One of the biggest myths on the political right, repeated so many times that it has become as much a matter of faith as was the belief circa A.D. 1400 that the world is flat, is that statutory budget caps don’t work. For historical accuracy, this claim stands just this side of the assertion that President Eisenhower was a conscious agent of the Soviet Union.
The truth is that caps have worked, for two to four years at a time, to restrain the only thing they were ever given real teeth to restrain: non-defense discretionary spending. Even beyond the four-year range, they have had beneficial effects by lowering the spending baseline and saving on interest payments.
It helps to understand that by the very nature of the beast, entitlement spending — with its pre-set formulas and broad constituencies — is far less susceptible to enforceable caps than is discretionary spending. Some previous caps paid lip service to entitlement savings, but with so many exemptions and loopholes that they were almost meaningless. Entitlement spending, including welfare until 1996, was what really drove deficit and debt for decades. But discretionary spending controlled by automatic sequesters tends to remain in check. The numbers, as we shall see, bear this out.
First, it is worth acknowledging that part of the myth is based in the reality that Congress “never delivered” on its promised $3 in spending cuts (including in entitlements) for every dollar in tax-loophole closings in the 1982 TEFRA tax bill signed by President Reagan. From that failure came the idea that Congress won’t deliver on its spending-cut promises — and from that, the conflation of vague spending-cut promises with any requirement for savings to be achieved in the future. This is a huge mistake. TEFRA itself contained no cuts or mechanism to force them. Other bills that included actual cuts did deliver those cuts and save taxpayers significant money. TEFRA, in short, is an utterly false comparison.
The first significant domestic spending cuts after the Great Society came in the form of the Gramm-Latta bills of 1981, pushed through Congress by President Reagan. They were doozies. Non-defense discretionary (henceforth NDD) spending largely inherited from President Carter in 1981 stood at $160.5 billion. The next year it dropped by an astonishing 13.6 percent, to $138.4 billion. Discipline was maintained the next year, at $143.3 billion; and even two years after that, in 1985, it remained as low as $161.7 billion. That’s $28.3 billion, or 14.9 percent, below what NDD spending would have been if it merely kept pace with inflation during those four years.
In 1985, Congress passed the first bill that specifically implemented a sequester mechanism to forbid Congress from over-spending. The Gramm-Rudman-Hollings act (G-R-H) worked like a charm. For Fiscal Year 1986, NDD spending again was cut, down to $148.3 billion. In 1987 the number was $157.8 billion — remarkably, still below the actual dollar figure Reagan inherited six years earlier, and of course hugely below the inflation-adjusted levels.
By then, the first version of G-R-H had been declared unconstitutional, but Congress passed a new, constitutionally sound G-R-H in 1987. Again, even this weaker version largely worked, keeping NDD spending in 1989 at $171 billion, which remained $1.1 billion below what the inflation rate would have dictated during those two years. For the entire eight-year span of budgets signed by President Reagan, the single-year NDD spending had grown just $10.5 billion in actual dollars, which bested inflation by $47.9 billion, or 21.9 percent. Total combined NDD spending during eight years was $45.5 billion, in actual dollars (not even accounting for inflation), below what it would have been if it had just been allowed to flat-line at the original rate of $160.5 billion annually. Measured against inflation, the combined savings reached into the $200 billion range. In those days, that was an immense sum.
In short, arrangements for spending discipline worked for eight years to an extent conservatives now can only dream of. Had we not been saddled by President Nixon with absurdly extravagant entitlement formulas, along with massive interest on national debt that resulted from the high prime rate necessary to curb Carter-era inflation — and, to be sure, had Reagan not pushed the vitally necessary defense build-up in order to save civilization by winning the Cold War — the Reagan-Gramm budgetary efforts would have balanced the budget with ease. (And no, the Reagan tax cuts didn’t cause deficits: Total federal receipts grew in those same eight years by $392 billion, outpacing inflation by $174.4 billion. Even if one takes population growth into account, as liberals like to do, revenues under Reagan outgrew inflation and population growth by $112.3 billion.)
Obviously, these are a lot of numbers to digest, but the lesson is clear: Spending caps work. Or, at least, they work until supposedly conservative politicians go so wobbly that they openly and specifically repeal the entire cap mechanism and replace it with a far weaker fig leaf. That’s what the elder President Bush did — and that’s when, for five years, NDD spending grew like kudzu (stopping again for three years when the Republican Gingrich-Livingston team ran Appropriations pre-Lewinsky). Until the elder President Bush went all kinder-and-gentler on us, spending caps proved a godsend for believers in limited government.
Conservatives, especially Tea Partiers, who maintain that Speaker John Boehner’s out-year spending caps are illusory are just dead wrong. Boehner’s design, as I understand it, seems just as strong as that of G-R-H. Sure, it would be nice if the cap levels were set lower — but against a hard-left president and Democratic Senate, that doesn’t seem possible. Nothing precludes the House, during the normal Appropriations process where its leverage is somewhat substantial, from improving on the savings in annual spending bills — without the downside risk of undermining the full faith and credit of the United States.
Any final debt-limit bill that includes any such enforceable NDD spending caps would be a significant achievement. Those caps will bedevil liberals for years, and provide strong support for fiscal conservatives. They will act as a statutory backstop — or, in martial terms, a well-reinforced high ground from which conservatives can launch future, even more effective assaults on the federal budgetary beast.
Note: All numbers used herein come from official figures published by the Office of Management and Budget and from official inflation calculators.