Reason.com

Free Minds & Free Markets

Spending Caps Are Low-Hanging Fruit in the Fight Against Debt

Small, achievable reforms are the key to tackling America's mounting national debt.

The National Debt Clock in New York is seen on Wednesday, June 29, 2011. RICHARD B. LEVINE/NewscomAnother debt ceiling fight is just around the corner. The government's borrowing limit will need to be raised yet again by the end of September to avoid default. Indications suggest that there will be enough support between Democrats and moderate Republicans to pass a "clean" increase, meaning no spending limits or cuts will be attached. However, this fiscal status quo is absolutely unacceptable, especially because it would be easy to take a small step toward much-needed fiscal discipline.

Debt is piling up, and it is doing so at a faster pace than the economy is growing. The gross national debt is already well past 100 percent of gross domestic product. Under very optimistic assumptions, the Congressional Budget Office projects that under current law, the debt will reach 150 percent of GDP in 2047—thanks primarily to an aging population and poorly structured entitlement programs. Significant change is clearly needed if we're to avoid fiscal catastrophe.

The first step of addressing one's issues is to admit that you actually have problems. Say it along with me: "We have a debt problem." The next step is to adopt small solutions—as opposed to unrealistic goals that would be abandoned within days. Such a big goal would be to implement fundamental reforms to the programs that are the drivers of our future debt. There is no debate that this is what needs to be done and what should be done, and I will never stop advocating that goal. But it is also painfully obvious to me that in the current political environment, where neither party is willing to be the adult in the room, such a noble goal is out of reach.

What isn't out of reach, however, is the smaller and more realistic short-term goal of implementing spending caps. The logic is simple. Debt is just a symptom of Washington's excessive spending problem, so we must address the latter to solve the former. To get the nation's finances on the right track, we simply need to ensure that government is growing more slowly than the economy. A spending cap would do this by limiting the growth of government to a set percentage of GDP, perhaps 2 percent. As a recent video from the Center for Freedom and Prosperity shows, maintaining such limits would bring the budget into balance in less than 10 years.

Of course, there would have to be trade-offs. Washington cannot live within these limits without making some small changes to Medicare, Social Security and other programs. But the advantage is that the spending caps would finally force lawmakers to think about these trade-offs. Also, seeing as the caps would explicitly continue to grow by some percentage each year, they would make it harder for proponents of big government to moan about "savage" budget cuts. They would allow lawmakers to focus on reforms, as opposed to "cuts."

The case for spending caps isn't just based on theory. The evidence shows that a focus on reducing spending works better than rules aimed solely at reducing deficits and debt. Both Switzerland and Hong Kong have seen positive results from their spending caps. Hong Kong is one of the richest countries in the world, and Switzerland is rare among European nations in its fiscal strength.

On the other hand, balanced budget amendments haven't saved states such as California, New York and Illinois from bloated governments and debt accumulation. The uncertain nature of economic performance and tax collection makes yearly balanced budgets much harder to achieve than long-run spending limits. Perhaps more importantly, the seductive call for a tax hike tends to sap the political will for spending reform. It's easy to lock in repetitive cycles of new spending programs followed by tax increases to fund them.

Debt and deficits are bad, but they are symptoms of an underlying spending problem. Focusing narrowly on reducing debt can lead to counterproductive policy choices, whereas spending caps would most likely achieve the desirable goals of reducing excessive government and finally getting the nation's debt under control.

Photo Credit: RICHARD B. LEVINE/Newscom

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Rat on a train||

    they would make it harder for proponents of big government to moan about "savage" budget cuts


    I recall screams of savage budget cuts when someone proposed increasing spending by X instead of X + Y.

  • BestUsedCarSales||

    Well yeah. Of course they were Savage. Anytime there is threats of budget restraints those opposed will defund the things they know will piss people off the most. This ensures they then don't have to cut anything.

    Like the National Park closure a few years ago. A strictly pretty act meant to piss people off.

  • Rat on a train||

    I liked the closing of the National Mall and the monuments. It cost the government more to put up the barricades and post guards than it would to let people in. For extra pain they should have closed the BW and GW parkways.

  • Rebel Scum||

    I wonder what the media response would be if Donald (as opposed to Barry) shut down open air parks and spent more money keeping people out of said parks than would otherwise be spent leaving them open.

  • loveconstitution1789||

    Cut spending!

  • Longtobefree||

    Tell me again, how much is spent by the department of education?
    How many IRS employees could be cut if the income tax were replaced by a straight, retail point sales tax?
    How much is spent by (fill in the blank if it not military, state department, post office, a single federal police force)?
    Fixing social security in two step; eliminate the cap on wages in the payroll tax, split out the disability portion.
    (now, fixing the new disability program is a bit more difficult, but easier as a stand alone program)

  • CE||

    Why spare the post office? They are not needed any more.

  • Enjoy Every Sandwich||

    For fuck's sake, stop calling it a "debt ceiling". It's not a "ceiling" if they can just raise it whenever they want.

  • Rebel Scum||

    Another debt ceiling fight is just around the corner...will need to be raised yet again...

    I don't think this term means what they (legislators) think it means.

  • blondrealist||

    Hello everybody - one of your favorite (probably not) fiat currency people here. The low hanging fruit should be canceling out failing federal programs and stopping stupid and inappropriate spending - like the FAA spending money on a golf course. Conservatives continue to fail at articulating how so many federal spending efforts are ineffective, counterproductive, wasteful, etc. -- along with failing to articulate the many ways the private sector stands a better chance of providing certain services, in more successful ways, than the federal government.

    Because they keep failing at the things I mention, they jump to trying spending caps and misleading the public about the federal government "going bankrupt" or "running out of money".

    I'm all for a much smaller federal government - but the reasons are much more about freedom and opportunities than about worrying too much about the federal debt,

  • p3orion||

    If only there was some well-written document that clearly spelled out what the limited responsibilities and authorities of the federal government are, and said that everything else was off-limits, reserved to the states and the people...

    We The People really need a document like that.

  • Eric Bana||

    It should be fairly easy to increase government spending by a maximum of 2% a year. The system is so messed up.

  • CE||

    Small, achievable reforms are the key to tackling America's mounting national debt.

    As Ross Perot used to say, when you're in a hole, stop digging. Small reforms will achieve nothing. Significant spending cuts (10 percent or more) across the board are needed as a first step, followed by a spending freeze for a few years. Lay off all federal employees deemed "non-essential" in the last government shutdown. Pick a few departments or programs and eliminate them entirely.

  • swampwiz||

    How about we just raise taxes to pay for the spending?

  • Born Again Username||

    The non-sarcastic answer (although that question deserves the sarcastic answer):

    Let's say you have to work 40 hr/week to sustain your household. Let's also say that your tax rate is 30%, which is close to the average for federal income tax.

    So the amount that you have to work to sustain your household (without taxes) is 40*(1-0.30) = 28 hr/week.

    Now let's raise your tax rate to 40%. You would then have to work 28/(1-0.40) = 46 hr/week to sustain your household. If it was raised to 50%, it would be 54 hr/week. Does that sound appealing to you?

    This is if your limiting factor is money. If your limiting factor is time, then, assuming you invest at least part of the difference, you have less money to invest if you're taxed more, meaning you will not earn as much in the future as you would make if you were not taxed as much. (As an aside, this means that the government won't receive as much from you as it would have received had the tax rate not been increased.)

    This is why tax hikes are unpopular, and why tax hikes are not an appealing long-term solution.

  • tommhan||

    Wishful thinking these congressional idiots will do anything constructive in relation to debt. They already think a cut means to increase spending less than they had planned.

  • Tamfang||

    The gross national debt is already well past 100 percent of gross domestic product.

    I grumble. The debt is an amount of money. The gross product is a rate of money divided by time. It would be more accurate, and as concise, to say the debt exceeds a year's worth of GDP.

    Also, what do the words 100 percent of add to the sentence, other than a phony aura of precision? Given that it's well past 1.00×, how well past? Is it also well past 1.01×? 1.02×? If you know the ratio, why not give it accurately? Does a number like 1.08 or 1.13 or 1.21, though bigger than 1.00, have less rhetorical oomph?

  • Tamfang||

    My pet scheme: Make each legislator state a number for each budget item. Make a big table with 435 rows and a column for each item. Sort each column and find the sum of the median row; this is your first draft budget. If it exceeds expected revenue, go to the next lower row …

    Programs supported by a broad consensus will thus be cut last, and "I'll back your porkbarrel if you'll back mine" won't help much.

  • Charles Barr||

    The way to fix the national debt problem is simple: STOP ISSUING DEBT! From a conservative or libertarian perspective, pure or "unbacked" fiat money is much less destructive to the economy and to personal liberty than the "debt-backed" fiat money we use today. Much of the damage inflicted on the U.S. economy since we went off the gold standard has been caused by issuing debt to fund the deficit, not by issuing fiat money itself. We urgently need to transition to a debt-free currency before the national debt overwhelms the economy. See www.fixourmoney.com .

  • Douglas Proudfoot||

    I think it would be a better idea to force the government to sell assets. The federal government owns as much as $100 trillion in assets, mainly mineral rights and land. The Feds own more than half of several weatern states. Federal holdings are so vast there has never been an itemized inventory.

    Every deficit should be offset by federal asset sales. Rather than having compound interest on the national debt kill us, wouldn't it be better to sell off federal assets to pay for deficits as they occur? This would promote economic growth as well by transferring poorly managed federal assets to more efficient private management. It would make the huge size of the deficits and debt real by showing the sheer size and number of physical assets that have to be sold to pay off the deficits. Our current president is uniquely qualified to merchandise real estate. Congress should enact this today.

    We haven't had much success cutting spending. Most folks love free stuff from the government. The way things work now, big government spending expands government control with no compensating checks. Asset sales would mean the Socialists would be freeing some assets from state control as part of advancing their welfare state. It would be more of a trade-off than a total victory fo Socialists.

  • Born Again Username||

    What happens when the federal government runs out of assets?

    Curing the symptom and not the solution will only result in the return of the symptom. In this case, it may make things worse as Congress would only see a pile of free money that they get to spend frivolously.

  • Aegis||

    The problem is that unless these caps are put into constitutional amendments, they are meaningless; because congress can just vote to either change or eliminate them on a whim.

  • Humberto Roberts||

    Dear your article is very nice and attractive. Keep sharing and have a great time blogging. Visit here

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online