Last week, during his presidential campaign announcement, former Gov. Mitt Romney (R-MA) said he supports capping federal spending at 20 percent of GDP. Today, during an economic address in Chicago, former Minnesota governor and 2012 presidential hopeful Tim Pawlenty upped the ante, calling for a constitutional amendment that would cap federal spending at 18 percent of GDP (from his prepared remarks):
The best way, and possibly the only way — — to ensure fiscal discipline is to put the Congress in a spending straightjacket. That’s why I support a constitutional amendment. That not only requires a balanced federal budget, but also caps federal spending as a percentage of our economy. Around the historical average of 18% of GDP. Only a constitutional amendment has the power to bind future Congresses to keep their promises. Force decision-makers to finally make decisions. And give statutory reforms a chance to succeed. But passing a constitutional amendment will take awhile. And the crisis that we face is here now. And requires immediate action.
To get a sense for how radical this is, the House Republican budget — which essentially eliminates Medicare and Medicaid — will result in spending at 20.25 percent of GDP in 2022 and 18.75 percent of GDP in 2040, according to the Congressional Budget Office. So Pawlenty’s plan would require even more draconian cuts than those that the House GOP endorsed.
A federal spending cap of the sort Pawlenty desires would likely force the government into approving hundreds of millions of dollars of cuts in Social Security and Medicare. As the Center on Budget and Policy Priorities pointed out, such a cap would also make recessions worse, by forcing the government to cut during a downturn, reinforcing the downward spiral. And at the end of the day, it doesn’t even guarantee a balanced budget, as it ignores revenue. The budget won’t be balanced if spending is consistently at 18 percent of GDP but revenue is consistently lower.
And Pawlenty plans to decimate federal revenues, as he is calling for huge tax cuts that will overwhelmingly benefit the very richest Americans and the very biggest corporations, adding trillions of dollars in deficits that will have to be made up elsewhere (likely by hiking taxes on the middle class). With his plan, Pawlenty really is doubling down on the failed economic prescriptions of the past, hoping that more and bigger tax cuts will, this time, lead to prosperity.