Spending Cap Is Bad No Matter How You Slice It

Important Programs Will Be Slashed

Michael Linden and Michael Ettlinger show how the spending cap conservatives are proposing involves major cuts to critical programs no matter how it’s accomplished.

President Ronald Reagan works at his desk in the Oval Office of the White House as he prepares a speech on tax revision.
<br /> (AP/Scott Stewart)
President Ronald Reagan works at his desk in the Oval Office of the White House as he prepares a speech on tax revision.
(AP/Scott Stewart)

This week the House of Representatives will consider a plan that would effectively limit total federal spending to 18 percent of gross domestic product—the broadest measure of the national economy. Eighteen percent of GDP is absurdly low for a modern economy and society:

  • The last time federal spending was at 18 percent of GDP or lower was 1966—a time when the country’s needs, responsibilities, and even demographics were quite different from what they are today.
  • No president in the last 50 years has even proposed a budget that would bring spending below 18 percent of GDP.
  • Each of President Ronald Reagan’s budgets proposed spending above 21 percent of GDP.
  • The budget plan passed by the Republican-led House of Representatives has spending levels above 18 percent of GDP for the next 30 years—even after its draconian cuts to Medicare, Medicaid, and domestic investments.

What would it actually take to bring spending down to 18 percent of GDP? Of course, there are lots of different ways Congress could try to accomplish that goal. It could focus most of the cuts in one area or another, and try to protect this program or that. But it turns out that the level of cuts required is so dramatic that any way you slice it, Congress would end up making severe cuts to some very important programs.

The following table provides some illustrative examples for how federal spending could be slashed if an 18 percent cap were in place in 2016*—a year for which current spending projections are well-enough clear of the lingering impact of the Great Recession to paint a fair picture but close enough to be reasonably dependable.

The first budget spreads the cuts around equally—cutting everything by 25 percent. The next three budgets protect Social Security and cut less from Medicare and Medicaid, which means they also cut far more from everything else. And the final budget shows the cuts that would be necessary if Congress wanted to protect the Pentagon as well as seniors from truly devastating cuts.

Michael Linden is Director of Tax and Budget Policy and Michael Ettlinger is Vice President for Economic Policy at American Progress.

* The legislation before the House, H.R. 2560, includes specific annual caps on federal spending from 2012–2021 that exceed 18 percent of gross domestic product. The bill also effectively endorses, however, a constitutional amendment that would cap federal spending at 18 percent of GDP by requiring congressional approval of such an amendment before allowing any increase in the debt ceiling. We chose 2016 as our example year for what it would take to cut spending to 18 percent of GDP because it is far enough in the future to avoid the effects of the Great Recession, but close enough to be reasonably dependable. A similar analysis of a later year would actually show that even larger cuts would be necessary.

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Michael Linden

Managing Director, Economic Policy

Michael Ettlinger

Vice President, Economic Policy