Time to Bring Back Caps

As the Senate continues its consideration of the debt ceiling today, it will consider at least three important budgetary amendments - a deficit commission supported by Senators Conrad and Gregg, statutory pay-as-you-go rules to be introduced by Senator Reid, and discretionary budget caps supported by Senators Sessions and McCaskill. We've voiced our support for the deficit commission, and comprehensive PAYGO (without exemptions) before; but just as important is the implementation of discretionary spending caps.

Along with PAYGO, these types of caps are a valuable and co-necessary tool to stop the debt situation from getting any worse.

For all our talk about entitlements and mandatory spending, it is important to remember that discretionary spending makes up nearly 40 percent of the budget. And historically -- over the past decade, especially -- this area of the budget has grown tremendously, at a faster pace than entitlement spending, in fact.

If regular (non-war, non-stimulus) discretionary spending were to simply grow with the economy over the next decade (a slower pace than its historical average, by the way), we calculate it would cost an extra $1.7 trillion plus interest, relative to the CBO baseline. As we wrote recently in a paper on discretionary spending:

"Over the past decade, discretionary spending has grown faster than mandatory. Between 1999 and 2008, mandatory spending grew by an annual average of 6.4 percent, from about $900 billion to almost $1.6 trillion. Discretionary spending grew annually, on average, by 7.5 percent – from less than $570 billion to over $1.1 trillion... Although the CBO baseline makes it appear as if discretionary spending will grow only modestly, more realistic assumptions tell a different story"
"Just holding discretionary spending growth to inflation – with strong enforceable spending caps – would be a positive step. In the 1990s, it was these types of caps, along with pay-as-you-go rules, strong economic growth, slower-than-usual health care cost growth, and a commitment to deficit reduction that led to budget surpluses."

That is why the amendment proposed by Senator Sessions and Senator McCaskill is so important.

Generally speaking, they would cap defense and non-defense discretionary spending at the levels in the President's Budget for the next five years. There would be some exceptions for war spending, program integrity adjustments (spending designed to save money by cutting waste, fraud, and abuse), and emergency spending, but the caps would be relatively rigid. Absent a new law, waiving the caps would require a two thirds majority.

These caps, of course, will not be nearly enough to stabilize our debt. We need to reform Social Security, Medicare, Medicaid, and the tax code (all things which we hope the commission will consider). But discretionary spending caps -- especially if accompanied by statutory PAYGO --  can slow the bleeding. And they would signal,  for the first time in a long time, that the United States is committed to getting its fiscal house in order.