Why I Hate Budget Caps
I hate budget caps.
They are arbitrary and beg to be gamed. It is irresponsible to make one that is absolutely unbreakable, even in the face of an economic depression or other national catastrophe. Yet even the most well-intended exception will open the door to wholesale abuse.
Caps–and the triggers needed to enforce them– are supposed to be a last resort for legislators. Yet, they perversely encourage stalemate by providing an easy fallback in the face of gridlock. By mindlessly but automatically slashing spending or raising taxes across-the-board, they permit Congress to avoid setting national priorities though, last I looked, this is why lawmakers are here.
Mostly though, caps only work during those rare moments when Congress wants to be fiscally responsible. When Congress prefers profligacy—which is most of the time—they become little more than an inconvenience. And it is never good for democracy when lawmakers routinely ignore the law.
Supporters argue that these process reforms at least slow Congress’ mania to spend too much and tax too little. Maybe. But it won’t take long before the next set of caps-and-triggers joins paygo and Gramm Rudman Hollings on the ash heap of failed schemes aimed at saving Congress from itself.
All that said, when Congress and President Obama finally reach a debt limit deal sometime this summer, some form of cap probably will be included in the package. So, we are left with the question: What kind?
My least favorite is a ceiling on spending only, such as the one proposed by senators Bob Corker (R-TN) and Claire McCaskill (D-MO). They’d cap all federal spending at 20.6 percent of Gross Domestic Product. It is, they say, the average level of outlays over the past 40 years. What’s magic about 40 years? Beats me. Why do they assume that the level of spending over the past four decades is also correct for the next four? Who knows?
Their cap would cover all spending, including Medicare, Medicaid, and Social Security. So, if outlays exceeded 20.6 percent of GDP, Social Security checks would shrink and doctors who treat the poor or the elderly would see their pay cut. Paradoxically, as the population ages and demand for these programs increases, the Corker-McCacskill cap would force ever-deeper cuts.
However, because the cap is on spending only, the $1 trillion in government subsidies administered through the tax code would be untouched. While Social Security benefits are reduced, top-bracket taxpayers would continue to enjoy a full tax deduction for the mortgage on their $950,000 home.
Obama, Senate Democratic Leader Harry Reid, and Senate Finance Committee Chairman Max Baucus have another idea: They’d put a cap on the deficit, not just on spending. In their design, if the deficit ceiling is breached, Congress would automatically slash spending and raise taxes. In theory, at least, this makes more sense since it recognizes that budget cutting needs to include both revenues and spending.
Yet, the Obama version (he calls it a “debt failsafe trigger”) has its own flaws. While Corker-McCaskill would exempt revenues, Obama would protect Medicare, Social Security, and most low-income benefit programs from automatic cuts if the deficit exceeds agree-upon limits. He’d put most of the burden on military spending and taxes, which is just as foolish as protecting tax subsidies.
There are plenty of other variations on the theme—some better than these two, some worse. The Concord Coalition has a nice summary here. The Bipartisan Fiscal Commission proposed its version last year, so did the chairs of Obama’s fiscal panel. The budget resolution passed by the House last month included one too.
The game here is pretty obvious. Both political parties are using the debate over caps as yet another proxy for a fundamental philosophical disagreement: Is the current fiscal challenge an excessive deficit or a bloated government? I’d just as soon Congress use its energies to actually cut spending and raise taxes rather than waste time arguing over a budget process it is likely to ignore anyway.