July 12, 2011
Conservatives Push 'Cut, Cap, and Balance' Pledge: What Would it Do?
With the federal debt the number one political issue in Washington, onservative groups are asking candidates to sign “cut, cap, and balance” pledge, calling for drastic cuts in spending to curb debt. Many of the candidates in the Republican presidential primary have already signed on (Michele Bachmann is the one notable exception). The pledge would do more than cut spending; it would make current Republican proposals in Washington seem tame.
The pledge includes three proposals:
– Cut spending to decrease next year's deficit
– Cap spending to “enforceable levels”
– Pass a balanced budget amendment to the U.S. Constitution
Together, these policies would mean severe cuts in domestic programs than even the Republican budget proposal passed by the House of Representatives. The so-called 'Roadmanp for America's Future' was proposed by Budget Chairman Paul Ryan (R-Wisconsin). The roadmap includes cuts to both discretionary and mandatory spending, changes to the tax code, and a reform of welfare and health programs.
The roadmap is nothing if not bold—for some, its cuts are draconian, for others it is the kind of radical reform needed. Regardless, it is less severe than the cuts that would result under the “Cut, Cap, and Balance” pledge.
The budget amendment alone would mean cutting the equivalent of all discretionary spending, including the entire defense budget. Under the current budget, mandatory spending (e.g., Social Security, Medicare, and Medicaid) alone is nearly as much as government revenue. Add in interest payments on the debt, and the result is a deficit. To achieve a balanced budget, Congress would need to find over $1 trillion dollars to cut from the budget. The roadmap, even with its arguably rosy economic assumptions, does not foresee a balanced budget any time in the next decade.
The pledge is vague on specifics, but in a Wall Street Journal op-ed, the authors of the pledge gave this pledge concrete figures that show the seriousness of the cuts being proposed.
First, they want enough spending reductions to cut the deficit in half immediately, amounting to around $800 billion in spending cuts. This is equivalent to eliminating all discretionary domestic spending plus half of the defense budget since $800 billion is roughly the budget for both Medicare and Medicaid combined. The roadmap, under the best circumstances, would not cut the deficit in half until 2013 or 2014.
Second, they propose capping spending to 18 percent of GDP. Currently, spending is almost 25 percent of GDP. If all discretionary spending was eliminated, there would still need to be additional cuts needed to bring spending below 18 percent. Further cuts would need to be made to defense or spending. These cuts would need to be about half of the Medicare budget.
The roadmap does not expect to reach this 18 percent figure. Instead, it hopes to average around 20.5 percent of GDP over the next decade. This means that to achieve the pledge goals, an additional $500 billion would need to be cut from the budget.
For deficit hawks, the popularity of the pledge among presidential candidates may seem to be a hopeful sign. History suggests this optimism should be tempered. Promises often fail to materialize in budget negotiations.
One of the best examples of this failure ironically appears on the Concerned Women for America (CWA)'s “Declaration About Our Fiscal Crisis.” The CWA “Declaration” begins with a quotation from President Ronald Reagan's first inaugural address where he warned of the dangers of deficits, the need to stop borrowing, and a call to live within our means. The CWA called the statement “prophetic.”
Reagan's warning was prophetic—not only for today's politics but also for Reagan's own fiscal policies. In Reagan's first year in office, the federal debt was just shy of $1 trillion. Over the next eight years, the debt nearly tripled to $2.9 trillion. If history tells us something, perhaps the pledge may end up making little difference on the size of the federal debt.