Debt Digest | Spending Caps, Revenues, and Medicaid Expansion
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts:
Congress should restore discretionary spending caps. The Congressional Research Service (CRS) reviewed the effects of the Budget Control Act of 2011 (BCA), an expired law which limited annual discretionary spending. Despite members of Congress passing several budget deals to lift the limits and abusing emergency spending provisions, the BCA succeeded in lowering overall spending, compared to previous projections for spending from 2012 to 2019. A BCA 2.0 should save at least $4.2 trillion over 10 years, including by reducing non-defense discretionary spending to pre-pandemic (FY19) levels; and capping the overall growth in discretionary spending to no more than 2 percent annually. Any new spending caps deal should also close the emergency spending loophole by tracking such spending in a notional account and reducing discretionary allocations accordingly in future years. Find a comprehensive fiscal agenda for the 118th Congress here.
The GOP plan to cut non-defense spending and spare defense. Representative Chip Roy (R-TX) and the Heritage Foundation’s Victoria Coates argue that Congress should reduce non-defense discretionary spending to pre-pandemic levels (a reduction of around $150 billion) while sparing defense spending. This is one option to make an “immediate down payment toward more responsible fiscal policy.” Find a more extensive analysis of alternative paths to achieve the GOP goal of returning discretionary spending to fiscal year 2022 levels here.
Negotiating spending reforms at the debt limit is the responsible choice. In a new CRS study, Megan Lynch looks at budget process reforms that were bundled with debt limit legislation. “Among other things, these reforms include statutory limits on deficits [and] discretionary spending, statutory requirements for PAYGO, a bicameral congressional committee to address deficit reduction, and a bicameral congressional committee to reform the budget and appropriations process.” As Boccia has argued, the debt limit is a “powerful tool to force Congress to confront rising federal debt and debate measures to reduce deficit spending.”
Ban earmarks. House Republican are debating new rules to govern so-called “congressionally directed spending” which diverts federal money to local parochial interests. Leadership hopes to establish limits which ban spending on items like city parks and country museums but allow projects on bridges or water systems. By design, earmarks mostly authorize pork‐barrel spending. Rather than tweak existing rules, Congress should ban earmarks which “invite fraud, waste, and abuse.”
Medicaid expansion allows medical funds to be spent on food. The Biden administration has begun approving state requests to use Medicaid funds for groceries and nutritional counseling. Advocates claim it addresses food insecurity which impacts health outcomes. The federal government already has a program to help lower-income Americans pay for food: the Supplemental Nutrition Assistance Program (SNAP). According to the Congressional Budget Office’s latest projections, the U.S. will spend nearly $130 billion on SNAP this year. Cato’s Chris Edwards has argued that federal matching for state-administered programs like Medicaid promotes overspending and worse policy outcomes. Cato’s Michael Cannon recommends freezing federal Medicaid spending and distributing funds in unrestricted block grants. The CBO estimates capping federal Medicaid spending could save $836 billion over 10 years.
Federal tax revenue remains strong according to the latest CBO projections. As Cato’s new tax policy director, Adam Michel, writes, “U.S. federal revenues are projected to remain at or above historic levels…At a time of historically high revenues, it should be clear to policymakers that uncontrolled spending is the primary culprit for persistent deficits and debt.” See Figure 1 for a comparison of historical and projected revenues. And consider subscribing to his new Substack: Liberty Taxed.
