Reps. John Campbell (R-CA) and Jeb Hensarling (R-TX) have offered a constitutional amendment that would forbid federal spending from growing faster than the economy (as defined by the nominal gross domestic product). Both lawmakers should be applauded for acknowledging that runaway spending – rather than low tax revenues – is the chief budget problem, and that spending caps are a strong solution. Had spending been limited to the overall economic growth rate since 2001, the budget would have been in surplus last year.
Spending caps will finally force lawmakers to set priorities and make trade-offs. Today, without such spending limits, Congress has strong political incentives to give into every spending request without searching for responsible offsets or making any hard decisions. Because interest groups will continue pressuring them to spend, lawmakers need a budget process that helps them say no. By offering a constitutional amendment rather than a statutory reform, Reps. Campbell and Hensarling set a high bar for enactment, but would create a cap less prone to legislative gaming (it could be waived only during wartime or with a two-thirds supermajority vote in Congress).
There are two ways to improve the amendment. First, Congress should base the spending cap on a rolling average of the previous five years’ economic growth (rather than three) to further smooth out the yearly cap adjustments, and to avoid situations where large spending increases would be allowed in economic booms (when they are least needed), and deeper spending restraint required during sluggish economic times (when spending would automatically rise faster). Second, states are unlikely to ratify such an amendment if they fear lawmakers will restrain spending by dumping new unfunded mandates on them. This could be addressed with a provision stating that the federal spending cap would be automatically reduced by the cost of any new unfunded mandates.
Reps. Hensarling and Campbell should be applauded for seizing on spending caps as the best way to restrain expanding government. Lawmakers interested in spending restraint should take this proposal seriously.