If tax cuts and the budget deal are both made permanent, the Committee for a Responsible Federal Budget estimates that number will rise to $2.1 trillion by 2027, pushing the debt-to-GDP ratio to well over 100 percent of GDP. This is the opposite of what we should be doing after a sustained period of growth.
Evidence from around the world shows that effective balanced budget rules can be part of a solution too, helping politicians overcome their inherent "Deficit bias".
Last year, the Congressional Budget Office estimated that getting the debt-to-GDP ratio back to its historic average of 40 percent of GDP over three decades would require permanent spending cuts equal to 3.1 percent of GDP. Doing nothing until 2028 would make the needed cuts much steeper at 4.6 percent of GDP. So, we need to act sooner rather than later - and that change surely requires changing the budget process.
Rather than asking politicians to vote to finance spending commitments they have already made, as the debt ceiling does, we need a rule that binds their hands in the first place and explicitly shows the trade-offs associated with new spending before they vote for it.
An effective rule that fulfils these criteria for the U.S. would be set a cap each year for annual spending, since this is the variable that government has most control over.
To achieve the same results as a balanced budget over time, this cap should be set at an estimate of revenues for this year based on the trend in revenues seen across the previous seven years.
As part of the long-term answer to today's federal fiscal challenge, this rule would be a clear and transparent way of setting spending limits, and an important step toward getting debt-to-GDP back on a sustainable, downward path.
https://www.realclearpolicy.com/articles/2018/03/05/why_we_need_a_smart_balanced_budget_rule_110535.html
Evidence from around the world shows that effective balanced budget rules can be part of a solution too, helping politicians overcome their inherent "Deficit bias".
Last year, the Congressional Budget Office estimated that getting the debt-to-GDP ratio back to its historic average of 40 percent of GDP over three decades would require permanent spending cuts equal to 3.1 percent of GDP. Doing nothing until 2028 would make the needed cuts much steeper at 4.6 percent of GDP. So, we need to act sooner rather than later - and that change surely requires changing the budget process.
Rather than asking politicians to vote to finance spending commitments they have already made, as the debt ceiling does, we need a rule that binds their hands in the first place and explicitly shows the trade-offs associated with new spending before they vote for it.
An effective rule that fulfils these criteria for the U.S. would be set a cap each year for annual spending, since this is the variable that government has most control over.
To achieve the same results as a balanced budget over time, this cap should be set at an estimate of revenues for this year based on the trend in revenues seen across the previous seven years.
As part of the long-term answer to today's federal fiscal challenge, this rule would be a clear and transparent way of setting spending limits, and an important step toward getting debt-to-GDP back on a sustainable, downward path.
https://www.realclearpolicy.com/articles/2018/03/05/why_we_need_a_smart_balanced_budget_rule_110535.html
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