Drawing on our experience with budget enforcement, we have developed a mechanism called Save as You Go, or “Save-go,” patterned after the Budget Enforcement Act of 1990, which contained spending caps and pay-as-you-go (“Pay-go”) requirements. Pay-go stipulated that any increase in deficits be offset by equal savings elsewhere in the federal budget, thereby guaranteeing that revenue and entitlement policies enacted by Congress could not increase the deficit.
While pay-go made a major contribution to reducing deficits in the 1990s, it is not adequate to deal with today’s situation, in which deficits will grow in the future without any new legislation. Where pay-go played defense, save-go will compel Congress to play offense and cut projected deficits and debt.
Save-go requires that Congress achieve specific, annual dollar amounts of budget savings in each of three categories: discretionary (domestic and defense) spending, health-care spending, and other entitlement spending plus revenue. If, for example, Congress cut $4 trillion from projected future deficits over a 10-year period, legislation would have to be altered to hit year-by-year savings targets in each category, in total adding up to the $4 trillion.
But if Congress failed to meet the yearly targets in any of the three buckets, a trigger would be pulled. If the discretionary spending target were missed in any year, domestic and defense spending would face automatic, across-the-board cuts. If the health-care target were missed, health programs would be cut across the board. If the target for other entitlement spending and revenue were missed, other entitlements (including Social Security) would be cut and tax expenditures — the loopholes that are really “spending through the tax code” — would be cut or other revenue increased.
The debt reduction mandated in save-go will happen automatically if members of Congress fail to act. They will have a stark choice: Either achieve the pre-set savings targets or allow the tough, automatic cuts. We believe that the threat posed by this sword of Damocles will compel congressional action.
The president, congressional leaders and the Senate’s “Gang of Six” have proposed that budget process mechanisms to mandate future deficit reduction be part of broader actions to bring America’s dangerous national debt under control. We believe save-go is a particularly well-designed mechanism because it includes both the spending and revenue sides of the budget, and does not exempt major entitlement programs such as Medicare and Social Security. While spending reductions must be the predominant element in deficit reduction, revenue must also be part of the solution and the enforcement mechanism. Reliance on spending caps alone, especially caps that fail to recognize the impact of a rapidly aging population on growth in entitlement spending, will not lead to bipartisan support or credible enforcement. Nor will a mechanism that exempts the major drivers of rising government spending.
Moreover, save-go sets specific year-by-year savings targets achievable by legislative action. Both of us remember the 1985 Gramm-Rudman-Hollings initiative, which also emerged from a debate over the federal debt ceiling; we learned that deficit- or debt-to-GDP targets are flawed because they shift with unforeseen changes in the economy and require Congress to chase targets that it cannot control. The subsequent pay-go mechanism worked far better because Congress could meet the target by legislating.
Attaching save-go to legislation raising the debt ceiling will allow those most concerned about future deficits to raise the ceiling in a fiscally responsible way. Congress can then act to hit its targets with carefully constructed legislation, or not. Either way, the promise of debt reduction for the American people will be met.
Pete V. Domenici, a former chairman of the Senate Budget Committee, is a Republican from New Mexico. Alice M. Rivlin was the founding director of the Congressional Budget Office and a director of the Office of Management and Budget in the Clinton administration.