US Politics: A Beginner's Guide to the Plans to Cut Government Spending

On Monday, the Tea Party Caucus held a meeting in Washington to discuss their potential approaches to a forthcoming vote, probably in June, on raising America's debt ceiling. No definite conclusion was reached by the Caucus, but here are the headline numbers, from the President's deficit reduction commission, that illustrate how the the debt burden in in the United States is forcing the political conversation in Washington....

In 2010, Federal Government spending was nearly 24% of the nation's GDP; a level not seen since the days of WWII. To cover this spending, the government raised tax revenues of 15% of GDP. In total, the difference between spending and revenue in 2010 –-- the deficit –-- stood at 9% of the value of all the goods and services produced in the economy, or GDP.

US Politics: A Beginner's Guide to Reducing the Federal Government's Debt

It is these figures that establish, to use the Commission's own term, America's looming fiscal crisis. The National Commission on Fiscal Responsibility and Reform, to use its formal title, recommends that revenue should be reduced over time to 21% of GDP, with spending dropping to 22% in the next few years, eventually reaching 21% in 2035. Rep Paul Ryan's Conservative Roadmap, by contrast, suggests that revenue should be limited to 19% of GDP, a number that necessitates the draconian cuts in spending that are dominating the current budget battles in Congress. (Neither plan envisions a scenario where the United States returns to a balanced budget in the short-term, never mind a surplus. That will make for an interesting story in Congress when Sen. Rand Paul( R-Kentucky), in the debates over raising the debt levels, makes his pet project, a proposed balanced budget amendment to the Constitution, a precondition for his participation in the process.

Before looking at the first of the Commission's recommendations for ways to cut spending to 22%, a brief explanation of its history:

The Commission was formed in February 2010 by an executive order, agreed to by both party's leadership, after the Senate refused to pass the relevant legislation. The Commission consisted of 18 members: six private citizens appointed by the President, including the co-chairs Erskine Bowles and Alan Simpson, and six Democratic and six Republican politicians (three Representatives and three Senators). The Commission's final report needed to be approved by 14 of these before it could be considered for a vote in Congress. Eleven members eventually signed off on the Report, but of the seven dissenters, six of them were members of Congress --- all of them Republicans.

Still, the politicians who considered the Report, even when they disagreed with many of the provisions, had created the momentum for a debate started on the tough fiscal choices ahead. Sen. Kent Conrad (D-North Dakota), who is retiring, has been joined in his quest to get the issue firmly before the American public by three other members of the Commission: Sen. Richard Durbin (D-Ill.), Sen. Mike Crapo (R-Idaho), and Sen. Tom Coburn (R-Oklahoma), who contributed the memorable simile that in continually ignoring the problem, “We keep kicking the can down the road, and splashing the soup all over our grandchildren.”

So to to the Commission's ideas for raising revenue while cutting spending.

Discretionary spending refers to the services supplied by the government, such as homeland security, environmental protection, border security, and education, where Congress can change the annual funding. The cornerstone of the Commission's proposals for this discretionary spending is that in the future it must be capped. Its Plan advocates, in Fiscal Uear 2012 a freezing of current spending levels. This, they argue, will stabilise the present fledgling economic recovery. But in 2013, and here is where Democrats will start to get nervous, the Report argues that spending in real terms must immediately return to pre-2008, or pre-stimulus, levels. The reasoning behind this conclusion is that the nearly two -ear period before the serious cuts begin must be used to identify unneeded or duplicated Federal programs, and then Congress must “make tough tough decisions to set priorities and reform or eliminate a number of them".

To ensure that all agencies are subject to the same rules the Commission recommends that security spending be "firewalled" from domestic discretionary outlays, and it “requires equal percentage cuts from both sides.”

Under the cap, if defense spending --- which constitutes two-thirds of the discretionary budget --- remains constant, other services would be decimated. A rough guide is that the current outlays on discretionary programs totals $1 trillion, from which the Commission wants to cut $250 billion by 2015. If defense spending remains at $660 billion, domestic services would have to be cut almost 75%, from the current $340 billion to $90 billion.

To counter accusations that equal treatment of all agencies would seriously limit America's ability to use military means to meet any foreign threats to security, the Commission recommends a separate budget for Overseas Contingency Operations. This would not be an unlimited fund, but capped at the level of finance the CBO calculates will be needed to supply the troop reduction plan in Afghanistan and Iraq to 2015. The OCO annual limit on spending will be the money needed to keep 60,000 troops involved in foreign operations. Any increase in that dollar amount would need a 60-vote approval in the Senate.

This leads to one of the more complicated proposals in this 'Plan.' The Commission recognised that “tough discretionary spending caps must be accompanied by tough enforcement”. To make sure the cap has teeth, the plan sets in motion a series. of parliamentary procedures. For an appropriation bill that exceeds the limit to be enacted, it must first be passed by a non-amendable vote in the House. Then it must be approved by a 60-vote super-majority in the Senate. Any legislation authorised that goes over the cap, and that does not meet these requirements, will be subject to an abatement order by the Office for Management and Budget.

Other outline proposals include establishing a yearly amount to be set aside for natural disasters, while ensuring that the "emergency spending" tag is not used to circumvent that limit, or to abuse the spending cap in general. And, using a phrase that shows hope always overcomes the reality of bureaucratic inertia, the Commission recommends that Congress “unleash agencies to begin identify savings". The Commission maintains that $200 billion in savings can be made in discretionary spending by making government more efficient and by reducing waste in federal programs. This includes, for instance, the elimination of 19 of the 20 programs at 12 different agencies dedicated to the study of invasive species.

The one specific proposition to use a revenue increase to offset discretionary spending comes in the suggestion that the government introduce a 15 cent a gallon tax on gas to pay for the Transportation Trust Fund. By 2015, the government will only be able to spend on transportation infrastructure the amount it receives in revenue from tax the previous year. This cap, the Commission believes, would force the fund to only finance the nation's most pressing transport needs, and “end the practice of highway authorization earmarks such as the infamous Bridge to Nowhere".

If these fundamental ideas are adopted, 'The Plan' contends, discretionary spending can be cut by $200 billion. The section ends with a list of immediate reforms that could save a further $50 billion by 2015. Recognizing that Washington must share in the sacrifices to be made, the report calls for an immediate 15% cut in the Congressional and White House budgets saving $800 million in 2015. The federal workforce would be reduced through attrition, with only two hires replacing every three retirees. To illustrate they have paid attention to the details, the Commission recommends the sale of excess federal property, saving $100 million by 2015. This $50 billion benchmark figure also includes, in measures that have been instituted since the final Report appeared in December, a three-year pay freeze for federal employees and the ending of earmark spending.