Balanced Budget Made Simple But Not Easy
BLAME for the federal deficits is volleyed back and forth between Capitol Hill and the White House. The process that creates the federal budget has become so Byzantine that it's easy for our elected representatives to avoid responsibility. Aside from the finger pointing, the facts remain. At the beginning of the first Reagan administration the national debt was less than $1 trillion. It now approaches $2.5 trillion. The annual interest alone on that debt is $145 billion, or almost 15 percent of the federal budget. This means that next year, before the federal government can spend a dollar for education, defense, or health care, it must spend $145 billion to remain solvent. Moreover, the financing of the budget deficit entails either the crowding out of private investment and consumption through higher real interest rates, the running of trade deficits financed by foreign savings, or inflation (if the Federal Reserve chooses to create money to cover the excess expenditures).
Will the Gramm-Rudman legislation solve the deficit dilemma in due time? Not likely.
The federal government has met its Gramm-Rudman goals with mirrors and creative accounting. Surpluses in the social security trust fund are holding down the size of the current deficits. Further fiscal sidestepping can be expected.
The real problem underlying the fiscal morass is lack of accountability. The budget process lets legislators pass the burden to future generations. As it now operates, the budget is determined by legislators who say, ``We'll decide what we want, approve that much spending, and worry about paying for it later.'' Here are some proposals for reform.
First, formulate the budget on a biennial basis. This corresponds to the term of House members and frees up some legislative time for other matters. It is easier to extend budget deliberations to include a second year than it is to start the process anew each year.
Second, change the system to ensure fiscal responsibility and accountability. For each two-year cycle, the Congressional Budget Office (CBO) and the Office of Management and Budget (OMB) would independently project net federal revenues based on the prevailing tax and entitlement systems and average economic performance (e.g., 3 percent annual growth in national income). These projections would be averaged. Then from the net revenue total would be subtracted interest due on the national debt. What remains would be available for discretionary federal spending.