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Global Spending Caps Are a Very Unserious Idea

A Real Debt Reduction Plan Would Tackle Revenues and Spending

Some conservative lawmakers are calling for a cap on total federal spending as a precondition to their support for raising the debt limit. Congress must adhere to this cap or else face automatic governmentwide spending cuts. This same idea is popping up in the Republican primary, too. The bottom line is that this is an astonishingly bad idea even for those willing to undermine the entire U.S. economy by engaging in political brinksmanship over the debt limit. The only redeeming quality of a spending cap is that it sounds good in a press release.

First and foremost, spending caps address only one side of the budget imbalance. That makes this approach half as effective at best—and counterproductive at worst—in controlling the deficit and debt. Second, a hard cap makes it next to impossible for Congress to respond to changing economic conditions or national emergencies. And third, spending caps would likely force devastating cuts to Social Security, Medicare, and Medicaid, as well as crucial investments in our economic future like education, research and development, and infrastructure.

A spending cap only deals with spending, not revenues

Those who support a total, governmentwide spending cap do so, they say, because we need to do something about the national debt. But the national debt is not a product of spending levels alone. Debt results from the gap between spending and revenue. Conservatives like to argue that spending cuts are tantamount to deficit and debt reduction. But in truth, a spending cap offers no guarantee that debt levels will actually be reduced because it only addresses one side of the balance sheet.

Some recent proposals by proponents of a cap reveal just how backwards some conservatives are in their quest to tackle the deficit. Take former Minnesota Gov. Tim Pawlenty’s recent budget proposals. He suggests a spending cap at 18 percent of GDP. But he also proposes massive tax cuts that far outweigh any spending cuts implied by his cap. The result is huge deficits and an explosion in debt.

Making matters worse, a spending cap completely ignores “tax expenditures,” which are just another form of spending that operates through the tax code. Giving a corporation a $10 direct subsidy has the same effect on the government purse as letting that corporation take $10 off of its tax bill. The cost the government bears is the same in both instances.

But because tax expenditures are formally counted as tax cuts expanding them would not break the cap. And they tend to be less transparent than direct spending programs since they do not undergo the annual appropriations process. The cap, therefore, would not cut spending at all, but would push it underground, increasing the amount of spending hidden deep in the tax code and not subject to periodical review by Congress.

So a spending cap would fail at its most basic mission—to control the growth of the debt. But that is certainly not its only major failing.

A cap makes it harder for Congress to respond to changing economic conditions or national emergencies

A cap would also be economically damaging. During downturns, a global cap on spending would force reductions in federal spending even though that is exactly opposite to what we know works to dampen and shorten recessions. “Automatic stabilizers” like unemployment insurance, Medicaid, and food stamps all increase naturally during downturns, helping to fill in the gap in economic activity caused by the contraction. But these stabilizers would be constrained under a spending cap and unable to meet the increased demand. This would both prolong and deepen recessions and deny essential public services to those in need.

A spending cap would also strip the government of the flexibility it needs to address national crises. Imagine if the federal government had to deny disaster relief to communities like Joplin, Missouri, which was recently devastated by a massive tornado, because providing aid would violate arbitrary spending caps.

In fairness, a cap could be designed such that Congress could breach it in exceptional circumstances such as during wartime, severe recessions, and natural disasters. But that’s just an admission that a spending cap is not workable in a country such as the United States that often requires our policymakers to respond to unpredictable and changing circumstances.

Capping spending forces cuts in vital services for the most vulnerable

Finally, it is important to note that while a spending cap might sound good on the surface, it would almost certainly result in draconian cuts to popular services. Consider recent legislation proposed by Sens. Bob Corker (R-TN) and Claire McCaskill (D-MO) to cap total federal spending to 20.6 percent of gross domestic product. The Center on Budget and Policy Priorities estimates that Social Security would have to be cut by at least $1.3 trillion, Medicare by $856 billion, and Medicaid by $547 billion over the 2013-2021 period to ensure spending levels stay below the Corker-McCaskill spending cap.

These levels of cuts are of greater magnitude than those proposed in the Republican budget and would likely require Congress to take the same kind of extreme steps included in that plan: voucherizing Medicare and converting Medicaid to a block grant program.

Of course, the Senate and the public already rejected that Republican budget. Six in 10 respondents opposed the Republican proposal to voucherize Medicare in a recent Quinnipiac poll. And a CBS/New York Times poll as well as a Washington Post/ABC News found similar results. In fact, the unpopularity of the Republican plan was an important factor in the May 25th by-election in New York’s 26th congressional district.

The effects of a spending cap that imposes extreme, across-the-board cuts would be no less unpopular.

A global spending cap is not the right way to deal with the deficit

Clearly, spending reductions need to be part of any deficit reduction plan. But a global spending cap simply allows lawmakers to avoid confronting the hard choices needed to reduce the deficit. Worse, this gimmick would fail to control the debt because it ignores the revenue side of the equation, and it would be economically damaging, deepening recessions and impeding the country’s ability to deal with an unforeseen crisis.

Getting control of the growing national debt is a serious challenge—one that requires serious solutions. Global spending caps may be many things—ineffective, damaging, blunt—but serious isn’t one of them.

Jordan Eizenga is a Policy Analyst at American Progress.