As White House negotiators and Republican leaders struggle to reach an agreement on how to raise the country’s debt limit, a solution that ties in with old budget disputes has resurfaced as a possible way forward: spending caps.
Limiting future spending in exchange for a $31.4 trillion loan ceiling hike could be key to finalizing a deal that would allow Republicans to claim they’ve secured big concessions from Democrats. It could also allow President Biden to argue that his administration is fiscally responsible without giving in to Republican demands to reverse his key legislative gains.
The Biden administration and House Republican leaders have broadly agreed on some sort of cap on discretionary federal spending for at least the next two years. But they’re hanging on to the details of those caps, including how much to spend on discretionary programs in fiscal year 2024 and beyond and how that spending should be divided among the government’s many financial commitments, including military, veterans’ affairs, education, health and agriculture.
What might a spending cap agreement look like?
According to a person familiar with both sides’ proposals, the White House’s latest offer calls for military and other spending — including education, scientific research and environmental protection — to remain constant from current fiscal year 2023 through next fiscal year. This step would not lead to a reduction in so-called nominal expenditure, i.e. the amount of expenditure before adjustment for inflation. Republicans are pushing to cut nominal first-year spending.
One reason the White House is willing to leave spending essentially unchanged has to do with politics. Given that Republicans control the House of Representatives, it would have been nearly impossible to increase funding for discretionary programs outside of the military. Congress would not have approved increases as part of the appropriations process, the normal way Congress allocates funds to government programs and agencies.
Republicans have repeatedly said they will only accept a deal if it results in the government spending less than last fiscal year. They said that simply freezing spending at current levels, as the White House has proposed, will not result in the meaningful cuts that many in their party have long called for.
But Republican negotiators have shown some flexibility over how long those spending caps should last. The Republican leaders in the House of Representatives now want to set a spending limit of six instead of ten years. However, that’s longer than the White House is proposing, as Democrats are offering a two-year spending cap.
“The numbers are fundamental here,” Rep. Garret Graves, a Louisiana Republican and one of Speaker Kevin McCarthy’s negotiators, said Sunday. “The speaker made it very clear: a red line means spend less money and as long as we’re not there the rest is really irrelevant.”
The approach provokes a debt limit déjà vu.
If spending caps sound familiar, it’s because they were introduced in the last major debt-ceiling battle in 2011.
During this phase of risk, lawmakers agreed to limit both military and non-military spending from 2012 to 2021. The Budget Control Act caps have managed to keep spending somewhat under control, if not quite.
A Congressional Research Service report released earlier this year found that during the decade that the caps were in place, Congress and the President repeatedly enacted legislation raising spending limits. Certain types of spending — for emergencies and military operations — were exempt from the caps, and the federal government spent $2 trillion on these programs over a 10-year period. And spending on so-called mandatory programs like Social Security has not been capped, and these account for about 70 percent of total government spending.
Still, the Congressional Research Service pointed out that spending every year from 2012 through 2019 was lower than forecast before the caps were introduced.
The strategy is not a fiscal panacea.
Caps that limit spending at current levels will help slow government debt growth, but will not cure the government’s dependence on borrowed money.
The Congressional Budget Office said this month that annual deficits — the gap between America’s spending and income — are projected to nearly double over the next decade, totaling more than $20 trillion by 2033. This deficit will force the United States to continue to rely heavily on outside capital.
Marc Goldwein, senior policy director of the Committee on Federal Budget Responsibility, estimated that $8 trillion in savings would be needed over a 10-year period to keep the federal debt at its current levels. But he said that doesn’t mean imposing spending caps wouldn’t be worthwhile.
“We’re not going to fix this all at once,” said Mr. Goldwein. “So we should do as much as we can, as often as we can.”
The group calls for spending caps to be matched with spending cuts or tax increases to reduce public debt.
Spending caps aren’t the only problem.
An agreement on the size and duration of the spending caps will be a crucial factor in finalizing a contract.
But negotiators are still working to resolve several other issues, including whether to introduce stricter labor requirements for social safety net programs like food stamps, temporary assistance for needy families and Medicaid, and whether to speed up permitting rules for energy projects, two key Republicans Priorities to which White House negotiators have shown some openness.
Jim Tankersley contributed reporting.