This paper will elaborately examine a vast array of aspects regarding a scholarly article titled: Budgeting for Mandatory Spending: Prologue to Reform. The thesis will be primarily aimed at identifying the requisite issues and points the author tries to make, followed by the various methods and evidence that will succinctly establish the experimental strategies incorporated as well as the inferences found. In addition, the article’s candid contribution to literature alongside the various implications and recommendations to the underlying issues will be explored in a bid to establish the significance of the research and how it can be useful heading into the future.
Thesis:
In the article dubbed: Budgeting for Mandatory Spending: Prologue to Reform, the author, Marvin Phaup, attempts to identify a feature of the national budget process, which increases the difficulties for stakeholders and policymakers of restraining the increase and growth of compulsory spending to sustainable and reasonable rates. This boils down to budgetary accounting, whereby the incorporation of cash-basis accounting, narrow description of debt, as well as on-budget payment accounts typically defer acknowledgment of costs of compulsory spending until all the benefits are not only payable but also politically unavoidable. Additionally, the author avers that acting to control prospective or future costs are intricately more sophisticated and challenging to policymakers than addressing current costs as is obligated. In this regard, this paper aims to propose a trial of an alternative approach to budgetary accounting specifically for compulsory spending, which instrumentally recognizes costs even as they accrue.
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Methods:
In conducting research for this article, Marvin Phaup employed a number of salient methods and techniques to compile data and draw formidable inferences. First, the author categorically looks into the current accounting process, which he notes fails to support budgeting for compulsory spending owing to its failure to acknowledge costs when they are controllable at the time and choice of incurring them.
To further explore the crucial subject of budgeting for mandatory spending, Marvin Phaup delves into more in-depth details by scrutinizing the current budgetary treatment of three standard and compulsory programs: pension plan, Disability Insurance (OASDI), Old-Age, Survivors and the Federal Employees Thrift Savings Plan (TSP). In his analysis, the author succinctly highlights key accounting distinctions between OASDI and defined benefit programs, and partly with TSP. In addition, Marvin Phaup explores the current practices in respect to cash flow between Agency, CSRD Fund, EMP, retirees, and the treasury. Critically analyzing the financial statistics of various social programs and organizations such as the federal pension plan FERS, alongside other plans such as Medicare and Medicaid were yet other efficacious methods that Marvin Phaup employed to conduct his thorough research and consequently make the documented inferences and proposals.
Evidence:
The national debt and GDP, according to the current U.S budget policies, is imminently projected to increase without any predictable limits (Congressional Budget Office, 2018). As such, this path insinuates commensurate net taxes in the future, increasing the risks of debt-oriented fiscal crises significantly, and restricting the potential of the federal government to respond to prospective changed priorities and shocks. Additionally, it increases the likelihood that the government shall rely more on newly created cash to finance and cater to its various obligations. Based on these reasons, it is thus apparent that the outcomes will consequently threaten the social, political, and economic stability of the nation.
In this regard, Marvin Phaup categorically denotes that the incessant growth in mandatory or compulsory spending is a proximate driver and causative factor of the ever-rising debts. Mandatory spending currently accounts for roughly two-thirds of the national outlays (Peterson, 2018). The payments are majorly for Medicare, Social Security, Medicaid, military pensions, federal civilian, alongside many other insurance and safety net programs. The author also notes that this compulsory spending exponentially grows by the day, especially considering the ballooning numbers of eligible beneficiaries.
The current policy on the mandatory payments subject, according to the author’s evidence, comes with a fair share of risks and uncertainties (Phaup, 2018). While the Office of the President, as well as Congress, are wary of these risks, they procrastinate. Instead of addressing the existent and underlying balances, the government authorities are more inclined to increasing spending and cutting more taxes on the population.
Based on the claims and evidence posed by the author, it is thus arguable that the current process significantly fails to support financial budgeting for compulsory spending by the government. Indeed, this is due to the failure to effectively recognize costs, especially when they are controllable upon the choice to incur them. Relatively, current accounting usually recognizes cost when the payments are wired to beneficiaries or even on their behalf. As such, this is when non-payment can become a grave breach of the stipulated and acceptable norms of behavior. In essence, this insinuates that the current accounting process and practice give more prominence in the budget process to a measure of cost that is not only unavoidable but also politically sunk.
The article’s argumentation also finds that the federal agencies’ contributions to the Fund neither affect budget outlays nor the deficit until all the benefits are remitted to annuitants. However, employee contributions cross the boundaries of the budget when paid. In the same vein, annuity payments made by the Fund substantially increase budget outlays as well as the deficit when remitted or paid.
Contribution to Literature:
The in-depth research and studies that were undertaken by Marvin Phaup in his article have made immense contributions to literature. Existent literature denotes that people often demonstrate a consistently present bias in consumption decisions as well as a tendency to adopt social and personal strategies to restrain this impulse (Robinson, Hammitt, & Loomis, 2011). On this note, therefore, Martin Phaup’s research article has contributed to this literature by depicting that alongside private forced saving contracts, home mortgages and life insurance schemes, people use the federal government’s coercion to smooth life-cycle spending and consumptions, for instance, through Medicare, Social Security, and pensions among many others.
Perhaps the article’s main contribution to literature is categorically noting that when it comes to mandatory spending, policymakers and key decision-making stakeholders have since inherited a budgetary accounting framework or system that is poorly suited and ineffective in managing compulsory spending for reliability and sustainability. As such, the current system inhibits the consecutive adoption of corrective adjustments by highlighting the sunk legacy costs and expenses as opposed to efficiently manageable incremental costs.
Recommendations and Implications :
In light of the article and the compelling statistical data and financial analysis therein, it is thus recommendable that the current policies on mandatory spending require various reforms and changes to ensure enhanced reliability and sustainability levels, especially on the federal coffers. On this note, an important recommendation is the creation of an accounting framework that saliently recognizes and incepts an accruing and controllable cost and value for deferred payment obligations. Such an accounting process has great probabilities to increase the social welfare of the citizenry by a significant proportion, majorly by facilitating the legislative management of compulsory spending. Such an accounting system could thereby increase the value, reliability, and efficiency of the government’s commitments and functions. In addition, it goes a long way in holding promise of substantially reducing dead-weight losses and similar ramifications accrued from future increase of taxes as well as consumption reductions, alongside mitigating or averting the risks and uncertainties of economic and social turmoil from a considerable cutback in a strongly implied and longstanding government commitments (Phaup, 2018).
These recommendations have further significant implications. As such, the proposed changes and reforms may have strong appeal not only for progressives but also fiscal conservatives. For progressives, it insinuates decision makers’ firm resolve to honor their past commitments and avert the anxieties and uncertainties of the constituents regarding the current law stipulations and requirements, which essentially state that benefits should be reduced up to receipts levels, whenever Fund balances diminish. For fiscal conservatives, the proposed changes and reforms provide an indispensable measure of the current period costs, equally concurrent with the costs of discretionary spending. Nonetheless, in both cases and scenarios, it may ideally create a convenient political space that will be an enabler for transitioning to a more equitable, sustainable, and efficient social insurance program (Phaup, 2018).
Nevertheless, one may not fully anticipate the various implications and effects of process change, or even the elaborately detailed manner in which the proposed reforms and changes should be enacted. Therefore, the proposals in the article could be subscribed to a well-defined and limited pilot trial prior to considerations of the application to compulsory programs.
References
Congressional Budget Office. (2018, April 9). The Budget and Economic Outlook . Retrieved from www.cbo.gov: https://www.cbo.gov/publication/53651
Peterson, P. (2018). Mandatory Spending . Retrieved from www.pgpf.org: https://www.pgpf.org/finding-solutions/understanding-the-budget/spending
Phaup, M. (2018). Budgeting for Mandatory Spending: Prologue. Public Budgeting & Finance , 2.
Robinson, L., Hammitt, J., & Loomis, J. (2011). Behavioral Economics, Distribution, and Benefit-Cost Analysis. Behavioral Economics Journal .
