Republicans’ Dangerous Debt Ceiling Demands

The debt ceiling debate has been pushed back to August and, while almost everyone expects the ceiling will be raised, it won’t be without a political price and the Republicans are starting to name theirs. The Republican Study Committee (RSC), a group of conservative House Republicans, drafted a letter outlining three conditions for raising the debt limit:

  • Cut – Spending cuts that would reduce the deficit by half next year
  • Cap – A permanent limit on federal spending set at 18% of GDP
  • Balance – A Balanced Budget Amendment sent to the states for ratification, with protections against tax and spending increases

103 House Republicans have signed on to the “Cut, Cap, and Balance” plan, along with conservative advocacy groups like Heritage Action for America, the American Conservative Union, the Club for Growth, the Family Research Council, and Americans for Tax Reform.

The RSC offers no concrete plan on how their demands are to be achieved or what areas of spending should be slashed, but the level of proposed cuts is almost unfathomable even in a good economy. The RSC claims that cutting the deficit by half in 2012 would require spending cuts of $380 billion. The Urban/Brookings Tax Policy Center and the Economic Policy Institute both estimate the magic number is closer to $550 billion.

Even if the spending reduction needed to halve the deficit is $380 billion as the RSC claims, it would represent a decrease of 10% from the 2011 federal budget. In comparison, the 2012 budget proposed by House Republicans under Paul Ryan’s leadership would cut spending by 3%. Economists fear that such drastic spending cuts would cripple the still troubled economy and could push us back into a recession.

As Howard Gleckman of the Tax Policy Center points out, there are only two times in modern history when the US cut federal spending by more than 10% in a single year – at the end of World Wars I and II. Only when our military machine was quickly decommissioned and the economy was experiencing a post-war buzz were we able to achieve spending drops like those proposed by the RSC.

The RSC proposal seems to be part of an ongoing power struggle between moderate and Tea Party Republicans for control of their party. It could also be an attempt to create a political straw man so that more modest, but still drastic, spending cuts (like the 3% in the House Republicans’ proposed 2012 budget) seem palatable.

(Disclosure: I used to work for the Urban Institute.)