It seems clear now that the President is not going to adopt the best strategy for passing the debt limit, by simply demanding a clean bill and letting Jamie Dimon and Lloyd Blankfein do the work of forcing Congress to act. He’ll allow the hostage-taking event to occur, he’ll let the hostage walk to school alone up the alley while the Republicans lay in wait. In the end, the debt limit will pass, but only after a round of hysteria and possibly an open rule designed to throw a dozen ideas into the mix, so the negotiation can bargain down to a few.

One of those possibilities may be McCaskill-Corker, which is basically a spending cap.

McCaskill was asked back in February if she wanted this bill to be included with a vote on the debt limit. She said no then, and she said no today. But her co-endorsers were more open to the idea. Lieberman said that his fellow moderate senators had met on Tuesday, and convinced him that “something like this has a chance.”

“We were talking about the debt ceiling,” said Lieberman, “and it was quite significant — everyone in the room said they were not prepared to vote for a, quote, ‘clean’ debt ceiling extension. In other words, they wanted something to happen that would give them and their constituents some kind of confidence that while we were increasing the debt ceiling we were actually doing something to lower the debt.”

So what is McCaskill-Corker? It would mandate that spending, within ten years, go from 24.7% of GDP to 20.6% of GDP. Instead of looking at what society needs, and advancing programs designed to fulfill those needs, and then determining how to pay for them, then, this bill would artificially limit spending to an arbitrary number that is less than the 22% level of spending under Ronald Reagan. And instead of picking and choosing what programs to save under that cap, McCaskill-Corker forces OMB to make the decision of making “evenly distributed, simultaneous cuts throughout the federal budget.” This would include mandatory spending like Medicaid, Medicare and Social Security.

James Homey of CBPP eviscerated this idea at the time.

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.

Policymakers could avoid across-the-board cuts by making specific cuts in specific programs to meet the Corker-McCaskill cap before a sequester would occur. But to do so, they almost certainly would have to enact the kind of radical policies for Medicare and Medicaid that are included in House Budget Committee Chairman Paul Ryan’s sweeping budget plan. Those policies include replacing traditional Medicare with a voucher for purchasing private insurance, converting Medicaid to a block grant, and eliminating most or all of health reform’s provisions that extend coverage to an estimated 34 million more Americans, including the Medicaid expansion and subsidies to make insurance affordable for working families. Indeed, even the cuts in the Ryan plan — which also includes very sharp reductions in non-security discretionary spending, one-third of which would be eliminated by 2021 — would not be quite deep enough in some years to meet the Corker-McCaskill cap. The Ryan plan produces total federal spending of 20 ¾ percent of GDP in 2030.

McCaskill-Corker, then, is the Ryan budget without the fingerprints. Note that they arrived at this spending cap number by looking at historical averages over three decades, none of which included the baby boom generation in retirement.

If you want to know about the impact of spending caps, just travel to Colorado. When California was considering a spending cap in 2009, we wrote about Colorado’s experience at Calitics:

We don’t have to guess about the impact of spending caps. In 1992, Colorado instituted a spending cap as part of TABOR, and within a few years spending on education, health care, and practically all other measures of government dropped from the middle of the pack relative to other states to almost dead last in every category. Considering that California ALREADY ranks near the bottom in these categories, the result would be even more disastrous. The California Budget Project estimates that the cap would force the state to reduce expenditures $16 billion dollars below the Governor’s baseline spending projections by 2010, $17 billion by 2011 and $21 billion by 2012.

Eventually, Colorado voters suspended their spending cap because the state would otherwise not have been able to survive. This is the forward-thinking idea Claire McCaskill wants to bring to the federal government.

Another possibility is the “fail-safe” trigger that Barack Obama mentioned in his budget speech, which like McCaskill-Corker would reduce spending automatically if the budget didn’t reach certain targets. This has been tried and failed in Washington, with Gramm-Rudman-Hollings.

Reagan’s fail-safe was designed to automatically trigger sharp cuts in government spending if massive deficits continued to spin out of control. But politicians couldn’t keep their hands off the fail-safe, adjusting it when precious programs were threatened, and ultimately they killed the provision. The cuts were “too enormous to be politically tolerable,” said Rudolph Penner, who at the time was head of the nonpartisan Congressional Budget Office.

A fight in Congress produced a landmark piece of legislation called the Gramm-Rudman-Hollings Act that required automatic cuts if the government didn’t reduce spending enough. It had prominent opponents, including then-Speaker Tip O’Neill (D-Mass.), who denounced it as “a gimmick” and “a disgraceful measure to subvert the Constitution.” [...]

But the fail-safe proposal was attractive to other Democrats, and it passed in 1985. It was eliminated a few years later when the economy went south and necessary cuts were bigger than anticipated.

This is precisely the problem with spending caps of these types, they don’t allow for contingencies. If another financial shock or a recession occurred, could government spend to get out of it? The White House says they would adjust the trigger to accommodate this, but absolutely nobody knows how that would work.

This is another reason why Harry Reid was wrong to inexplicably allow the debt limit vote to get past last December, when the Democrats had large majorities. He said he wanted Republican “skin in the game” on the debt. That might result in an unworkable, unthinkable spending cap being put in place.