If the 118th Congress is remembered at all, it will likely be for its ineffectiveness and dysfunction, which persisted until the merciful end. In its last days, as it rushed for the exits, it put off, once again, final decisions on federal agency budgets until at least mid-March (nearly six months into the current fiscal year). This delay included military spending, which has obvious security consequences. It also left unaddressed the re-institution of a limit on total borrowing that could trigger a debt crisis in mid-2025.

　　It would have been a dispiriting display even if the nation’s financial affairs were otherwise in good order, but the opposite has been the reality for many years. Since 2008, the US has been running historically wide, and generally worsening, budget deficits, even during periods of economic growth—which was not the norm during most of American history.

　　It is tempting to blame the problem on recent subpar leadership, but that does not square with the historical record. Sadly, the fiscal deterioration and frayed and ineffectual budget processes that the outgoing Congress tolerated and amplified have been a part of the political landscape for at least a quarter century. And yet neither party is seeking a stabilizing solution. Evidently, the problem has deep roots.

　　Parallel Processes

　　The Constitution assigns control over the federal government’s finances to the nation’s elected legislative representatives. Congress writes tax laws to pay for public endeavors, and it must appropriate funds for specific purposes before the executive branch can administer its responsibilities. Congress also has the constitutional authority to limit how much the US Department of the Treasury can borrow to meet commitments that go beyond available incoming revenue.

　　Separating legislative and executive roles in budgetary decisions is fundamental to America’s conception of self-government. The chief executive is prevented from accumulating excessive power by wielding unfettered control over public resources, which the founders believed was a glaring defect of European monarchies. At the same time, the administration of public responsibilities is assigned to a single chief executive who can act with decisiveness and energy.

　　This arrangement has served the country reasonably well, especially during the long period when the federal government’s role in domestic concerns was limited and manageable.

　　With the dawn of the Progressive Era, those responsibilities expanded rapidly and dramatically, as did expenditures and public debt. Budgeting came to be seen as a needed source of information and discipline. Deliberate review of the full budget would allow elected leaders to set priorities and consider the tax burden beyond the current year, and thus also help the government manage and limit its borrowing requirements.

　　What gradually emerged was a dual-track process tied to two statutes.

　　In 1921, after several years of debate, Congress approved the Budget and Accounting Act, which created the institutional structure for the executive branch’s internal budgetary procedures. Most importantly, the president was tasked with transmitting to Congress an annual budget request covering the full executive enterprise. The Bureau of the Budget (now the Office of Management and Budget) was created to provide the staff support required to fulfill these new executive responsibilities, including the review and revision of agency budget requests.

　　Half a century later, Congress created its own framework to counterbalance the president’s submission. Institutionally, the Congressional Budget and Impoundment Control Act of 1974 created the House and Senate Budget Committees and the Congressional Budget Office (CBO). It also initiated a new process for developing congressionally specified fiscal blueprints (“budget resolutions”) and considering follow-on implementing legislation (“budget reconciliation”).

　　With these two landmark laws, the federal government has an extensive procedural construct in force that, at least in theory, makes it possible to set priorities and control debt and deficits.

　　What it does not do, however, is readily allow the elected branches to reach compromise plansthat carry weight. Instead, it remains possible, and indeed has been the norm in recent years, for the federal government to operate without guidance from anything that might be called a “budget.”

　　Instead, the president submits a fiscal plan to Congress, and Congress may or may not produce an alternative. With no budget in force, Congress and the president work on appropriations and other budget-related bills on an ad hoc basis, but not necessarily with a view toward satisfying larger fiscal goals.

　　When they do agree on an overall plan, it is generally under special circumstances, such as in 2011 when President Barack Obama and House Speaker John Boehner negotiated a ten-year framework that led to the Budget Control Act.

　　Without a regularized and familiar process for hashing out differences over priorities, the federal government can drift for extended periods without an event forcing decisions toward more discipline.

　　Budgeting has also become a complex and perilous political exercise because of the growth of major social welfare programs throughout the twentieth century.

　　That is not to say the official process is never invoked or seen as useless. On the contrary, both parties see it as a crucial tool but only if one party controls both Congress and the White House. In that scenario, Congress’s rules allow ambitious partisan bills (often involving large new expenditures or tax cuts) to pass with simple majorities in both the House and Senate (and thus no need for compromise with the other party). The incentive is to forgo bipartisan deal-making because both parties expect to be just one or two elections away from having the power to unilaterally advance their agendas.

　　A Different Government

　　Budgeting has also become a complex and perilous political exercise because of the growth of major social welfare programs throughout the twentieth century, which have put the government in a direct financial relationship with millions of individual citizens. The consequences have been vast.

　　With reliance on government programs now widespread, the nature of partisan competition has evolved, as have the style and intensity of voter engagement with the political process. For instance, following the advent of major old-age entitlement programs, voters aged 65 and older became more organized (via membership associations) and active in voicing opposition to perceived threats to their benefits.

　　As the population has aged (with fewer births and longer lifespans), the fiscal stresses from devoting so much of the budget to old-age support have grown, and yet the political imperative for most elected officials has become the protection of the status quo (and sometimes benefit expansions) rather than reform. In 2024, total spending on Social Security, Medicare, and Medicaid equaled 10.8 percent of GDP, up from 3.7 percent in 1970. That large jump in spending was not matched by an increase in revenue, which was higher in 1970 (17.4 percent of GDP) than in 2024 (17.1 percent). And yet, in December, with the government expected to run a deficit of $1.9 trillion in 2025, Congress decided to pass an expensive expansion of Social Security benefits that will widen future deficits further and hasten the program’s insolvency.

　　The US also has become a more sharply polarized society, with some of the most heated divisions centering on what, if anything, should be done about the size and scope of major social support programs. Long gone is the consensus that these programs should be reliably financed mostly by program participants, with trust funds serving as accounting devices to enforce cross-generational discipline and equity. Now, one side of the political divide contends taxing the rich is the answer (even though that has not been a major source of program financing in the past), while the other side increasingly denies there is a problem that requires corrective legislation.

　　With entitlements off the table, budget-cutting has focused on squeezing savings from appropriated accounts, including national defense, even though spending on this slice of the budget has not been the primary source of widening fiscal deficits. The Obama-Boehner agreement of 2011 put tight caps on these accounts, but the limits were later mostly set aside to make way for additional spending. In the end, benefit programs have not significantly changed, and savings from appropriations have vanished and look increasingly ill-advised in the case of national defense due to rising global threats.

　　The Complications of Healthcare

　　The US’s unique public-private health insurance system complicates budget discipline too. Debates over how to curtail federal healthcare spending inevitably become entangled with disagreements over how to fix flaws in the overall system. Advocates for expanded public coverage tend to argue that Medicare and Medicaid are, relatively speaking, somewhat restrained in terms of prices paid per service relative to private insurance, which pays much more. They argue the solution is therefore not further cutting of Medicare and Medicaid but expanded public insurance enrollment (through mechanisms like a public option). These plans can be a hard sell in budgetary terms, as expanding public control often involves higher government costs in the near term, even if they might allow for more control over total national health spending.

　　Those who oppose full governmental control prefer market-based solutions, but those are often controversial and technically complex. Further, the official budget scorekeepers are skeptical they will work, which makes them hard to pass in Congress.

　　Even though public control and market reform advocates tend to disagree on large-scale reforms, they do frequently agree on some changes within Medicare and Medicaid to lower costs. The potential savings from further cuts, such as to certain hospital fees or to private plans serving Medicare beneficiaries, are not trivial but fall short of the savings required to resolve the entire budget challenge.

　　Interventions

　　Instead of focusing on minor cuts here or there (which will likely vanish in time), elected leaders should consider the structural factors impeding a durable and lasting solution, and then act accordingly.

　　Create a Regular Order Option for Legislative-Executive Budgeting: As noted, current law does not provide a ready pathway for Congress and the president to compromise on a full budget plan. That defect can and should be corrected to allow the normal give-and-take of the legislative process, which on consequential matters almost always involves some level of executive branch involvement, to reach into fiscal planning as something to be expected rather than an extraordinary and infrequent occurrence.

　　As an example of what might be possible, the budget committees could be given explicit jurisdiction over setting annual upper limits on appropriated spending—so-called discretionary caps. These limits have been in place at various points since 1991 (including in 2024 and 2025), but they have been enacted through ad hoc negotiations rather than as a direct consequence of the regular order budget process.

　　Many US elected leaders want to restore fiscal discipline, but the current process does not facilitate effective interventions.

　　In addition to these caps, the House and Senate Budget Committees could also receive broader authority to pass binding savings targets for entitlement programs along with revenue objectives. To be effective, these targets would need to be coupled with enforcement mechanisms that would trigger automatic adjustments to meet the targets if Congress failed to pass corrective legislation.

　　Target Long-Term Fiscal Stability: The US has the capacity to borrow in public markets as needed in the short term to meet its obligations, but if credit markets conclude that the government has passed the point at which it could reasonably pay back what it is borrowing, there will be a problem. That line is a function of expected deficits over the long term. At the moment, unchecked spending on the major entitlement programs is expected to push federal debt up at a rapid rate, with no end in sight.

　　Lenders are aware of the risk but expect public officials will eventually pass corrective legislation. Congress should comply with this expectation by reorienting its fiscal planning goals toward closing long-term deficits with phased-in tax and spending adjustments. As an example, the law might set an explicit objective of stabilizing and then reducing total debt as a percentage of GDP over a twenty-year period.

　　Embed Automatic Solvency Adjustments in Social Security and Medicare: While elected leaders are reluctant to restrain spending on Social Security and Medicare, they ignore the status of the programs’ respective trust funds at their peril. That sensitivity could be leveraged to produce additional fiscal discipline through automatic changes to prevent insolvency.

　　In Social Security, the normal retirement age could be adjusted by a number of months to slow expenditure growth. Further, the replacement rate for high-wage earners could be lowered, which would also cut spending without reducing benefits for most retirees. On the tax side, the payroll tax rate could be raised to match what is saved with spending-side reforms.

　　Stabilizing Medicare would require two steps. First, Congress should limit how much the program’s Supplementary Medical Insurance trust fund can rely on general fund subsidies to meet its obligations. These transfers from the Treasury are not backed by a dedicated revenue source and therefore directly contribute to escalating federal debt.

　　Second, the numerous Medicare tax and spending parameters that are already indexed in various ways could be modified to prevent trust fund reserves from falling below an acceptable threshold. Congress would retain the option to pass new legislation as a substitute for the automatic adjustments.

　　Lower Healthcare Spending in the Public and Private Sectors with Stronger Competition and Better Patient Incentives: Although partisan disagreements abound in healthcare, there is broad support for price transparency. Congress could build on recent progress by requiring providers to disclose specific pricing for common services based on standardized definitions and allowing patients to keep the savings from picking lower-priced care. These changes could apply to both the commercial market and to Medicare and Medicaid.

　　Plan for a Sustained Increase in Defense Spending: The federal government’s first responsibility is to protect the country’s security interests, and there is an emerging consensus that meeting this commitment will require a sustained increase in defense spending. Instead of wishing away this obligation, Congress and the president should begin investing in strategically important military accounts as needed, and also plan for the investment to continue for at least a decade. Planning for strengthened deterrence should not be an excuse for overlooking the many possible ways for cutting waste in these same accounts, which could partially ease the pressure on the overall budget.

　　Acknowledging Current Realities

　　The laws governing congressional and presidential budgetary responsibilities were written in eras dominated by the annual appropriations process. That world no longer exists. Most federal spending is now directed toward benefit programs targeting individuals, which have fiscal consequences spanning multiple decades and generations. These programs do not fit well within the old construct, and yet they are far and away the most consequential forces driving up federal debt.

　　Many US elected leaders want to restore fiscal discipline, but the current process does not facilitate effective interventions. Their focus should be less on near-term cuts and more on changing the big programs to ensure they are affordable and fully financed over the medium and long-term.

　　After years of neglect, the US does not have much time for further procrastination. Staying on the current trajectory will steadily reduce the US economy’s strength and resilience. Those who are committed to avoiding such self-inflicted harm should be prepared to act decisively when the political window opens, as it will at some point, to break from current trends.