enforcement mechanism for emergency spending. Without a process to offset emergency spending, Congress will continue to use emergencies as a pretext to pass budget-breaking spending initiatives with no plan to rein in future spending. Luckily, we can glean a few lessons from our European neighbors on how to design good fiscal rules without abandoning the emergency exemption altogether.
In Switzerland and Germany, so-called debt brakes—binding fiscal rules that limit borrowing—include mechanisms to exempt certain emergency spending, provided it is repaid over subsequent years. The COVID-19 pandemic response put these provisions to the test. In the German case, it prompted a ruling from the federal Constitutional Court reaffirming a narrow application of the debt brake and restricting the use of emergency spending.
Since 2019, both Germany and Switzerland have reduced their governmental debt-to-GDP ratios. Meanwhile, nations with weaker fiscal rules, including the United States, have substantially increased their debt-to-GDP ratios. Strong, well-designed fiscal rules anchor public expectations about politicians’ responsibility to budget in a forward-looking manner. Accordingly, emergency spending exemptions can provide needed flexibility during a crisis without sacrificing economic and fiscal stability, so long as they are designed correctly.
In the last few years, some promising policy proposals have been put forward, including several that have received bipartisan attention. These reforms include two bills I spotlight in the paper, Rep. Stutzman’s Emergency Spending Accountability Act and Rep. Emmer’s Responsible Budget Targets Act, which adopt Swiss-German-style budgetary mechanisms to track and offset emergency spending. The table below highlights additional reforms I discuss in the paper:
Read the full paper here.
The author thanks Romina Boccia, Alex Nowrasteh, Ashley Mason, and Ivan Osorio for their invaluable edits and feedback during the paper review process.