The GOP’s Modest Debt Limit Proposal
House Republicans expect to vote on a plan to raise the debt ceiling this week. The Limit, Save, Grow Act put forth by Speaker McCarthy would raise the debt limit by $1.5 trillion or suspend it until March 31, 2024—whichever comes first. This is a modest proposal that would begin to put a dent in the fiscal challenge. The plan allows fiscal conservatives to assert themselves by clawing back spending driven by the Biden administration’s priorities and reining in the regulatory power of Washington bureaucrats. It would neither stabilize the debt nor address the main drivers of future spending growth. Importantly, legislators should strengthen new discretionary spending limits by closing commonly abused loopholes to secure the $3.6 trillion in 10‐year savings as intended.
Shaves five percent off projected 10‐year spending
The Limit, Save, Grow Act is moderate in terms of its fiscal impact because federal debt would still grow as a share of the economy. At $4.5 trillion in projected savings, the plan is similar in size to the Budget Control Act of 2011 in terms of its impact on projected 10‐year spending. McCarthy’s debt limit plan would shave a little more than five percent off the 10‐year federal spending total, estimated at $80 trillion between fiscal years 2024 and 2033.
If legislators instead aimed to stop the growth in the debt at no more than 100 percent of gross domestic product (GDP), they would need to double this proposal, reducing deficits by at least $8 trillion. While this GOP proposal will not succeed in stabilizing the debt, it might just garner enough support to responsibly raise the debt limit by making a down payment toward this bigger goal.
Establishes a new debt limit
Setting a new dollar‐denominated debt limit in combination with a fallback date is a smart choice. When legislators suspended the debt limit through a certain date with no dollar limit, they learned the hard way that a suspension doesn’t actually limit the growth in the debt. To the contrary, a suspension with no dollar limit allows for unlimited borrowing through a certain date. By specifying that the bill would raise the debt limit by $1.5 trillion or suspend it until March 31, 2024, whichever comes first, legislators are honoring the intent of the debt limit law to both authorize and limit Treasury’s borrowing authority.
Cuts and limits discretionary spending growth (saving $3.6 trillion)
Like the Budget Control Act of 2011 (BCA), the GOP debt limit proposal would cut discretionary spending immediately and limit future spending growth. Learning a valuable lesson from the failures of the BCA, this proposal would limit total discretionary spending, instead of placing separate spending caps on defense and nondefense spending. Such a total cap approach has a higher likelihood of succeeding at encouraging legislators to prioritize within overall spending limits. The separate caps approach had encouraged big spenders on both sides to increase their respective spending caps together.
Discretionary spending for fiscal 2024 would be cut back to fiscal 2022 levels and limited to grow at no more than one percent annually over 10 years. This is estimated to reduce spending by $3.6 trillion. To secure this level of savings, legislators should also close commonly abused loopholes such as designating spending for emergencies or overseas contingency operations (OCO) outside the caps and including fake savings from changes in mandatory programs (CHIMPs). A more robust spending cap would disallow CHIMPs which do not produce real savings and would account and pay for emergency and OCO spending by tracking these deviations on a scorecard and reducing future spending commensurately. Legislators might lower discretionary spending caps to pay for emergency‐designated discretionary spending over the following five years and add any mandatory spending to the PAYGO (Pay As You Go) and CUTGO (Cut As You Go) scorecards.
Claws Back Biden’s Spending Priorities (saving $700 billion)
Some of the most popular policies in this proposal would claw back Biden administration priorities such as cancelling new Internal Revenue Service (IRS) funding, cancelling the president’s student loan forgiveness and changes to income‐driven repayments, and repealing the clean energy tax credits in the Inflation Reduction Act. The proposal would also cancel unspent COVID-19 funds that are more likely going to be wasted now that the pandemic emergency is officially over.
Reins in the Bureaucracy
In addition to reducing spending, the proposal would adopt the Lower Energy Costs Act (H.R. 1) to increase domestic energy production and implement the REINS Act (H.R. 277), which would require congressional approval for all major new regulations.
Strengthens Work Requirements (saving $100 billion)
The Limit, Save, Grow Act would strengthen work requirements for some beneficiaries of federal welfare programs. Cato’s Chris Edwards argues: “it is important to begin reining in bloated entitlements, and adjusting eligibility to encourage work is a good place to start.…The Republican proposal would tighten work requirements [for the Supplemental Nutrition Assistance Program (SNAP)] by raising the top age for able‐ bodied adults without dependents (ABAWDs) from 49 to 56.…[About] 1 million households or fewer…may be affected.” The new work requirements would also affect beneficiaries covered by Medicaid and Temporary Assistance for Needy Families (TANF).
An Opening Bid
The Limit, Save, Grow Act presents a worthy and modest opening bid by House Republicans to speed up debt limit negotiations before Treasury borrowing authority runs out sometime this summer. Most estimates predict the so‐called X‑date between June and September (depending on June tax filings).
Although the Limit, Save, Grow Act would be a step toward fiscal discipline, it falls short in achieving long‐term fiscal sustainability. The proposals fails to stabilize debt over the next 10 years and neglects major entitlement reform. Despite politicians on both sides of the aisle vowing to keep Medicare and Social Security out of debt limit negotiations, the unavoidable truth is that these old‐age entitlement programs are the largest drivers of spending and debt growth and will account for 95 percent of all long‐term unfunded obligations.
Congress must confront the fiscally unsustainable growth of entitlement programs eventually. For the fiscal and economic health of the United States, the sooner the better.