Federal spending has increased 45 percent in the past five years; the government has run deficits in thirty-three of the past thirty-seven years; the costs of programs for the elderly are set to balloon and impose huge burdens on coming generations of young workers.
Clearly, policymakers are failing to run a “wise and frugal government,” as Thomas Jefferson advised in his first inaugural address. A key problem is that federal budget rules stack the deck in favor of continual program expansion. The costly Medicare drug bill and the explosion in pork spending illustrate how a lack of structural controls leads to an undisciplined scramble to spend, spend, spend.
At the state level, some discipline is maintained by more extensive budgetary controls. For example, every state (except Vermont) has a statutory or constitutional requirement to balance its budget. In addition, about 20 states have some form of overall limit on revenues or spending. Colorado’s constitution caps state revenue growth at the sum of population growth plus inflation. Excess revenues above the cap are refunded to taxpayers. That sort of budget cap is what Washington sorely needs.
Congress has occasionally experimented with budget caps. The Gramm-Rudman-Hollings (GRH) Act of 1985 imposed a series of declining-deficit targets over five years. If a year’s deficit target was not met, the president would automatically cut, or sequester, spending on a broad range of programs. Congress replaced GRH with the Budget Enforcement Act (BEA) of 1990. The BEA imposed annual dollar caps on discretionary spending and made it more difficult to expand entitlement programs.
Bolder budget reforms have narrowly failed to pass. In 1982, the Senate passed a balanced-budget amendment to the Constitution by a vote of 69 to 31, but the amendment failed to gain the needed two-thirds approval in the House. In 1995, the House passed a balanced-budget amendment by a huge 300 to 132 margin, but it fell one vote short in the Senate.
Today’s reformers are pursuing statutory rather than constitutional methods of budget control. And the focus is on spending control, not deficit reduction, because of recognition that deficits are simply a byproduct of the overspending problem.
Representatives John Campbell (R, Calif.), Todd Akin (R., Mo.), and others are introducing bills to place a statutory cap on the annual growth in total federal spending. Such a cap would cover not just discretionary spending as under the BEA, but entitlement programs as well. That makes sense because it is the entitlements that are pushing the government toward a financial crisis.
Under a cap, spending growth would be limited to the growth of an indicator such as gross domestic product or personal income. Another cap option would be the sum of population growth plus inflation. For example, if population grew by 1 percent and inflation by 3 percent, then federal spending could grow at most by 4 percent. A cap would help ensure that government doesn’t consume an increasing share of the economy, as it will under business-as-usual policies in Washington. If the fiscal year ended and a cap was breeched, the president would be required to cut spending across-the-board by the percentage needed to meet the cap. GRH and the BEA had sequester mechanisms, but they covered only portions of the budget.
A spending cap won’t solve all our fiscal problems. It would provide protection against a worst-case scenario of further Bush-sized spending increases, but it wouldn’t ensure that Congress would pursue a proactive reform plan, such as the new plan from the House Republican Study Committee.
Another shortcoming of a budget cap is that if policymakers decided they didn’t want to comply with it, they could repeal it. With a cap in place, however, conservatives inside and outside of Congress would have a high-profile symbol of fiscal restraint to defend. Over time, public awareness and budgetary tradition would also aid in the enforcement of a cap.
Conservatives need new reform ideas to rally around. Going into the 2006 elections and 2008 presidential primaries, every candidate will claim to be fiscally responsible and will express grave concerns about overspending and the deficit. Most candidates will also be lying.
A cap on spending, which would be a clear litmus test of each candidate’s budget beliefs, is a reform idea that Congress could start debating right away. Should the government’s budget continue growing faster than the average family’s budget? Or should policymakers be required to make trade-offs and cut low-priority programs? If Republican leaders believe the latter, they should embrace a comprehensive cap on federal spending. Doing so may also revive support from their increasingly skeptical conservative base.
– Chris Edwards is tax director at the Cato Institute and author of Downsizing the Federal Government.