I have said it many times in the course of the last few months, but I will say it again: While it would be very serious if the U.S. had to default on its debt, it would be just as irresponsible to continue to pass debt-limit increases without putting in place a credible plan to reduce future government spending and put the nation back on the right fiscal track so that Treasury can eventually reduce the nation’s debt. That’s the message that S&P has been sending the U.S. government recently.
As I read the various debt-ceiling deals being mentioned in the news these days, I worry. For instance, I worry that Republicans are going to settle for some small spending cuts (it will be something that sounds big — some trillions of dollars of cuts in the growth of spending — but it will be over more than ten years, hence relatively meaningless). I also worry that instead of an attempt to reform the real source of the spending explosion, we will get some commitment to increase efficiency in health care or get rid of fraud in Medicare and Medicaid.
While spending cuts are great, real institutional reforms to constrain government spending and return to a sustainable fiscal position are even more important. Institutional reforms, as opposed to one-time cuts, change the trajectory of fiscal policy. In other words, institutional reforms need to be part of the debt-ceiling compromise, or else what’s the point?
My colleague Jason Fichtner and I have suggested a list of possible institutional reforms that could constraint spending. Here are a few:
A constitutional amendment to limit spending: Lawmakers’ inability to constraint their own spending makes spending limits enforced through the U.S. Constitution preferable.
Implement meaningful budget reforms to limit lawmakers tendency to spend. In the absence of constitutional rules, budget rules should have broad scope withfew and high-hurdle escape clauses, and minimal accounting discretion.
Mandated annual real spending caps: Research shows that if Congress cut 1 cent out of every dollar it currently spends and did it for the next 5 years, the budget would be balanced before the end of the decade.
Here are a few more ideas, from Colin Hanna, Chris Chocola, and Ken Blackwell (all heads of various limited-government groups), who suggested the following in this morning’s Wall Street Journal:
First, we must demand that spending is cut. We should make discretionary and mandatory spending reductions that would cut the deficit in half next year. Last year’s deficit was $1.6 trillion, the largest in history. We must cut our deficits now, not over 10 years.
Second, we must demand enforceable statutory caps to return federal spending to 18% of gross domestic product, where it has been for most of the past 60 years. Federal spending is now nearly 25% of GDP, which is unsustainable. If the spending cap is breached, it must trigger automatic spending reductions. Republicans in the Bush years and Democrats in the Obama years have proven that we cannot trust them when it comes to spending.
Third, we must insist on passage of a balanced budget amendment before that debt-limit vote occurs.The amendment drafted by Sen. Mike Lee (R., Utah) is a good example to follow. It requires a two-thirds vote in both houses of Congress to increase taxes and a three-fifths vote in both houses to raise the debt limit, and it requires the president to submit a balanced budget to Congress each fiscal year.
We can debate what the best institutional reforms are — I have reservations about some of the solutions listed above, mainly that they may be too weak to constrain lawmakers’ appetite for spending — but I think that implementing any one of them would be a step in the right direction, if only because it might help lawmakers focus their attention on an upcoming and necessary budget diet.
Interestingly, the director of the CBO posted the following on his “Director’s Blog” this morning:
Therefore, given the aging of the population and the rising cost of health care, the United States cannot achieve all of the following objectives in the future:
Keep federal revenues at their average share of GDP during the past 40 years.
Provide the same sorts of benefits for older Americans that we have provided in the past 40 years.
Operate the rest of the federal government in line with its role in our economy and society during the past 40 years.
First, he seems to acknowledge that “entitlement” programs will have to be reformed. Then he makes the case that, under current law, projected revenue will never be enough to cover projected spending, and therefore we must give up on the idea of keeping tax revenue as a share of the economy at 18 percent (roughly the historical average). What he doesn’t explain is how the government will be able to raise revenue to a much higher level than it has been able to in the past.