It’s Time to Legislate a Spending Cap

From Online.wsj.com

To bring the budget under some semblance of control, what’s needed are iron-clad restraints on the annual growth of expenditures. I call it “cap and save,” and here’s how it would work:

Each year federal expenditures (except interest on the national debt) would be limited to the rate of population growth plus the previous year’s inflation rate. U.S. population grows at about 1% per year, so if the rate of increase in the consumer price index were 3%, overall federal spending growth would be capped at an annual 4% rate. Only in years of a declared war or during a recession would Congress have the authority to suspend the cap.

The savings would be modest in the short term but would magnify over time, generating small, but manageable deficits. I calculated the savings from a spending cap relative to the current trajectory of spending anticipated by the CBO. A cap would reduce aggregate outlays through 2019 by $750 billion and by 2030 by $3 trillion. An added bonus: With lower deficits, we would also have to borrow less from the Chinese and other foreigners and save on interest payments as well.

To enforce a spending cap, Congress will need to authorize an automatic spending reduction formula. This means reviving a spending sequestration formula such as the one used under the Gramm-Rudman-Hollings Act of 1985 to help reduce the deficit in the late 1980s. (The law was repealed in 1990.)

Thus, if the CBO determined that federal spending was running above the spending limit at the mid-term of a fiscal year, every nonentitlement program in the budget would be cut by an equal percentage to bring outlays back under the cap. This would force Congress and the administration to prioritize spending and programs.