The Corner

The Spending Reduction Act in Perspective

On Thursday, Rep. Jim Jordan, chairman of the Republican Study Committee (RSC), Rep. Scott Garrett (R., N.J.), chairman of the RSC Budget and Spending Task Force, and Sen. Jim DeMint (R., S.C.), chairman of the Senate Steering Committee, unveiled the Spending Reduction Act.

As expected, many commented on how deep the cuts in the plan were. For instance, Ezra Klein gave a good summary of the bill and wrote, “For all that, this is a healthy document: It shows what very deep cuts in spending would actually look like.” Over at the Washington Post, Lori Montgomery wrote that “Congressional conservatives on Thursday demanded far more dramatic reductions in government spending than House GOP leaders have recently proposed.” Bradford Plumer of The New Republic noted, “That’s not a tiny incision—we’re well beyond ‘waste, fraud, and abuse.’” David Roberts, over at Grist, explained that “Tens of thousands of jobs would be lost, though of course Republicans don’t acknowledge that, because in their worldview it is Revealed Truth that, as Jordan put it, ‘if you reduce federal government spending, you actually create jobs.’” In a blog post called “The GOP’s Radical Deficit Plan,” the Daily Beast quoted the legislative director for Iraq and Afghanistan Veterans of America, Tim Embree: “Cuts to discretionary spending would be pretty devastating.”

Interestingly, some of these comments  really make it sound as if this plan is on track to trim half off the $3.6 trillion budget. But is that the case? Not at all. In fact, the plan would hardly make a dent to our gigantic and growing federal budget. Here is why: The plan’s main feature is  to return non-defense, non-security discretionary spending to the FY2006 level (that’s $409 billion). For instance, under the plan, instead of spending $572 billion in FY2012, the RSC plan would spend $409 billion, and so on and so forth. On the last year, FY2021, the plan would spend $409 billion instead of the projected $710 billion.

However, the cuts are very small if compared to the amount that the federal government will continue to spend in the next ten years. That’s because the plan focuses exclusively on non-defense, non-security spending — which is a small share of the overall budget — while the other parts continue to growth fast. For instance, the plan includes no cuts to the defense budget and no real entitlement reform, especially to Medicare (though it prohibits any FY2011 funding from being used to carry out any provision of the Democrats’ government takeover of health care, or to defend the health-care law against any lawsuit challenging any provision of the act, and includes some Medicaid cuts).

In the end, this plan, which Chairman Jordan described at the Heritage Foundation as “a first step” that “doesn’t fix everything,” is hardly the heartless plan that many would like us to believe it is. Check out the chart below. The top line is the projected spending under the CBO baseline and the bottom line is the projected spending under the RSC plan (The 2011 figure represents the total savings that year.  The 2012-2021 is the difference between holding at FY2006 levels for non-defense discretionary and CBO baseline as of most recent update, August 2010 (note that the $30 billion in cuts to Freddie and Fannie are not included here). 

Chairman Jordan seems to understand it, since he laid out the actual steps Congress next needs to take to reduce spending: First, put everything on the table including defense and entitlement. Second, reform welfare spending.

I have to admit that I was glad to hear it, because I was about to give up hope that real spending reforms may ever take place in Washington before a financial collapse forces Congress to make these changes. However, I do wonder what the comments will be if and when Congress actually introduces the necessary reforms to cut spending to a sustainable level.

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