A Spending Cut by Any Other Name

Congress returns from a two-week recess today. But for legislators who spent the time championing the House Republicans' extreme agenda to slash federal spending, the break was more like detention. Town hall meetings across the country erupted into bedlam as members came face-to-face with the actual beneficiaries of public spending on health care, retirement, college, food supports, and more.

In Orlando, Rep. Daniel Webster was shouted down by furious constituents. "Florida has had this policy for the last 12 years," said one town-hall attendee, referring to the state's low taxes and meager public benefits. "We don't have money to take care of the poor, and unemployment is at 11 percent!"

Everyone in Washington wants big spending cuts, particularly as a concession for raising the debt limit. But few people outside Washington want spending on them to be cut. So what is a conservative Congress member to do? Enter the new Capitol Hill bipartisan policy darling, the innocuous-sounding "global spending cap." Last Tuesday, Sen. Joe Manchin, a Democrat from West Virginia, became the latest lawmaker to sign on to the most prominent spending-cap proposal, the Corker-McCaskill Commitment to American Prosperity Act.

The CAP Act, unlike the detailed House GOP budget, could play well in a town hall. It mentions no specific programs. A cap doesn't even sound like a cut -- it sounds like more of the same. But[h1] in reality, it's just a massive budget cut by another name. The bill would simply place an automatic cap on the amount Congress can spend. It's not as draconian a cap as the Hatch Balanced Budget Amendment, which all 47 Senate Republicans signed on to in March because it would send spending back to pre-Great Society levels and require a supermajority to raise any additional revenue. Against that economic inanity, the Corker-McCaskill cap might seem reasonable (as spending-only fixes for a primarily revenue problem go). Corker-McCaskill would limit total government spending -- including on Medicare and Social Security -- to a fixed percentage of gross domestic product. Last year, spending was at 23.8 percent of GDP; starting in 2013, the CAP Act would curb spending to 22.25 percent, lowering it until it reached a permanent limit of 20.6 percent in 2023.

If spending exceeds the cap, automatic cuts to the fastest-growing categories of spending would kick in (though Congress can override the rule with a two-thirds majority vote). Why 20.6 percent? Well, that was the historical average over the past 30 years. But beyond the question of why the last three decades, during which we've witnessed a historic decline of the middle- and working-class, should be our economic benchmark, there are some very real reasons to reject this new bipartisan solution.

First things first: It's not a measure to reduce the deficit. Absurdly, it would limit public expenditures to an arbitrary number even if the federal coffers were flush with cash. It also ignores revenues, which are at a record low due to a combination of the recession, widespread corporate tax-dodging, and low rates with wide loopholes. For these reasons, one can't seriously claim that it is a prudent fiscal measure.

Worse yet, it's a depression maker. A policy device that automatically cuts government spending when GDP falls -- when our economy is weaker -- is a nifty gadget for turning recessions into depressions. This isn't a hypothetical consequence, either: In 1937, Franklin Roosevelt cut back spending, and the country slid back into the Great Depression. In 2010, the United Kingdom cut spending and zeroed-out its GDP growth. Had Congress been unable to inject new money into the economy in 2008, when the recession caused private businesses and households to cut back, we would have reached 11 percent unemployment, according to the Congressional Budget Office. Corker and McCaskill might point to the act's two-thirds vote override provision, which could be used in an emergency. But don't count on Congress to act with unanimity in an emergency; neither the Recovery Act nor the Troubled Asset Relief Program garnered that many votes.

The cap would also mean major cuts to the entitlement programs that three out of every four Americans want left alone. Here's some context for that 20.6 figure: Under Ronald Reagan, spending on health care and senior citizens was more than a third lower as a share of GDP, and total spending still averaged only 22 percent of GDP. According to the Center on Budget and Policy Priorities, the proposed cap would lead to cuts of $1.3 trillion from Social Security, $856 billion from Medicare, and $547 billion from Medicaid over the first eight years of its operation. Recall how Republicans' midterm campaign ads about the Affordable Care Act's $400 billion Medicare cuts turned seniors against the party of Medicare? Now Republicans are luring Democrats into endorsing a cap that would cut entitlements even further (and into justifying tax breaks, not expanded health care).

Legislators may assume that the average voter won't grasp how capping spending at our historical average will actually diminish health and retirement benefits. If you're used to thinking about debt in terms of a monthly credit-card bill, capping the credit limit seems reasonable. But if your bills keep growing -- because, for example, you start supporting aging relatives -- capping it will mean you and your family will just have to go without. Sen. Manchin, from a state where one out of every six residents is a senior citizen, tried to have it both ways, endorsing the entitlement-cutting cap while paying lip service to "keep[ing] ... our promises to seniors by protecting Social Security and Medicare." But make no mistake, a vote for a global spending cap is a vote to cut Social Security and Medicare, and soon.

Manchin can contradict himself with such ease because a GDP spending cap makes the components of the federal budget even more invisible than they are now. But in reality, every percent of GDP in spending makes up some slice of the American quality of life. Veterans' benefits and services are nearly a percentage point of GDP today at $125 billion, and that share will only grow with the long-term costs of treating Iraq and Afghanistan vets. Education is just under half a percentage point.

The most dangerous part of a permanent cap on spending, however, is that it locks in today's meager levels of public investment. It would permanently preclude us from making the commitments we should be making to "win the future," such as to universal child care (which would cost another half a percent) or universal public college tuition, an additional third of a percent. The U.S. currently spends only about 16 percent of GDP on social benefits such as health care, education, housing, and retirement, with private spending picking up the slack. France and Germany, on the other hand, spend over 25 percent of their GDP on these social programs.

As middle- and working-class families lose jobs, wealth, and income, conservatives are trying to argue that our government not only can't afford to help today but couldn't even if it raised more revenue in the future. It's brilliant politics to try to write America's uniquely ungenerous welfare state into permanent law without having a transparent conversation about it, because as the town halls are revealing, citizens are dissatisfied. For the first time in generations, a critical mass of Americans is aware that the middle class is endangered and that the economic status quo isn't going to guarantee their children a shot at the American dream. Fifty-five percent think the next generation will be worse off.

The good news is that our country is rich enough to afford the existence of a future middle class; we have a record number of billionaires and near record corporate profits. The problem is that this unprecedented private wealth is being hoarded, and we're collecting only about 1 percent of GDP in corporate taxes. If our politics functioned well, we could be on the verge of an uprising, a real social movement for public answers to the private questions that keep working families up at night. Democrats, the erstwhile party of the working class, would reject a plan that essentially makes permanent the conservative economic vision. But the CAP Act keeps gaining Democratic co-sponsors who don't seem to realize that the proposed legislation doesn't limit deficits; it limits their power to make Americans' lives better, for this generation and the next.

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