Socialism is such fun — until the other guy’s money runs out. At that point, even spendaholics may sober up and make tough choices. Irony of ironies, Washington’s fiscal excesses may put the final nail in the coffin of cap-and-trade.

A new study by the Center on Budget and Policy Priorities finds that GOP proposals to address the nation’s fiscal crisis, all of which cap federal spending at some percentage of GDP, would make climate legislation — whether cap-and-trade or a carbon tax — “virtually impossible to enact.”

The more severe the spending cap, the more it would “doom efforts to enact comprehensive climate change legislation,” even if the climate bill would not increase the deficit. The report’s authors lament the fact that spending caps would make the political obstacles to climate legislation “almost insurmountable.” It’s music to this non-socialist’s ears.

Between now and early August, federal spending will push the national debt up to its current statutory ceiling of $14.3 trillion. If Congress does not raise the debt ceiling, the U.S. Government will not be able to borrow additional money to fund federal programs and pay its creditors. 

Default — failure to pay the government’s creditors – is not really an option. Default would likely cause a massive spike in interest rates, a stock market crash, and liquidation of money market accounts — an economic crisis much worse than the one from which we are still trying to recover. 

President Obama and GOP leaders are wrangling over legislation to raise the debt ceiling. Obama wants a “clean” debt ceiling bill, by which he means “one that is not encumbered by any provisions that will limit the federal government’s ability to spend money now and in the future,” notes U.S. News & World Report reporter Peter Roff.

GOP leaders, in stark contrast, see negotiations over the debt ceiling as an opportunity to fix the overspending that is the root cause of the nation’s fiscal crisis. The most aggressive of these GOP solutions is called Cut, Cap, and Balance, devised by the House Republican Study Committee.  

In return for an agreement to raise the debt ceiling, GOP conservatives want the deal to include enactment of Cut, Cap, and Balance, the basic elements of which are:

1. Cut – Make discretionary and mandatory spending reductions that would cut the deficit in half next year.
2. Cap – Enact statutory, enforceable caps to align federal spending with average revenues at 18% of Gross Domestic Product (GDP) by 2017, with automatic spending reductions if the caps are breached.
3. Balance – Send the states a Balanced Budget Amendment (BBA) with strong protections against federal tax increases and a Spending Limitation Amendment (SLA) that aligns spending with average revenues as described above.

A milder version of this agenda, the Commitment to American Prosperity (CAP) Act (H.R. 1635), would put federal spending on a downward path to be capped at 20.6% of GDP by 2022.

Why would spending caps preclude enactment of future cap-and-trade or carbon tax legislation, even if deficit neutral? A climate bill would increase federal outlays by hundreds of billions of dollars. The Waxman-Markey cap-and-trade bill, for example, would have increased federal revenues by $751 billion to $873 billion over 10 years (from the sale of emission allowances), but would also have increased federal outlays by $732 billion to $864 billion (in the form of consumer relief on electric bills and ‘green’ energy ‘investments’). Federal outlays for 2011 in CBO’s baseline projection (p. 71) total $3.7 trillion, or 24.7% of GDP. It would be nearly impossible to increase spending by hundreds of billions and limit federal spending to 18% of GDP or even 20.6% of GDP. 

The Center for Budget and Policy Priorities explains:

Under a global [budget-wide] spending cap, such an approach [cap-and-trade, cap-and-dividend] would not be viable. Lawmakers would have to include very large budget cuts (likely hundreds of billions of dollars of cuts) in the same legislation in order to keep total federal spending within the spending cap. And these hundreds of billions of dollars of new budget cuts would come on top of the trillions of dollars in budget cuts in Medicare, Medicaid, numerous other programs, and possibly Social Security that already would be needed to shrink federal expenditures enough to fit within the global spending cap.  

The bottom line:

A global spending cap would all but doom efforts to enact comprehensive climate change legislation. Even if such legislation did not increase deficits, it would increase federal spending, and every dollar of additional spending would have to be offset by spending cuts, regardless of how much revenue the legislation generated.