November 22, 2014

CONCORD COALITION URGES CONGRESS TO ENACT REALISTIC SPENDING CAPS

WASHINGTON -- With huge new surplus estimates threatening fiscal discipline, The Concord Coalition urged Congress and the Administration to reach an agreement as soon as possible on a new set of discretionary spending caps that would replace the 1997 budget caps, which have ceased to provide any real fiscal restraint in recent years.  While heartened by the improved fiscal outlook, Concord warned that failing to enact a new set of caps could result in several fiscally irresponsible results, including unrealistic surplus projections, uncontrolled arbitrary spending increases, and a third consecutive omnibus appropriations bill at the end of the fiscal year.

“It's time to acknowledge the obvious -- the 1997 spending caps are dead.  In effect, there are no caps.  The immediate question is whether a new set of caps should be enacted and if so, at what spending level,” said Robert Bixby, Executive Director of The Concord Coalition.

    “We believe that it would not be fiscally responsible to let spending increase by as much as the President has proposed. Nor do we believe that it is politically feasible to freeze spending or hold it below inflation, as many Republicans would like to do.  Instead we support a fiscally responsible and politically feasible compromise that would enact new caps for fiscal years 2001 and 2002 at the estimated level of inflation. The newly-elected President and Congress should then negotiate a new set of caps for future years as part of next year's budget process,” Bixby said.

    According to the President's Office of Management and Budget (OMB), which by law is the official scorekeeper, the FY 2001 cap on total discretionary spending is $542 billion in budget authority.  Taking into account the recent fiscal year 2000 supplemental appropriations bill, it will take roughly $597 billion in budget authority for 2001 simply to maintain a freeze.  Thus, to comply with the statutory caps in fiscal year 2001, budget authority will need to be cut by nearly $55 billion.

    “There is no possibility that cuts of this size will be enacted.  Neither the President nor Congressional leaders are even pretending as much.  But to say that the 1997 caps should be officially scrapped is not to say that the whole concept of spending caps itself should be scrapped.  In fact, spending caps can be an effective tool in controlling federal spending.  But to be effective, spending caps must assume a plausible, achievable, path for spending.  Recent experience has shown that Congress and the Administration are not prepared to freeze discretionary spending, let alone make sizeable cuts, when the economy is booming and the government is running an overall surplus,” Bixby said.

    “Adopting the inflation-adjusted baseline calculated by the Congressional Budget Office (CBO) as the new spending cap would be far more credible than assuming that spending can be held to the budget resolution level. At the same time, by establishing a more realistic target, it would impose more fiscal restraint than simply ignoring the current caps or changing them after the fact to accommodate a spending frenzy,” said Bixby.

  • Fiscally, choosing the inflated baseline will help prevent an end of the year spending frenzy.  Moreover, a realistic set of discretionary spending caps would minimize the need for accounting gimmicks, thus making the budget process far more honest and transparent.
  • Politically, setting a new cap of approximately $611 billion in budget authority -- as projected in CBO's inflation-adjusted baseline -- is a reasonable compromise, given that $611 billion is about halfway between the $622 billion proposed in the President's budget and the $597 billion (including the supplemental) it would take to freeze spending at the 2000 level.
  • In addition to allowing Congress and the Administration to meet halfway, the inflated baseline would allow everyone to claim at least a partial victory.  Adopting the inflated baseline as a cap ensures that the level of government services will not expand, but simply rise with inflation.  And even under the inflated baseline, total discretionary spending will continue to fall below its already low 6.3 percent of the Gross Domestic Product (GDP).
  • On the other hand, adopting the inflated baseline ensures that government will be funded at the current level of services, thus avoiding unreasonable spending cuts.

    “Perhaps it would have been better if the 1997 caps had been followed, but they weren't. That story is over. The question now is what comes next?  Without credible caps on discretionary spending, what comes next is likely to be a major expansion of government spending.  Standing in front of the oncoming train will not stop it.  A more effective means must be used to put the brakes on.  The answer is a new set of caps set at a more realistic level.  Agreeing to spend $611 billion in July may well prevent a runaway omnibus spending bill in October of as much as $630 billion.  The higher spending goes this year, the higher the baseline and the higher future spending is likely to be,” Bixby said.

    “If Congress and the President want to spend more than they agreed upon in 1997, or if they believe that the much improved fiscal outlook since then has rendered the 1997 agreement obsolete, then they should say so openly and negotiate a new agreement rather than spend a third consecutive year trying to get around their old agreement with gimmicks,” Bixby said.

    The Concord Coalition is a nonpartisan, grass roots organization dedicated to balanced federal budgets and generationally responsible fiscal policy.  Former U.S. Senators Warren Rudman (R-N.H.) and Sam Nunn (D-Ga.) serve as Concord's co-chairs and former Secretary of Commerce Peter Peterson serves as president.