Austerity is all the rage inside the Beltway these days. Federal deficits are expected to be in the trillions for the next couple years, and Republicans are emboldened in their quest to neuter the federal government’s capacity to rein in the massive ongoing transfer of resources to the wealthy few. Thus, broad-based tax increases are all but off the table and a plethora of drastic spending cuts are being bandied about.
In this environment, spending caps are a tempting option for those wishing to impose austerity and cut the size of government. A particularly aggressive spending cap proposal called the CAP Act was introduced last week by Senators Corker (R-TN) and McCaskill (D-MO). While this plan is unlikely to receive major traction among Senate Democrats and potentially faces a Presidential veto, it will probably receive some attention in the months ahead and it is worth understanding exactly what would result from the proposal’s enactment.
Without further ado, here’s Episode 3 of our second season: The CAP Act.
One-pager below the fold…
S. 245: Commitment to American Prosperity Act of 2011 (CAP Act)
Introduced 2/1/2011
Sponsor: Sen. Bob Corker (R-TN). Key Co-Sponsor: Sen. Claire McCaskill (D-MO)
Click here to download this summary (pdf)
Cosponsors: 10 (1 Democrat, 9 Republicans). Full list at http://thomas.loc.gov/cgi-bin/bdquery/z?d112:SN00245:@@@P
Status: Assigned to Budget Committee. No hearing scheduled. Likely has little chance of passing in the Senate.
House Companion: None as of 2/8/11.
Purpose: In recent years, reining in federal debt and deficits has become a hot topic of debate among Washington policymakers and opinion leaders. One proposed solution involves placing a cap on federal spending as a percentage of GDP that ratchets down over time. In December 2010, the President’s ill-fated National Commission on Fiscal Responsibility and Reform proposed a discretionary spending cap and other measures that would limit spending to 21.8% of GDP in 2020, down from the baseline levels of 24.7% in FY2011 and 25.9% in FY2020, as projected by the Congressional Budget Office. The Corker-McCaskill plan goes even further.
Summary: The CAP Act establishes a hard cap on total federal spending at 20.6% of GDP, the average level from 1970 to 2008. The details of the plan include the following:
• Ratchets the cap down from 25% in FY2013, reaching the final rate of 20.6% of GDP in FY2022;
• Calculates GDP as the average of the first three of the previous four fiscal years (e.g. FY2009-2011 GDP is used for the FY2013 cap). In times of growth, that means the cap is even lower than the official percentage suggests;
• If spending is deemed to be over the limit heading into a fiscal year by the Office of Management and Budget, the President is required to order uniform spending reductions to meet the limit;
• Reductions must be an equal percentage for all agencies within each of the three major categories – mandatory, security discretionary, and non-security discretionary. However, Congress can first adopt cuts on its own terms;
• The cap does NOT cover tax expenditures, the spending embedded in the tax code and subject to little oversight;
• Interest on the debt is exempted from reductions, but is included in the overall cap;
• Contains an exception for one-time, unforeseen emergencies;
• Can be overriden by a two-thirds vote of both houses.
Note: A formula using the average spending level of 1970-2008 is not an appropriate baseline for measuring future spending amounts due to a number of demographic and programmatic changes in recent years. These include the relative aging of the population, continually rising health care costs, the increasing share of government spending consumed by interest on the debt, the ongoing costs associated with the wars in Iraq and Afghanistan and providing for the veterans thereof, and more.
CBO Score: none provided.
Supporters: Many Republicans, small government and Tea Party-aligned organizations
• Supporters generally applaud the steps made to cut government spending and extend disciplinary measures to the entitlements such as Social Security and Medicare that consume a large portion of the overall budget. However, some are wary of loopholes in the override ability and the exemption of tax expenditures from consideration.
Opposition: Most Democrats and allied organizations, Center on Budget and Policy Priorities, etc.
• Opponents see this as a “look ma, no hands!” proposal, designed to show how tough supporters are on the budget and little else. However, its simplistic solution obscures the dramatic service cuts that would result. They emphatically reject the efforts to lump Social Security, Medicare and Medicaid in with discretionary spending.
Further links
Full bill text: http://www.govtrack.us/congress/billtext.xpd?bill=s112-245
Sen. Corker press release with short summary: http://bit.ly/edpXrn
Highlights of Sen. Corker floor speech in support of the bill: http://www.youtube.com/watch?v=w5kki4HKKsw
NPR/AP article on the bill: http://www.npr.org/templates/story/story.php?storyId=133408611
Committee for a Responsible Fed. Budget blog post: http://crfb.org/blogs/senators-mccaskill-and-corker-introduce-spending-cap-bill
Mercatus Center commentary on the plan: http://neighborhoodeffects.mercatus.org/2011/02/04/the-cap-act-a-glass-half-full/
CBPP critique of the CAP Act: http://www.cbpp.org/cms/index.cfm?fa=view&id=3385
