The Budget Baseline Is the Hidden Engine of Bigger Government

Most people think the federal budget process is a fight over numbers. It is not. It is a machine designed to make bigger government the only normal outcome, and then to make that growth feel like restraint. The debt and the annual deficit are just the visible symptoms. The deeper disease is quieter and far more useful to the political class. The budget process itself is built to grow spending automatically while hiding who is responsible. If you want to understand why Washington never seems to cut anything, do not start with the politicians. Start with the baseline.

The accounting trick that rigs every debate

Before Congress debates a single dollar, the Congressional Budget Office produces something called a baseline. It is a projection of what spending will be if current law continues. On paper that sounds technical and neutral. In practice it is the opposite of neutral. The baseline assumes that spending rises more or less automatically. Inflation adjustments, population growth, formula escalators, and built-in increases are all baked in before a single member of Congress casts a vote. That projected increase then becomes the new zero. And once the new zero is higher than last year's actual spending, the entire debate is rigged before it begins.

Here is the whole game in one paragraph. Suppose a program spent one hundred million dollars last year. The baseline projects one hundred and eight million dollars this year because of inflation adjustments, population formulas, or built-in escalators. Congress funds it at one hundred and five million dollars. Actual spending goes up by five percent, but the press releases and the news stories say Congress cut the program by three million dollars. That is not a cut. That is slower growth. Yet the baseline makes slower growth sound like cruelty, and actual growth sound like restraint.

This is Henry Hazlitt's lesson in reverse. Hazlitt taught us in Economics in One Lesson to look beyond the seen to the unseen. The baseline is the great unseen of modern budgeting. It is the automatic spending increase that never has to be justified, the growth that hides inside the definition of current law. We see the politician's claim that he cut spending. We do not see the spending that still went up. Milton Friedman liked to say there is no such thing as a free lunch. The baseline is how Washington hides the cost of the lunch in the fine print.

Automatic growth by design

Once you understand the baseline, you start to see the larger design. Most federal spending no longer goes through the annual appropriations process the Founders would recognize. Mandatory programs such as Social Security, Medicare, Medicaid, and a host of income-security payments grow according to formulas tied to demographics, prices, wages, and health care costs. Add in interest on the debt, and a large majority of the budget is on autopilot before Congress makes a single discretionary spending decision.

This is not an accident. The modern baseline is a creature of the Congressional Budget and Impoundment Control Act of 1974. That law was sold as a good-government reform to bring order to the budget. In practice it created an institutional starting point that assumes growth. The Congressional Budget Office is not the villain here. It follows the rules Congress wrote. The villain is the rule itself. When you hear a politician brag about cutting the rate of growth, understand what that actually means. He is still growing the government, just not as fast as the automatic formulas wanted.

What the Founders intended

The Founders did not design the federal government to run on autopilot. They gave Congress, and specifically the House of Representatives, the power of the purse for a reason. James Madison wrote in Federalist No. 58 that this power was the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people. Article I, Section 9 of the Constitution says plainly that no money shall be drawn from the Treasury but in consequence of appropriations made by law.

The idea was simple and radical. Every dollar the government spent would have to be affirmatively voted on by representatives the people could fire. Accountability would be direct. The power of the purse would sit close to the people. That is not what happens today. Most federal spending now runs through mandatory programs and interest payments, formulas and entitlements that grow without an annual vote. The discretionary spending Congress actually debates is a smaller and smaller share of the whole. Even that debate is often crammed into an omnibus thousands of pages long, released at the last minute and passed before anyone can read it. Continuing resolutions keep the machine running without a real decision. The baseline sets the terms. The power of the purse has become the power to ratify a projection. This is not budgeting. It is the administrative state on automatic pilot.

The seen and the unseen

The baseline creates a permanent illusion. When a member of Congress votes for one hundred and five million dollars instead of the one hundred and eight million dollar baseline, the visible vote is a cut. The unseen facts are that the program still grew by five million dollars, that this hidden growth now becomes next year's floor, and that no one had to justify why one hundred and five million dollars was needed rather than ninety-five million dollars, or zero.

This is the broken-window fallacy in reverse. Hazlitt warned that a bad economist sees only the immediate effects of a policy. Modern budgeting is designed so that the public sees only the immediate so-called cut, while the long-run growth of government remains invisible. Thomas Sowell spent his career warning about the gap between intentions and results. The people who built the modern budget process may have intended order. The result is a government that spends more every year and a citizenry that cannot tell who is responsible.

A better way

A real budget process would be almost embarrassingly simple. We do not need zero-based budgeting. Last year's actuals would be a fine place to start. The starting point for any program should be what it actually spent last year, not a projected baseline. If a program spent one hundred million dollars last year, the starting point is one hundred million dollars. If advocates want one hundred and eight million dollars, they should have to stand up and vote for the increase. That single change would do more to slow the growth of government than a hundred deficit commissions.

Congress should also require separate, readable votes. No omnibus bills. No continuing resolution that becomes a way of life. If a formula grows automatically, make it a law and make members vote on it on the record. If a program is too popular to cut, it should be popular enough to defend in the open. Mandatory spending should be reauthorized on a schedule. Entitlement programs should not run on permanent autopilot. Their formulas should be revisited and voted on, not treated as facts of nature. A cost-of-living adjustment is a spending increase. A new beneficiary is a spending decision. The people who make those decisions should have to sign their names.

Finally, the whole budget should be under control. The Constitution does not have an off-budget category. Interest on the debt is a spending program like any other. It is the price of past overspending. Mandatory spending, interest, and the so-called untouchable programs must be part of the same debate as everything else. The moment you wall off most of the budget, you have stopped writing a budget and started managing a slush fund.

The stakes

This is not a technical reform. It is a constitutional restoration. Friedrich Hayek warned that central planners can never know enough to run a free people's affairs. The modern budget process is the knowledge problem in action. Formulas in Washington cannot know the local conditions, priorities, and values of a family in Ohio or a small business in Texas. But the process removes something even more important than information. It removes the feedback. A representative used to have to justify spending with a vote. Now the baseline does the justifying.

The budget process sounds dull. It is not. It is where liberty is won or lost. A government that can spend without a visible, accountable decision is a government that will keep growing. The baseline is not a neutral accounting tool. It is the quiet engine of the administrative state. It turns no into less of an increase, and then calls that a victory. The first step to restoring the republic is not a new tax or a new program. It is to make Washington look at the real numbers, and make it vote.