New Report: A Blueprint for Sustainable Discretionary Spending Caps

Successful spending caps should be uncomfortable but not painful

New York, NY – The recently resolved debt ceiling conflict included two years of discretionary spending caps. However, critics have panned these latest caps as poorly-designed and ineffective. In a new Manhattan Institute report, senior fellow Brian Riedl examines the history of discretionary spending caps to show how Congress can design the next round in a more successful and sustainable manner.

The past 44 years have split evenly between 22 years with discretionary caps and 22 years without caps. Riedl calculates that annual appropriations increased by 2.7 percent during the capped years, versus 6.4 percent during the uncapped years. Paradoxically, however, unrealistically tight spending caps drove the largest spending increases: when lawmakers decided to raise those tight caps, they often got their money’s worth by expanding spending by more than 10 percent. This suggests that successful and sustainable caps must be set at realistic growth rates.

The report offers a history of previous attempts to rein in spending through discretionary spending caps and an analysis of those caps’ successes and failures. Riedl argues that spending caps should be realigned frequently, that sub-caps for defense and nondefense spending foster bipartisan support, that flexible caps are more effective than rigid ones, and that limiting what counts as “emergency spending” is vital to avoiding loopholes.

Drawing from these lessons, Riedl makes recommendations for the spending caps that will be necessary starting in 2025. These include:

• Requiring legislative renewal: Cap levels must reflect current political and economic realities, and regular renewals – roughly every three to five years – help achieve this.
• Allow automatic cap adjustments: To account for significant inflation, scoring reestimates, and changing allowances, caps need to be flexible; otherwise, they risk being canceled.
• Include defense and nondefense sub-caps: Sub-caps assure both Republicans and Democrats that their priority spending category will not be raided by the other party to meet caps.
• Address emergency spending better: To avoid abuses, Congress should codify the definition of emergency spending as meeting all of five criteria: necessary, sudden, urgent, unforeseen, and temporary.
• Allow realistic spending growth rates: Even holding discretionary appropriations to 3 percent annual growth would still reduce their share of the economy indefinitely.

Read the full report here.