NCPA - National Center for Policy Analysis

Limit Annual Federal Spending

March 15, 2011

The federal government is approaching its legal borrowing limit, and fiscal conservatives in Congress are wondering what spending reforms they can extract in return for supporting a debt-limit increase.  A simpler idea would be to impose a statutory limit on annual spending growth of 3 percent.  If total federal outlays in a year were $4 trillion, the government could not spend more than $4.12 trillion the next year.  It would be that simple, says Chris Edwards, director of tax policy studies at the Cato Institute.

  • Such a limit would be easy for policymakers and the public to understand and enforce.
  • It would put ongoing pressure on Congress to cut discretionary programs and reform entitlements.
  • With spending growth limited to 3 percent, the budget would be balanced in just over a decade and growing surpluses would be generated after that.
  • The federal government would shrink as a share of gross domestic product (GDP).
  • The math is simple: federal revenues and GDP are expected to grow substantially faster than the 3 percent spending limit over the next decade and beyond.

Limiting spending growth to 3 percent is a modest goal, but over time the results would be quite dramatic compared to Obama's no-reform spending plan.  Spending in 2021 would be about $1 trillion less than the president is projecting -- $4.7 trillion rather than $5.7 trillion, says Edwards.

Source: Chris Edwards, "Federal Budget Cap at 3%,", March 8, 2011.

For text:


Browse more articles on Economic Issues