July 20, 2011

What is Cut, Cap and Balance?

Carroll Andrew Morse

The Republican "Cut, Cap and Balance" plan for addressing the tendency of government budgets to increase towards infinity passed the House yesterday. President Obama has said he would veto at least an earlier version, and Rhode Island Representatives James Langevin and David Cicilline both voted against it.

Title I of the bill is the cut, which would be an immediate cut in the 2012 Federal spending total Various news reports place the size of the cut at $111 billion. The direct language in the bill says that spending on Social Security, Medicare, veterans’ benefits, net interest on the debt would be exempt from cuts, and spending on the global war on terrorism would have its own cap.

In March, Brian Riedl of the Heritage Foundation, using numbers from the Office of Management and Budget, estimated a total of $3.7 trillion in outlays to be made by the Federal government in 2012 (including interest on the debt). According to his numbers, the exempted programs account for about $1.8 trillion, which means that the $111 billion in cuts will have to come from a total of about $1.9 trillion from the remaining programs, a cut of about 6%.

Title II is the cap: An annual federal spending cap, as a percetange of total GDP, would be phased in. The schedule would be...

21.7 percent for fiscal year 2013;
20.8 percent for fiscal year 2014;
20.2 percent for fiscal year 2015;
20.1 percent for fiscal year 2016;
19.9 percent for fiscal year 2017;
19.7 percent for fiscal year 2018;
19.9 percent for fiscal year 2019;
19.9 percent for fiscal year 2020;
19.9 percent for fiscal year 2021.
If I understand blogger and former director of the President's National Economic Council Keith Hennessy correctly, the caps would be enforced by (almost) across-the board reductions in Federal spending needed to hit the targets, if an initial budget was submitted that exceeded them. It is "almost" across the board, because payments for military personnel accounts, TRICARE for Life, Medicare, military retirement, Social Security, veterans, and net interest would be exempt from the automatic reductions.

Title III is the balance: An increase in the debt-ceiling of the United States would be triggered by the passage of a balanced-budget constitutional amendment by both houses of Congress. (It would not become the law of the land, of course, until ratified by 3/4ths of state legislatures after that).

Arguably, the "balance" is a radical approach to the problem, at least in a procedural sense -- asking for a constitutional amendment to solve an immediate problem is a tall order. But that issue aside, what's radical about the "cutting" and "capping" provisions?

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So Carroll, is there actually anything good about this bill? It cuts the equivalent of pennies between the cushions year 1, caps federal spending at levels well beyond the post WWII avg of tax revenue as a share of GDP, necessitating further increases in the national credit limit, all while exempting the 3 sacred cows of gov't from any caps, cuts or balances. And the balanced budget Amendment is surely a waste of our time, assuming the big 3 are still exempt there as well.

Posted by: jgardner03 at July 20, 2011 10:36 PM

Until there are bills that will lead to actual layoffs of federal government employees, it all looks like smoke and mirrors to me. layoffs, mind you, not decreases in the rate of federal hiring. Dept of Education, TSA, BATF, HUD are some good candidates for major trimming. And of course the EPA which now can regulate CO2, along with commanding the tides.

Posted by: chuckR at July 21, 2011 3:32 PM


As I suggested in the main post, I don't think a Constitutional amendment is the right way to go for addressing the short-term debt ceiling issue. (Which is not to say I'm opposed to an amendment on substantive grounds. I kind of liked Randy Barnett's idea from a few years ago, where if Congress doesn't pass a balanced budget, the President gets the authority to change any appropriation in the Federal budget, subject to a veto-override).

However, I'd take some version of cut and cap by themselves, in return for a small increase in the debit-ceiling, that is in some proportion to what is cut.

Posted by: Andrew at July 21, 2011 3:53 PM
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