Thursday, June 3, 2010

Federal Spending Limit

President Barack Obama speaks to a joint sessi...

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by Chris Edwards

The nation is facing a fiscal emergency. Debt is exploding and federal spending exceeds revenues by more than $1 trillion a year. To fix the problem, policymakers should pursue reforms on two paths.

First, policymakers should start identifying programs for termination, privatization, and devolution to the states. If a business conglomerate overexpanded and its spending ran ahead of revenues, prudent managers would start shedding low-value operations and refocusing on core activities. The federal government should do the same.

Second, policymakers should adopt new rules to bring greater discipline to federal budgeting. Right now, it’s anarchy on Capitol Hill with every member and interest group pushing for more dollars. Very few members consistently defend restraint.

The solution is for Congress to pass a law limiting annual increases in overall federal spending. Rep. Lamar Smith (R-TX) recently introduced legislation to do just that. His SAFE Act (H.R. 5323) would cap annual growth in the federal budget to inflation plus population growth.

Smith’s bill, which has 34 co-sponsors, would cap growth in all spending including defense, nondefense, and entitlements. If spending this year was $3.70 trillion, inflation was 2 percent, and population growth was 1 percent, then federal spending next year would be limited to $3.81 trillion. If Congress failed to get spending under the limit by the end of the year, the president’s budget office would be required to apply an across-the-board cut, or sequester. I’ve discussed some of the details of such a spending limit in this congressional testimony.

Federal Spending Limit

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