By PHIL GRAMM as appeared in Wall Street Journal on February 27, 2013 on page A13 in the U.S. edition of The Wall Street Journal

President Obama’s message could not be clearer: Life as we know it in America will change dramatically on March 1, when automatic cuts are imposed to achieve $85 billion in government-spending reductions. Furloughed government employees, flight delays and criminals set free are among the dire consequences the president has predicted. If the Washington Monument weren’t already closed for repairs, no doubt it too would be shut down.

Scare tactics such as these are similar to the ones that were made when I co-authored the first sequester legislation in 1985, the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act. The 1986 sequester was triggered anyway, but the predicted disaster never came. The nation survived then. It will now.

The president’s response to the sequester demonstrates how out of touch he is with the real world of working families. Even after the sequester, the federal government will spend $15 billion more than it did last year, and 30% more than it spent in 2007. Government spending on nondefense discretionary programs will be 19.2% higher and spending on defense will be 13.8% higher than it was in 2007.

For a typical American family that earns less than it did in the year President Obama was elected, the anguished cries and dark predictions coming out of the White House should elicit not sympathy but revulsion.

When the 1985 sequester was created, the formula for cuts was closely examined, debated, amended and agreed to by a Democratic House and a Republican Senate and White House. Today’s sequester is denounced because of the allegedly arbitrary nature of its across-the-board cuts. Yet the sequester formula that goes into effect on Friday preserves the spending priorities legislated by the Congress and the president, including exemptions and limitations they favored when the Budget Control Act of 2011 became law. The president himself first proposed the sequester. He may not like the way it works, but he has offered no real alternative.

Congress and the president might have worked together to avoid this outcome. Congress could have passed a budget resolution. The Republican House has repeatedly passed budgets, but the Democratic Senate hasn’t passed one in four years. Past sequesters allowed for fast-track consideration of alternatives or modifications to the cuts—but the 2013 version doesn’t allow for those.

Even if the sequester goes into effect, the magnitude of the automatic cuts won’t be very different from those imposed in 1986. Nor is the job of finding alternative spending reductions any harder than it was when alternative cuts were enacted in 1987.

The first Gramm-Rudman sequester took effect on March 1, 1986. It cut nondefense spending by 4.3% and defense spending by 4.9%.

The most recent estimate by the Congressional Budget Office for this year’s sequester is that nondefense spending will be cut by 4.6% and defense spending will be cut by 7.9%. While the sequester will reduce spending authority by $85 billion, the actual cuts that will occur in 2013 will be $44 billion. That is a mere 1.2% of total federal spending this year.

The first round of cuts under Gramm-Rudman weren’t so devastating that Congress and the president rushed to repeal them. In July 1986, Congress had the opportunity simply to stop the sequester after the Supreme Court invalidated its triggering mechanism. Instead it voted overwhelmingly to reaffirm the across-the-board cuts. The vote in the Democratic House was 339 to 72, and the Republican Senate approved it by acclamation, not deeming it worthy of a roll-call vote.

In 1987, Congress fixed the triggering mechanism and restored the sequester in Gramm-Rudman II. That deal would have cut nondefense discretionary spending by 8.5% and defense spending by 10.5%, far greater cuts than will be triggered this year. Yet a Democratic Congress and a Republican White House came together to replace that sequester with spending cuts in fiscal years 1988 and 1989 that were larger than those called for by Gramm-Rudman II.

While history shows that a divided government can enact significant spending cuts as an alternative to sequesters, that doesn’t appear to be the path Mr. Obama intends to follow. Instead of protecting civilian defense workers, the president will continue to force the Pentagon to buy biofuels at $27 per gallon to promote his green agenda. Instead of protecting children from cuts in nutrition programs, the president will continue to allow $2.7 billion of fraud and mismanagement he has identified in the food-stamp program. Instead of protecting Medicare from a 2% cut, the president will ignore $62 billion in annual waste that his administration has identified in Medicare and Medicaid.

But governing is not about blaming someone else—it is about choosing.

While Mr. Obama may choose to make the cuts ordered by the sequester in the most painful way possible, the best alternative—which is practiced every year to some extent—is allowing federal agencies to transfer funds among individual programs with congressional approval or by rearranging priorities as part of the March 27 resolution to fund the government for the rest of the fiscal year.

That doesn’t sound like a herculean task to Americans who make hard choices every day. Their choices have become harder and more frequent because the country’s political leaders seem unwilling to do the same in Washington.

— Mr. Gramm, a former Republican senator from Texas, is a senior partner of US Policy Metrics.

(As published on Wall Street Journal)

Uniting a divided Congress around a major deficit reduction plan was never going to be easy, but it is virtually impossible when the incumbent president campaigns instead of governs and seeks to divide the nation based on how much money people make.

As markets and the media conclude that the congressional super committee on deficit reduction is likely to fail, public attention is increasingly focused on the “draconian” across-the-board cuts that will ensue. A little refresher course on the size of these cuts in the context of the spending spree that occurred since 2007—when the Democrats took control of Congress—is in order.

More importantly, it’s time to look at the fine print of the 1985 Gramm-Rudman Act, which was revived by this year’s Budget Control Act, and the final chance it might give to the next Congress and the next president to do the job right if this president and this Congress fail.

The super committee and the threatened across-the-board cuts were created by the Budget Control Act, which converted the debt ceiling agreement between the president and Congress into law on Aug. 2. It required that debt increases be fully offset by spending cuts over the subsequent 10 years. The first debt limit increase contained in the Budget Control Act capped and reduced total spending by $917 billion. The second debt limit increase will require an additional $1.2 trillion reduction to be accomplished either by the super committee or by automatic across-the-board spending reductions called a sequester—a budget control mechanism from Gramm-Rudman.

If the super committee fails to agree on a budget plan, or if the plan is rejected in Congress or vetoed by the president, the combination of the reduction in spending already made ($42 billion in fiscal year 2013) and the potential sequester ($68 billion in 2013) would reduce 2013 spending by $110 billion, with $16 billion coming from nondefense mandatory spending and the rest split between defense and nondefense discretionary spending.

Across-the-board cuts are clearly inferior to rationally setting priorities, but they’d be far from debilitating. Spending has grown so fast in the last five years that even if the cuts are triggered, total spending in 2013 would still be a whopping $3,579 billion—32% more than projected by the Congressional Budget Office in January 2007. Even after adjusting for inflation, real nondefense discretionary spending would be up $41 billion or 7.6% higher, and real defense discretionary spending would be up $77 billion or 13% higher.

While a sequester would not be the end of the world, even for Washington, happily there is another chance to get this right. When Congress passed the Budget Control Act setting up the sequester process, it also repealed the expiration dates in Gramm-Rudman, bringing back to life provisions enabling the president and Congress to propose alternatives after the sequester is ordered. Gramm-Rudman never intended across-the-board cuts to be used for anything other than a prod to action and an impetus to force hard decisions lest the dreaded sequester be unleashed on the programs Congress cherished. We also knew Congress would do the right thing only after it had exhausted every other alternative, which would take time. So we gave Congress and the president a few last chance opportunities, after the sequester was ordered, to come to their senses.

When the Budget Control Act brought Gramm-Rudman back to life, the final alternatives to the across-the-board cuts were restored, allowing the president to submit a resolution reordering the Department of Defense sequester to shift reductions among defense accounts. This resolution is highly privileged, and while it can be amended, it cannot be filibustered. This option—when combined with the unilateral power the president already has to protect defense personnel accounts from the sequester and the ability of the president and Congress to reduce other spending in lieu of defense spending—should be sufficient to protect our effort in the global war on terrorism.

But the most important Gramm-Rudman provision revived by the Budget Control Act provides that 20 days after the final sequester order, the majority leader in either house of Congress may proceed to consider a joint resolution that can “modify” or “provide an alternative” to the sequester order. Such a resolution can be amended only with relevant amendments, debated for only 10 hours and can’t be filibustered.

As is always the case with complex legislation, there will be parliamentary debate as to whether the revived Gramm-Rudman process applies to this particular sequester, based on the frivolous argument that the sequester does not require various reports to be filed prior to the cuts going into effect. The old Gramm-Rudman sequesters were triggered by the filing of such reports. Republicans will argue that the reports are a technicality and that the intent of the Budget Control Act in explicitly bringing Gramm-Rudman back to life when it employed the sequester as an enforcement device is clear. Democrats will likely argue that the sequester following the failure of the super committee is so unique that the Gramm-Rudman post sequester procedures do not apply. But given the clear intent of the Budget Control Act, their argument will be weak.

President Obama insisted that if the super committee failed, the sequester cutting $68 billion in 2013 had to occur after the 2012 election, in the next administration. As written, if a sequester is triggered, it would occur on Jan. 2, 2013. If Republicans win a majority in the House and Senate they could use the provisions of the revived Gramm-Rudman Act to replace or modify the 2013 sequester with entitlement reforms or other changes in discretionary spending. Their plan could not be filibustered and would pass with a simple majority vote. The savings achieved would be in effect for only one year.

The resulting empowerment of a new Republican Congress and a new Republican president would be profound. Rather than having to first adopt a budget, delaying real action until the summer or fall of 2013, a new Republican Congress could de-fund ObamaCare immediately and begin to reform entitlements for a year during which they could adopt a budget and use reconciliation to make these and other reforms permanent with a simple majority vote.
In his effort to put off the difficult decisions of governing until after the election, President Obama has made it possible for a new Republican Congress and a new Republican president, not tied to the mistakes of the past, to begin the repeal of ObamaCare and restore fiscal sanity the moment the new president’s hand comes off the Bible on Jan. 20, 2013.

If the super committee can write a good plan it should do so now, but it should not take a bad deal that could hurt the economy and further Hellenize America’s debt crisis. Help, committee members should bear in mind, is just an election away.

Mr. Gramm was co-author of Gramm-Rudman and a U.S. senator from Texas from 1985-2002. Mr. Solon contributed to the passage of Gramm-Rudman as a staffer for the House Republican Study Committee.

The Washington Times – Wednesday, October 7, 2009

Federal budget deficits are back with a vengeance. With the U.S. economy showing clear signs of recovery, it is time for Washington policymakers to shelve budget-busting health care reform and “cap-and-trade” legislation and focus instead on reducing deficit spending.

Newly released budget projections from the Congressional Budget Office (CBO) and the Obama administration paint an alarming fiscal picture: The CBO says the deficit will be $1.6 trillion by the end of this year and $1.4 trillion in 2010, or $3 trillion in new borrowing in two years.

By contrast, in the 219 years from 1789 to 2008, America amassed $5.8 trillion in federal debt. The president’s Office of Management and Budget (OMB) predicts government debt rising to $5.3 trillion by the end of 2019. According to OMB, the president’s budget plan will produce deficits totaling more than $9 trillion over the next decade, while CBO projects deficits closer to $12 trillion over the same period.

Either way, trillion-dollar deficits as far as the eye can see is the projected result of President Obama’s budget plan, with federal budget deficits and debt rising to levels not seen since World War II.

At these eye-popping levels, budget deficits do matter. Higher deficits, all other things being equal, put upward pressure on interest rates. Interest payments will triple as a share of the economy and more than quadruple in dollar terms over the next decade from $172 billion next year to $806 billion in 2019, which would be about $200 billion more than we spend each on Social Security and the Pentagon budget.

And those record-high deficits and interest payments are based on highly doubtful economic assumptions. Mr. Obama’s budget assumes his deficits, which will average the largest share of the economy as measured by decade, by administration or by post-recession recovery, will somehow permit extremely low Treasury interest rates and near-record rates of economic growth.

If this rosiest of scenarios does not happen, the federal debt will spiral further out of control. At some point, the Federal Reserve Board will have to monetize the debt, which in turn will produce higher inflation.

It’s time to bring back and update the Gramm-Rudman-Hollings emergency deficit-cutting law. Championed by former Sens. Phil Gramm, Texas Republican, Warren Rudman, New Hampshire Republican, and Ernest Frederick “Fritz” Hollings, South Carolina Democrat, the bipartisan Gramm-Rudman law was enacted in 1985, when Congress was under intense public pressure to reduce what was then considered an unheard-of budget deficit of $200 billion.

Specifically, the law required Congress to meet year-by-year deficit-reduction targets, ending with a balanced budget by the end of 1991. If Congress missed those targets, the law triggered automatic across-the-board spending cuts – a process called “sequestration” – to reduce deficit spending to the mandated level.

Critics charged that Gramm-Rudman failed because Congress routinely missed the annual deficit-cutting targets by an average of $30 billion, and the budget was never balanced while the law was in effect. True, but all told, Gramm-Rudman did produce lower deficits: The fiscal 1989 deficit was about $100 billion lower than had been expected in 1985 without Gramm-Rudman, and deficits as a share of our national economy decreased from 5.8 percent to 3.8 percent from 1985 to 1989. Gramm-Rudman also curbed the growth of government spending from an annual average of 8.7 percent in the five years before the law to 3.2 percent in the five years it was in effect. Even entitlement-spending growth slowed to 5 percent annually as Congress trimmed mandatory spending to avoid draconian cuts in discretionary spending programs.

Gramm-Rudman was like President Truman’s “containment policy” – it did not eliminate the budget deficit, but it stopped the deficit’s growth when it appeared to be unstoppable.

The 1990 Budget Enforcement Act effectively replaced the Gramm-Rudman deficit-reduction targets with two enforcement regimens: caps on discretionary spending and a pay-as-you-go requirement for direct spending and revenue legislation. Interestingly, the deficit limits and across-the-board sequester mechanism were suspended in 1990 but could have been re-triggered by the president on Jan. 21, 1993. Although President Clinton decided not to re-trigger Gramm-Rudman, there are remnants of the law that could be restored and updated by congressional action today.

A new Gramm-Rudman emergency deficit-control act should set annual deficit-reduction targets beginning in 2010 and ending with a balanced budget by 2016. We suggest a couple of improvements: One, instead of annual dollar-amount deficit targets, the new Gramm-Rudman should have percentage of gross domestic product (GDP) deficit targets, starting at 10 percent of GDP in fiscal 2010 and declining in proportionate steps all the way down to zero in 2016. For instance, the president’s budget would have to chop out deficit spending amounting to 2.9 percent of GDP to comply with the mandated deficit target in 2010.

By setting annual deficit ceilings as a share of the economy, Congress would have more incentive to adopt pro-growth economic policies and avoid anti-growth policies such as increasing tax rates on work effort and investment or raising taxes on energy.

Second, an updated Gramm-Rudman should include all government expenditures in the across-the-board sequester except for interest payments and Social Security benefits. To avoid cheating and gaming, there also should be a second, “look-back” sequester to prevent Congress from back-loading spending programs to avoid the initial sequester, as it did in the late 1980s.

For national and homeland-security spending, the original Gramm-Rudman allowed the president to protect specific defense programs from the sequester; the new act would retain this flexibility for both defense and homeland security spending. The threat of triggering deep and painful automatic spending cuts would impose a much-needed dose of fiscal discipline on Congress and force Democrats and Republicans to agree on a deficit-cutting plan every year.

Balancing the budget by 2016 is admittedly tough – some will say impossible. But it can be achieved through the combination of firm spending restraint and, most important, rapid economic growth.

Remember, in the late 1990s, the Republican Congress and Mr. Clinton cut spending and reduced the capital-gains tax, which rapidly produced huge budget surpluses: From 1997 to 2000, the federal balance sheet went from a $21 billion deficit to a $236 billion surplus.

So balancing the budget in six years is achievable, but members of Congress will need the threat of automatic spending cuts to force them to get the job done.

Cesar V. Conda is a former economic and domestic policy adviser to former Vice President Dick Cheney, and Michael J. Solon is a former economic adviser to former Sen. Phil Gramm.