In the proposal, spending caps would begin in 2013 at an effective rate of 22.25 percent of GDP, and this cap will be incrementally decreased each year over the course of the decade. Caps would be enforced through a sequester, and require a two-thirds vote in both Houses to be exceeded.
CRFB applauds this attempt to address our burgeoning debt, and is a supporter of identifying budget process reforms to help stabilize the debt. Importantly, the CAP Act looks beyond simply cutting spending in 2011 and puts forward a medium term spending framework.
The caps are, however, quite severe -- bringing total spending down to below 21 percent of GDP whereas other fiscal plans out there have had a hard time getting it down to 22 percent. In addition, the plan exempts tax expenditures, which could lead politicians to simply substitute spending through the tax code for traditional spending.
Still, aggregate spending caps such as these certainly merit consideration, and such proposals are quite helpful in moving the fiscal conversation forward. By moving beyond discretionary spending caps, the CAP Act recognizes that all areas of the budget -- not just domestic discretionary spending -- must be subject to scrutiny. We agree.
The Commitment to American Prosperity Act of 2011, or "the CAP Act," would amend the Balanced Budget and Emergency Deficit Control Act of 1985 (Gramm-Rudman-Hollings Act) to require the Office of Management and Budget to keep federal spending within a limit determined by the size of the nation's gross domestic product. If federal spending outlays are projected to exceed predetermined limits, a sequestration process would take place to block that spending.
The legislation prescribes requirements for the Congressional Budget Office and the Office of Management and Budget advisory sequestration preview reports and an OMB final sequestration report, accompanied by a presidential order detailing the uniform spending reduction. If a sequestration is expected to be necessary, the House and the Senate budget committees would be required to report a resolution directing their committees to change existing law to achieve the goals outlined in a budget report the OMB would submit on August 20.
The legislation would allow total federal outlays to exceed the GDP outlay limit if during the fiscal year the excess amount is being paid to reduce the public debt or if the public debt is zero. If, after November 15 of a fiscal year, a bill resulting in outlays for the current fiscal year is enacted that causes excess outlays, the excess outlays for the next fiscal year would be increased by the amount or amounts of that breach.
The bill would also amend the Congressional Budget Act of 1974 to make it out of order in both chambers to consider any bill, joint resolution, amendment, or conference report that includes any provision that would cause the most recently reported current GDP outlay limits in the Gramm-Rudman-Hollings Act to be exceeded. A two-thirds vote in the House and Senate would be required to waive this requirement.
The Middle-Class Position:
Members of Congress from both parties find a "spending cap" that would automatically limit federal spending to a percentage of the nation's total economic growth to be a politically attractive way to show they are taking the need to control the federal deficit seriously. But if Congress chooses this path, the consequences would be calamitous: deep cuts in Social Security and Medicare, broad slashes or outright elimination of programs supported by the middle class, and a government rendered incapable of responding to the next economic downturn.
As much as the fiscal 2012 Republican budget proposal by Rep. Paul Ryan threatens middle-class priorities, economist and former Labor Department secretary Robert Reich called this spending cap proposal, sponsored by Sens. Bob Corker, R-Tenn., and Claire McCaskill, D-Mo., "the Ryan plan with lipstick"—and sharper claws.