Discretionary Savings in the Bipartisan Path Forward

Over the past few years, lawmakers have made the most progress in discretionary spending in the deficit reduction effort. Additional opportunities for finding efficiencies in the discretionary budget exist for defense and nondefense, but right now cuts are being done through sequestration, which imposes blunt, across-the-board reductions instead of targeting areas where resources could be allocated better. Simpson and Bowles seek to improve upon this approach in their new plan as evidenced by their principle, Replace Dumb Cuts with Smart Reforms. In their words:

The mindless, across-the-board cuts from sequestration would reduce the deficit, but represent the wrong approach to budgeting. These cuts should be replaced with targeted reforms that focus on the drivers of the debt while eliminating redundant, wasteful, ineffective, or unwarranted federal spending while preserving high-value investments.

In particular, Simpson and Bowles propose four changes to discretionary budgeting:

• Replace sequestration with tight discretionary caps through 2025 to require real but gradual spending controls.
• Establish a 67-vote point of order to enforce caps so future lawmakers cannot easily reverse the spending controls.
• Cap spending on overseas contingency operations to end the “war gimmick” and prevent policymakers from classifying normal defense spending as war spending
• Stop the abuse of emergency spending by adopting a formal definition of emergency and justifying disaster spending against that definition.

Of most significance, from a fiscal respective, is the replacement of sequestration with more gradual discretionary caps. Specifically, Simpson and Bowles would repeal 70 percent of the sequester cuts for FY2013 and then cap defense and non-defense spending levels through 2025 to grow at the rate of inflation (as measured by chained CPI). Because this change would build off of the levels under sequestration, this change would result in about $220 billion of defense savings and $165 billion of non-defense savings -- $385 billion total. This compares to the $690 billion of direct discretionary savings ($870 billion if levels are extrapolated) from the sequestration.

^{Source: Bipartisan Path Forward}

These caps will not be easy to abide by. Capping spending growth to the rate of inflation will require continuing to identify efficiencies and make tough decisions about what government should and shouldn’t be doing. However, using hard spending constraints to require these changes over time is far superior than allowing an abrupt across-the-board meat axe to cut spending indiscriminately in 2013 and require no efficiencies after 2021.