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RSC Debt Limit Plan: Cut, Cap, and Balance

Here is a cap and trade plan we can support.

By: Daniel Horowitz (Diary)  |  May 12th, 2011 at 08:26 AM  | 

RESIZE: AAA

The political world has been waiting with alacrity to hear the details of the GOP demand for raising the debt ceiling. The Republican Study Committee is wasting no time in publicizing their overarching condition for raising the debt ceiling; lowering the spending floor.  You might think of it as the preeminent ‘cap and trade’ program.

We have long railed against an incremental approach to the battle for limited government and spending cuts. The reality is that Republicans don’t have the requisite political power to statutorily roll back big government policies through the front door. They probably won’t for some time. Consequently, their only recourse to impel meaningful and perennial change is to use the budget process to force the issue.

Republicans will have the opportunity to deny the issuance of any more debt as the debt limit fight reaches its crescendo towards the end of the spring. In September, they will have another opportunity to force the Democrats’ hand by refusing to budge from the fundamentals of their FY 2012 budget, even if the Democrats threaten to shut down the government. Yes, even with control of “just one half of one third of government,” the GOP can prevail in a budget fight with the support of the public.

The RSC is proposing a three-pronged plan that would attack all of the pressure points of the big government beast.

1. Implement immediate spending cuts for FY 2012 that would reduce the deficit by 50%, roughly $700 billion from this year’s estimated $1.4 trillion deficit. Accounting for roughly $320 billion in expected revenue gains from growing tax receipts, they would propose roughly $380 billion in spending cuts to achieve that goal.

2. Impose permanent statutory spending caps to reduce federal spending to 18% of GDP, providing for automatic spending reductions if caps are breached.

3. Demand the passage of the Balanced Budget Amendment sponsored by Senator Mike Lee and Congressman Joe Walsh (H.J.Res. 56/S.J.Res. 10).

The specific details of the caps and spending cuts will be unveiled next week.  For now, the RSC is wisely pursuing a broad approach that would erect an impervious ceiling on the growth of government.  We all know that any proposal will get watered down during negotiations.  Therefore, we must come out swinging with sweeping demands at the incipient stages of negotiations.  Otherwise, we will wind up with nothing.

The RSC is circulating a letter to John Boehner and Eric Cantor detailing their terms for raising the debt limit.  They are also collecting signatures from their 176 members (or any other member of Congress).  Please call your congressmen and request that they buttress their rhetoric regarding spending cuts and government reform with bold action.  Tell them to support the RSC stipulations for real spending cuts and caps.

Make them promise to trade their vote only on condition that government is capped and the spending floor is lowered.

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  • jaykali

    I’ve been hearing ab this 50% deficit reduction, I will be interested to see what the actual plan is. I am less than confident that the Republican’s could get what you’re suggesting, certainly they should try but I think it will get watered down.

    The CR cuts turned out to be pathetic and so that has me a little down on this whole thing. I think caps are the best thing out there that Republicans can get.

    What’s annoying ab these negotiations is that I feel like they devolve into number twisting and lawyer speak to try to make the deal look good for both sides. It reminds me of NFL contracts which have all kinds of incentives that will never be reached and other goofiness that bloats a 30 million dollar contract to look like 60 million.

    Anywho, the issue with cuts is that it’s someone’s sacred cow and we’ll have to hear sob stories about someone or some entity not getting the assistance/investment they need.

    Obama does not want to cut anything, they are eternally optimistic that if they just keep spending that eventually the thing will turn around and they won’t have to make any tough choices. They are also pushing the narrative that the choice is btwn Republicans tax breaks for billionaires and gutting of medicare vs Democrats taxes for billionaires.

    We shall see, I don’t think Obama ever wants to deviate from his ideology until the polls start killing him on an issue.

    • gpclaw

      We also know that cuts in “future spending” will be touted as spending cuts.

      I understand that, technically, even cuts to future spending are still reductions in spending, but I don’t think that these types of cuts people have in mind.

      I do support limiting spending to a percentage of GDP. To take it a step further, shouldn’t the budgets of each department be based on a percentage of government revenue, as opposed to a set dollar amount?

      • YnotNOW

        Negotiations on increasing the debt ceiling must focus on 2012 budget cuts, not some mythical spending over 10 years that the next congress can change at will.

        Even cutting the projected 2012 deficit in half seems pretty lame when you consider that half of that reduction is thru increased receipts, not cuts.

  • skorrent1

    Cutting spending for NPR and Planned (Un)Parenthood, I hold little hope for real spending cuts. Baseline budgeting makes it too difficult. The only path to real cuts is through Zero Base Budgets — with no earmarks. When someone starts talking about ZBB, then I’ll know they’re serious.

    • YnotNOW

      They showcased the sobbing of a poor, unemployed woman, who had no idea how she was going to get healthcare after Daniels defunded her precious Planned Parenthood.

      • gpclaw

        Planned Parenthood doesn’t offer much in the way of health care, other than a few screenings. If she means contraception, condoms are cheap (100 count box for for less than $15 on amazon.com), and she also has the option to refrain from extracurricular activities, if she can’t afford the consequences.

        If she’s really worried about healthcare, my local Wal*Mart teamed up with our local health care provider, and set up a health clinic inside the store. The out of pocket cost for a physical is $80.

        Free markets, they work

  • stopnationaldebt

    There won’t be change until the public truly gets how bad things are. The public yawns when it hears $trillions thinking “big number, but its a big country”. since they have no perspective. We need to rephrase the issue:

    The federal government will need >$1 million per household to pay its IOUs!
    > $116 trillion =”official” debt plus money ?short for future social security, medicare, etc
    Even its “official debt” of $14.2 trillion ?is $123,754 per household!
    Details at http://StopNationalDebt.com with links to contact congress & complain.

    “POLL REVEALS: Americans Are Still In Deep Denial About The Deficit” http://read.bi/h6QDGR If they realized how bad it is politicians would need to act.

    Be among the first to join the new Facebook cause “Stop National Debt” : http://www.causes.com/causes/606425-stop-national-debt
    since if you don’t spread the word, who will?
    We need to spread the word virally to educate non news-junkies.

    • Common_Cents

      People’s eyes just glaze over.

      Everything should be translated into household terms where they have some perspective.

      People have no clue how much in taxes they really pay when adding up all the taxes, fees, embedded taxes etc… That’s by design by the elected elites in DC.

      • gpclaw

        When a certain segment of the electorate, has been misled to believe that there is enough wealth to fix the problem, if only those greedy richers would stop hoarding it all.

        Class warfare is destructive.

    • gunslingr45

      and I invited 10 more

  • paramedichess

    Obama campaigned on cutting the deficit in half in his first term. This is the last budget that falls completely in his first term, so this is his opportunity. Republicans need to be out there loudly explaining that their 50% deficit reduction is not “extreme” or “draconian” but rather simply what the President promised to do three years ago when the American people elected him.

    • gpclaw

      When you realize that a 50% reduction to the budget deficit, would still result in borrowing $800 billion.

  • johnt

    the dead will start piling up in the streets. Federal spending is what keeps us alive, the bigger the deficits, the luckier we are. When the dollar is devalued and we’re giving away T-bills on street corners, Obama and the Dems, with a push from our helpful media, will start a federal shopping cart program. Chicken skins in the pot and a shopping cart to push around your dollars when you go out to buy toothpaste.
    “Progressives” are so sophisticated, we’re lucky to have them.

  • Death_of_the_Donkey

    Addressed by point:

    1) You do realize that a cut this large will cause a downturn in growth (ie leading to many lost jobs and potentially a second recession). This is not a scare idea, just an economic reality of the plan (ie we must be willing to defend a short term pain for a long term benefit and cannot act as though cuts will not harm the immediate economy).

    2) The 18% of GDP number is probably unrealistic (we haven’t been that low since well before Reagan and with our aging population the only way we can get there is through slashing the defense budget dramatically or essentially eliminating support for the elderly). Again, not saying this shouldn’t be done, but those are the realities of an 18% of GDP number. Also, since GDP fluctuates and during a recession the 18% number would shrink dramatically, would there be a clause that prevents cutting because of a recession (ie keeping spending at the 18% number of the GDP level prior to the recession)?

    3) A balanced budget amendment contains many problems, and may hamstring Congress from acting in the best interests of our overall economy/country in the long run. It also has many of the same problems mentioned above during recessionary periods (unless you believe we should return to the boom bust cycle we had prior to the Depression).

    • ss396

      Capping expenditures at 18% is also another way of guaranteeing that expenditures will never fall below 18%, either. I can appreciate (well, maybe I can’t) the political difficulties of Congress massively cutting spending, but I am not sold on the idea of a Constitutional Amendment that is born out of frustration.

    • gpclaw

      1a.) Will there really be a downturn in growth? I realize that GDP will take a hit, but government spending is included in GDP. If GDP falls by the same amount, as the reduction in government spending, has GDP “really” gone down?

      1b.) If you look at the unemployment numbers in the UK, their was a very small increase in unemployment since they implemented their austerity measures, but they also increased taxes. One could argue that the increase in unemployment has more to do with the VAT increase, than the budget cuts.

      1c.) Less money borrowed by the feds, means more money available to private industry. Deficits do “crowd out” the amount of money available to business.

      2a.) Keeping spending to 18% may not be easy, but fact remains that, dating back to 1950, on average federal revenues have been 18% of GDP. Setting the cap any higher would ensure an increasing national debt.

      2b.) Is it time to talk about how the defense budget is spent? I have no desire to see our military capability reduced, but I also have no reason to think that the defense budget is spent any more efficiently, than every other government agency. Just like the rest of government, more money does not mean better results. My uncle is involved in the contracting process, and he is shocked at the level of cronyism involved when doling out contracts. We know what the overall defense budget is, but it may be time to talk about how the money is spent, and if their is a way to maintain our capabilities by spending smarter.

      • Death_of_the_Donkey

        1a) Yes, there will be a downturn in growth. And yes it will have a negative impact on the economy (more unemployment, less revenue (which brings us into a circular deficit problem), less consumer spending, etc). This of course isn’t permanent, but it will happen in the short term.
        1b) For all the UK “austerity” it is important to note that they are budgeting an increase in spending for next year over this one (smaller than normal, but still an increase).
        1c) The crowding out theory simply isn’t applicable in today’s bond market. The government simply isn’t crowding out any private sector lending at this time (look at interest rates as an indicator of this).
        2a) I am going to say it again, 18% in unrealistic without the elimination of the baby boomers (or at least Medicare AND social security now, not 10-25 years from now).
        2b) Defense cuts simply have to be part of the equation. And that means real cuts, not just a reduction in waste. The defense budget has doubled since 2000, but we aren’t twice as safe. It is time to examine every program (that would include non-defense too) and determine whether it is worth the cost (ie we don’t need new amphibious landing craft for instance)).

    • runner12

      in advance if it comes across as rude, but here it goes. I have observed that every time the conservatives or GOP try and take a stand door fiscal conservatism and cutting spending you always counter with how it would negatively affect the economy. You are doing it now and I believe that you did with with the Ryan plan.

      This makes me curious as to what economic philosophy you ascribe to. Are you for more spending or less? What ideas do you have to reduce our crushing debt?

      • http://redmeatconservative.blogspot.com/ Daniel Horowitz

        of John Maynard Keynes; spending money on ditch diggers and economic growth mitigating bureaucrats at departments like Interior and Energy will increase economic growth. Cutting them will cause a depression.

        • Death_of_the_Donkey

          Keynes has been twisted by people for years and in order to apply his theories at all we should accept the default he was dealing with (ie, Keynes assumed that government would actually run a balanced budget/surplus during boom times and that the deficit spending would only take place during economic slack). Also, Keynesian theory is for government pump priming, not necessarily WPA style programs, but simply government juice to the system through deficits (in any form, whether through tax cuts, work programs, infrastructure investment, or defense spending). One could argue that Reagan ran one of the most Keynesian economic plans in the last 50 years (but for that it was done during a boom period). I agree that Keynesian theory would work when applied to a slack period, but only provided that we ran otherwise balanced budgets during good times. Since we haven’t done that for over 30 years, I would agree that Keynesian theory is flawed in its current application and that diminishing returns means that we won’t get the same benefit we would under the optimal theory conditions.

          • acat

            I would argue that Keynes left one important consideration out….the inherently evil nature of people.

            Your assertion that he assumed government would keep balanced books is the telling point here. From that, I can conclude that Keynes assumed people would act with the common interest in mind. This is at best idealistic…

            Mew

          • Death_of_the_Donkey

            most governments were coming pretty close to balancing budgets most of the time, so he was more acting from his basis in reality as opposed to ours.

          • acat

            and welfare payments of all types were significantly smaller…

            how do you conclude that he’s got anything to say to our situation?

            Mew

          • gpclaw

            that Keynesian stimulus has little, to no effect in countries with a high debt to GDP ratio. In the paper “How Big (Small?) Are Fiscal Multipliers, based on quarterly data collected from 44 countries, the authors conclude that:

            During episodes where the outstanding debt of the central government was high (exceeding 60 percent of GDP) the ?scal multiplier was not statistically di?erent fromzero on impact and was negative (and statistically di?erent from zero) in the long run.

            This data supports previous conclusions reached by Robert Barro. Barro also concludes:

            Since the multipliers are less than one, the heightened government outlays reduce other parts of GDP such as personal consumer expenditure, private domestic investment and net exports.

          • Death_of_the_Donkey

            with my diminishing returns argument. Once you have Keynesian type deficit spending rooted in your economy on a permanent basis, the returns you get from increasing that are much less. However, I (and many other economists) would disagree with Barro, as government spending doesn’t necessarily take away from other parts of GDP (unless either interest rates are high or taxes were raised).

          • edintexas

            Perhaps an economist involved in academe?

          • runner12

            a defender of Keynsian policy. Any time there is talk about drastic spending cuts, you act as if the sky is falling. While Keynes may have been speaking in a different time period, his views are being carried out now. Much to the detriment of our nation.

            Yes, spending cuts will hurt. But what is our alternative? You cannot put a Band-Aid on a gaping wound. Serious efforts must be made to save this economy. Frankly, we have passed the point in which incremental cuts will suffice. Bold action is needed.

      • Death_of_the_Donkey

        I am a big proponent of fixing our budget/debt situation, but I also understand the economic realities of doing so too quickly or drastically. I am not saying we shouldn’t act because there may be pain, but that many do not realize the level of pain we will have with some of the proposed cuts. For instance, the Ryan plan somehow predicts magical accelerating GDP growth immediately in the face of cuts, which is simply an economic impossibility. Let us accept reality, that we need to cut AND that those cuts will cause large amounts of economic pain (if they are done quickly).

        • YnotNOW

          Cuts will be painful – even if they don’t cause a dip in the overall economy (and I agree that cutting quickly will cause a temporary dip). The more people ignore that reality, and expect pain-free salvation to fall from the sky, the more upset they will be when the pain happens to them. Then they will vote out the reponsible adults and vote back in the crack-pushers who will put us right back into debt.

          No easy fix – and I’m not sure the public is ready yet to face that fact. Some avoid education like the plague.

        • acat

          Short of changing the congressional election cycle to something other than two years, how else do you propose to do long-term changes?

          The same peril to slow fixes applies to fast fixes.

          The only answer I see is to steal a bloody obvious page from the Dem playbook; in short, move the ball as far as we can, then keep the Dems from moving it back.

          This is not something that Conservatives traditionally do very well at. In fact, we kind of suck at it.

          Mew

          • Death_of_the_Donkey

            would be to utilize something like the deficit commission to craft a plan that would then get an up or down vote (and figure out a way to make both sides take responsibility, such as now when we have divided government). This would in effect work like the Greenspan Commission, but we would have to accept the reality that some tax increases will be a part of the plan (although I would bet that most of the savings will come from cuts/reforms).

          • gpclaw

            I would like to see congress involve the governors in crafting a plan. How much of what is done at the federal level, can, or is already being done at the state level? I’m sure their are a number of areas, that is cut at the federal level, would be picked up by the individual states, at least in some capacity. Sure, maybe I would have to pay more in state taxes, but I can live with it as long as I can see the see my tax dollars at work, with in my community, on a daily basis. Besides, unlike my congressman, I can run into my state rep at the grocery store.

            Federal agencies aren’t necessarily evil, as long as their origination come about in the proper way. The feds should exist to support the states, not the other way around. For example, the dept of agriculture should only perform function that the individual states have requested. This requests may happen due to duplication, i.e 50 states all performing the same task, and see a benefit to centralizing that task.

            I got off on a tangent their, but my point is, just because a program or service is cut at the federal level, if it has value, it can still continue to exist at a different level of government.

          • rightwingmom52

            when you consider all the newly-elected officials who said they’re only interested in serving one term, getting the job done and then returning home. Somehow, I don’t see that happening.

            Earlier today I had a thought similar to yours. Democrats shoved Obamacare, etc., down our throats. If we win the WH & Senate next year, assuming we’d keep control for 4 years (I haven’t done the math to see if congressional control is up for grabs in 2 or 4), that gives us plenty of time to “move the ball” and let people see that our policies work. Moving the ball should include reforming Social Security and Medicare and any other painful cuts are necessary.

          • edintexas

            I agree that it is necessary, but I don’t believe the Republicans are capable of taking the action. Their track record is, in a word, pitiful.

        • gpclaw

          Gary Beckers Wall Street Journal article “Time for a Budget Game-Changer”?

    • skorrent1

      This tidbit from RMJ’s “Green Newt” post:

      “Federal regulations cost U.S. businesses $1.75 trillion a year, 59% more than in 2005, according to a new report from the Office of Advocacy in the U.S. Small Business Administration.
      The Impact of Regulatory Costs on Small Firms: ‘The federal regulatory burden exceeds by 50% private spending on health care.’
      The cost per employee is much higher on the smallest businesses ? $10,585, the report says.”

      For DoD to claim that a spending cut of even 1/4 that much –if properly directed– would have a grave negative impact on the economy is rediculous.

      Let’s have ZBB combined with a good cost-benefit analysis for each program! We’d come out way ahead.

      • http://redmeatconservative.blogspot.com/ Daniel Horowitz

        The EPA’s budget is “just” $10 billion, but they deplete hundreds of billions from the economy, retard wage growth, eliminate jobs, and cost consumers more for vital products and services. I’ll take the loss of a few hundred government workers any day in exchange for the reversal of the above-mentioned economic ills.

    • bruceinva

      might be some government jobs. And how would that impact productivity? Nobody would notice.

      Instead of many of these useless government employees that just show up and if they are “doing something” it generally is not much more than shuffling papers. The net cut in spending would be how much you’d pay in unemployment benefits versus the paycheck.

      The “draconian” cuts the GOP forced through with the Continuing Resolutions were not the $110 Bil promised, then scaled back to annualized amount so only $60 bil. That then turned into $38 bil that was nothing more than cooking the books, smoke and mirrors. Nothing really changed. Need some serious cuts demanded.

  • dvdmsr

    I guess I’m missing something here – please explain

    ?Section 9. Total receipts shall include all receipts of the United States Government except those derived from borrowing. Total outlays shall include all outlays of the United States Government except those for repayment of debt principal.?

    If total receipts include all receipts except those derived from borrowing, and total outlays include all outlays except those for repayment of the debt, then how does this balanced budget amendment – proposed by Senator Lee NOT permit the government to continue to borrow money simply to pay the interest on our national debt.?

    Is this the case, or am I reading it wrong?

    If this amendment does permit this, then why should we go to the trouble of passing an amendment under the guise of fiscal responsibility if it will only continue to make it easy for our government to be fiscally irresponsible?

    Why include these exceptions in the amendment?

    • gpclaw

      It means that any borrowing doesn’t count towards the total receipts for a given year.

      Section 3 states that total outlays can’t exceed total receipts. Section 9 simply ensures that, under circumstances where borrowing is permitted, that borrowing won’t inflate the dollar amount available for total outlays.

      My guess is that this provision has something to do with defense. Sections 6 and 7 allow outlays to exceed the 18% cap, if congress has declared war, or the US is involved in a military conflict.

      • dvdmsr

        count as part of the total outlays. It’s liketheir trying to keep two sets of books.

        There’s the budget, and then there’s this other budget over here where we keep track of what we boorow from Peter to pay back Peter.

        It doesn’t make sense. I don’t think that is fically responsible ifI do it with my own finances or if the government does it with ours.

        • gpclaw

          to organized crime?

          I agree with you, it does read a little fishy. Of course, it would be naive of us to think that they wouldn’t leave them self a back door.

          I’m not thrilled with the language allowing them to borrow when engaged in a “military conflict”. It seems to vague.

    • skorrent1

      The difference btw principle and interest? Interest must be paid from receipts as defined. Principle can be paid from receipts which are allowed to exceed –but not be exceeded by — other outlays.

      • skorrent1

        It seems to me the purpose of this wording is to allow the Treasury to continue “rolling over” the debt instruments as they become due. “Off the books” as it were, without incurring additional net debt.

  • texan4america

    “drastic” cuts in spending — not more taxes or “hidden means of increasing revenue.” When was the last time a Representative or Senator took a pay cut? They have given themselves pay raises almost every year. Their pay raises should be based on “merit” just like the rest of us. Time for THEM to take a pay cut & start paying SS/Medicare taxes like the rest of the working world!

  • ihateliberals

    That is how much sense any of this makes to the average American. The Avg American will not do anything until it hurts them. As long as they can pull up to the pump and fill up with gas they ultimately won’t do anything about gas prices except whine. As long as they personally have jobs they won’t fight for the ones that don’t. This is why our congressmen get into office and then proceed to do what they want to. They have already forgotten the 2010 election. they chose a RINO to be the Speaker of the House and look what that is getting us. NOTHING. People need to understand that if we continue on the current track pain is going to come son and big time. The problem is that this time it may be too late to stop it. Percentage wise we have never been in this much trouble before. When this crashes and it will if a course change is not made, the coming events wil make the 1929 fiasco look like a Sunday afternoon walk int the park. This RSC plan looks like the first serious approach to the problem. Let’s hope that something can come of it.