Latest Posts

Home

Facebook

Twitter

Search
About

How the U.S. can avoid its looming debt crisis

On Monday, I had an op ed in the Star Tribune talking about the Congressional Budget Office’s (CBO) Budget and Economic Outlook for 2019 to 2029. It makes for pretty grim reading. Increases in federal spending are set to outstrip increases in revenues leading to larger deficits and increased debt. I concluded by saying that “To avoid spiraling federal debt and all the problems this will bring, substantial entitlement reforms are necessary.”

Someone I discussed this with said that I had “offered no details on entitlement reform”. Indeed, constraints of word counts limit what you can say in one column. So, here is a little detail, courtesy of economist Dan Mitchell.

…tax revenues, according to the CBO’s numbers, are going to increase by an average of nearly 5% annually over the next 10 years. This means that receipts will be more than $2.1 trillion higher in 2029 than in 2019.

 

And since this year’s deficit is projected to be “only” $897 billion, that presumably means that it shouldn’t be that difficult to balance the budget.

…borrowing can be addressed if a good chunk of that additional $2.1 trillion of new revenue is used to get rid of the $897 billion of red ink.

Unfortunately, the CBO report projects that the burden of government spending also is on an upward trajectory. As you can see from our next chart, outlays will jump by about $2.6 trillion by 2029 if the budget is left on autopilot.

The solution to this problem is very straightforward.

All that’s needed is a bit of spending restraint to put the budget on a glide path to balance.

I’m a big fan of spending caps, so this next chart shows the 10-year fiscal outlook if annual spending increases are limited to 1% growth, 2% growth, or 2.5% growth.

As you can see, modest spending discipline is a very good recipe for fiscal balance.

Our final chart adds a bit of commentary to illustrate how quickly we could move from deficit to surplus based on different spending trajectories.

…balancing the budget with spending restraint may be simple, but it won’t be easy.

If we want spending to grow, say, 2% annually rather than 5% annually, that will require some degree of genuine entitlement reform. And it means finally enforcing some limits on annual appropriations.

Those policies will cause lots of squealing in Washington. But we saw during the Reagan and Carter years, as well as more recently, that spending discipline is possible.

John Phelan is an economist at the Center of the American Experiment. 

 

Comments

Subscribe

Categories

Upcoming Events

  • The Diversity Delusion

    Location: Hilton Minneapolis 1001 South Marquette Avenue Minneapolis, MN 55403

    Please join Center of the American Experiment on Wednesday, April 24th at the Hilton Hotel for a lunch forum with Heather Mac Donald as she discusses her new book, The Diversity Delusion: How Race and Gender Pandering Corrupt the University and Undermine Our Culture.  Heather Mac Donald is the Thomas W. Smith Fellow at the Manhattan Institute, a contributing editor of City Journal, and a New York Times bestselling author. She is a recipient of the 2005 Bradley Prize. Mac Donald’s work at City Journal has covered a range of topics, including higher education, immigration, policing, homelessness and homeless advocacy, criminal-justice reform, and race…

    Register Now
  • 2019 Annual Dinner Featuring Nigel Farage

    Location: Hilton Minneapolis 1001 South Marquette Avenue Minneapolis, MN 55403

    Purchase Tickets Here

    Register Now