Every now and then senators/representatives propose things in Congress that sound good but are really terrible federal policy. A new bill that proposes to Federal spending at 20.6% of GDP is exactly one of those bills. This sounds reasonable. But with 25% of our GDP currently dependent on federal spending this would mean drastic cuts to the federal budget.
More from the Center for Budget and Policy Priorities:
A prominent proposal by Senators Bob Corker (R-TN) and Claire McCaskill (D-MO) to limit total federal spending to no more than 20.6 percent of the Gross Domestic Product (GDP), which is attracting increasing attention, may sound benign, but it would inevitably force enormous cuts in Medicare, Medicaid, and possibly Social Security.
The Corker-McCaskill bill would impose automatic, across-the-board cuts (a “sequester”) to close the gap between projected spending and the proposed cap if the cap would otherwise be breached. If the cuts needed to reach the cap were achieved entirely through this mechanism, the estimated cuts would total about $1.3 trillion in Social Security, $856 billion in Medicare, and $547 billion in Medicaid over the first nine years that the cap was in effect, from 2013 through 2021. These figures are based on Congressional Budget Office (CBO) projections of spending over the next decade under current policies and on the Corker-McCaskill formula for how across-the-board cuts would be imposed.
The cuts in Social Security, Medicare, Medicaid, and other programs would grow much larger in subsequent decades. For one thing, the 20.6 percent cap would phase in gradually and would not be fully in effect until 2023 and thereafter.  For another, Social Security, Medicare, and Medicaid costs are projected to rise substantially in future decades due to the aging of the population and rising health care costs and, thus, would have to be cut by increasingly severe amounts to meet the Corker-McCaskill level. (more…)