The Congressional Budget and Impoundment Control Act of 1974 (ICA) fundamentally reshaped the federal budget process, reasserting Congress’s control over the nation’s purse strings. Passed in response to executive overreach, it introduced mechanisms that remain pivotal in U.S. fiscal policy today.

Historical Context

In the early 1970s, President Richard Nixon’s use of impoundment—withholding funds appropriated by Congress for programs he opposed—sparked constitutional concerns. Critics accused Nixon of undermining Congress’s authority to control federal spending, a power explicitly enshrined in Article I of the Constitution. To address this overreach, Congress passed the ICA with overwhelming support, overriding Nixon’s veto. This legislation not only curtailed the executive’s ability to impound funds but also established a structured budgetary process. This law included provisions creating or implementing the following:

• Congressional Budget Office (CBO): A nonpartisan agency established to provide independent economic data and budgetary analysis to Congress, ensuring lawmakers have tools to challenge executive influence and do not have to rely on the Office of Management and Budget.
• Budget Committees: Dedicated committees in the House and Senate were tasked with drafting an annual concurrent budget resolution to set fiscal policy and spending limits.
• Impoundment Control: Title X of the Act restricted the president’s ability to unilaterally withhold funds. The President can still propose rescissions of appropriated funds, but those rescissions now require congressional approval, and Congress does not have to take up these proposals.
• Fiscal Year Adjustment: The start of the federal fiscal year was shifted from July 1 to October 1, giving Congress more time to review the president’s budget proposals which are traditionally released in February.

The CBO’s budget baseline and scoring system provides critical benchmarks for evaluating legislative proposals. The CBO’s baseline projects federal revenues, spending, and deficits over a ten-year period under current law. It includes information on the following:

1. Economic Forecasts: GDP growth, inflation, and other economic indicators.
2. Mandatory Spending: Projections for entitlement programs like Social Security and Medicare.
3. Discretionary Spending: Estimates based on enacted appropriations, adjusted for inflation.
4. Revenue Projections: Based on current tax laws.
5. Net Interest Costs: Expected payments on the national debt.

The CBO also evaluates how proposed bills will affect the federal budget over the next decade. This scoring process helps Congress understand whether legislation will increase or decrease deficits. Despite its value, the CBO process faces challenges, including:

• Baseline Assumptions: Projections often assume inflation-adjusted spending growth and program extensions, which can distort fiscal outlooks.
• Budget Gimmicks: Temporary measures, such as tax cuts with sunset provisions, can mask long-term fiscal impacts.
• Political Pressures: While nonpartisan, CBO analyses often become focal points in partisan debates.

The debate between current law and current policy baselines is central to budgetary analysis. The distinction affects how legislative proposals are scored, particularly regarding tax cuts and entitlement programs.

• Current Law Baseline: Assumes all laws expire as scheduled, providing a conservative projection. This highlights the fiscal impact of extending temporary measures.
• Current Policy Baseline: Assumes temporary measures will continue indefinitely, offering a more stable but potentially less realistic projection.

The choice of baseline has profound implications for fiscal transparency and accountability. While current law baselines provide a clearer picture of costs, current policy baselines can reflect legislative realities.

• Tax Cuts: Expiring provisions, like those in the 2017 Tax Cuts and Jobs Act, appear to add to deficits under a current law baseline but not under a current policy baseline. Tax cuts can also be sunset before the end of the 10-year budget window, making them appear less expensive. This was done with the tax cuts in 2001, 2003, and 2017.
• Entitlement Programs: Current law baselines assume spending reductions if trust funds are depleted, while current policy baselines assume full benefits regardless of funding.

These different systems and ongoing debates highlight just how complicated federal budgeting can be. They also show why independent analysis matters and why achieving real fiscal responsibility remains such a challenge—especially in today’s politically charged climate.

In CBO’s own words:

CBO does not attempt to predict the ways in which the Congress might amend existing laws or modify legislative proposals being considered. Therefore, the agency’s baseline budget and economic projections generally follow current laws (as well as rules for constructing baseline projections that are specified in law or that CBO and the Budget Committees have developed). In addition, CBO regularly shows the effects of adopting alternative policies that have been discussed by the Congress.

How particular federal programs, the budget as a whole, and the U.S. economy would evolve under current law is often uncertain, as are the effects of legislation being considered by the Congress. CBO aims to develop estimates that are in the middle of the range of likely outcomes and to clearly communicate the basis for those estimates and their uncertainty. In addition, the agency describes and explains the revisions to its budget and economic projections, and it reports on the accuracy of those projections.

This underscores CBO’s role in providing objective, law-based projections rather than predicting legislative outcomes.