When Limits Aren’t Limits, Limits Don’t Work
I think the idea of a spending cap is generally a good one. We have a Constitution specifically designed to cap the activity of the government, but since that’s now being used as a napkin at White House state dinners, the idea of starving government of its sustenance will have to do. However, I am wary of the ultimate efficacy of a budget cap.
In an article called “Republicans tout spending caps as government hits debt limit” The Hill reports that:
The Treasury Department announced Monday that it was tapping into a pair of government employee pension funds as it reached its borrowing capacity. Sen. Bob Corker (R-Tenn.) and Rep. Jack Kingston (R-Ga.) both responded to the news by touting their spending-cap proposals as the way to rein in the nation’s debt.
Schadenfreude about the government pension raids is unwarranted at this juncture. First of all, should the pensions come up short, you and I will end up paying for them anyway, probably out of our retirement, which is apparently not special enough to be guaranteed by the government.
Then there’s the fact that the government doesn’t mind playing chicken with pension funds that it has no intention of leaving high and dry, rendering this move a scare tactic cynically designed to appeal to older voters.
And finally, it is less important to the point that I would prefer to make here. So let’s instead take a look at the spending cap ideas.
Corker’s plan would set a cap on discretionary and mandatory spending, which would eventually lower the current spending rate of 24.7 percent of the nation’s gross domestic product (GDP) to 20.6 percent. If lawmakers fail to meet that cap, the Office of Management and Budget (OMB) would be required to make cuts throughout the federal budget to meet the prescribed limit.
…Kingston’s plan would go even further than Corker’s, capping spending at 18 percent of GDP. Like Corker’s plan, it would also require OMB to make across-the-board cuts to get spending to meet that cap if lawmakers cannot. Both proposals would require a two-thirds majority in Congress to override the caps.
Okay, not terrible. Given that tax revenues have averaged somewhere south of 20% for basically the entire history of the modern federal tax regime, pegging the cap to 18% seems to make sense. 20.6% sounds like a good way to reduce deficits without ever getting rid of them. But I remain skeptical of both.
Rather than “18 out of every 100,” the more likely definition in our illustrious capital is something like “18 out of every 100, not counting the special break for interest group A, B, C, D, and E, minus the tax credit for constituency F, G, H, and I, adding back the subsidy for likely voting blocs J, K, L, M, N, and O, using the ‘special’ math accepted by groups like the Office of Management and Budget, exempting the Defense Department, not counting previously planned increases in Medicare, Medicaid, and Social Security, and subject to emergency appropriations every time Congress holds a committee meeting.”
Try saying that three times fast. In effect, I believe that 18% is actually somewhere in the neighborhood of 18 – 98%. Roughly.
Of course there’s precedent. Washington D.C. is littered with the corpses of numerical projections and “hard” caps. Obamacare for instance was very tactfully excoriated by the CBO for making projections that any sane person realizes will never come true. Despite its promise that it would help reduce deficits, CBO reports have consistently contained language indicating that this deficit projection remains dependent on several assumptions, each of which is somewhat speculative. In CBO-speak, that translates to “snowball’s chance in hell.” They passed it anyway.
And all through the health care “reform” bill’s passage, the OMB was the White House lapdog, sending out projections rosier than a Pasadena football game. In both Corker’s and Kingston’s plans, the OMB is supposed to be the office that makes the mandatory cuts once the cap is reached. Do you think they’ll be able to remove their collective nose from the president’s anus quickly enough?
And speaking of health care, Medicare was passed in 1966 with a $3 billion budget. Some 25 years later in 1990, it was expected to cost an inflation-adjusted $12 billion. Actual cost? $107 billion, but hey, what’s an extra 3,567% among friends, right? Actual cost another 20 years later? $447 billion.
No big deal. This will totally work.
But the most egregious example of “Washington math” that I can think of is the official inflation number. Despite running the dollar bill printing press nonstop for going on three years, the Fed assures us that inflation is not a problem, and to date it has been underwhelming, for a variety of reasons which are all temporary in nature.
But the piece of evidence most commonly pointed to in this case is the fact that the CPI has not gone up appreciably. “You’re not feeling the effects of inflation,” you’re told, “as you can see here, our chart says that there isn’t any.” That’s all well and good until you remember that the CPI, despite being the “official” measure of inflation, specifically excludes both food and fuel. When you add back those things (which literally everyone needs to survive), you see quite a different picture.
Again, I think capping federal spending is a great idea for a government that hasn’t had a real idea since the 18th century. My skepticism stems from the same math that tells us that we have nothing to worry about from inflation. Next time the CPI creeps up, will they just drop an item from the tabulation? And next time a Middle Eastern country looks at us funny, will we exclude the inevitable war from the spending “cap”? If history is any indication, the prospects of success are dim.