December 15 2010

Et Voila, Balanced Budget!

Reason TV's Nick Gillespie plays budget chef in a new video on how to balance the budget. What's on the menue? You guessed it: Pork. If Congress trims off just a bit of  the fat  on the edges of the pork each year, the budget will be balanced by 2020 without the need to increase taxes. Sounds too good to believe? See for yourself:

The video is based on  a recent article by Gillespie and Veronique de Rugy. Highlighting the urgency of reigning in government debt now, they write:

Most economists talk about a debt-to-GDP ratio of 60 percent as a trigger point that makes investors very nervous about a country's ability to pay its obligations. The debt to GDP ratio was 63 percent this year and the Congressional Budget Office (CBO) projects it will be 87 percent in 2020. Just three years ago, it was 36.5 percent. Not good signs. 

So, what would it take to bring federal spending into line with plausible levels of revenue?

The CBO, the non-partisan agency charged with estimating the effects of legislation on government costs, has produced a long-term budget outlook in which Bush-era tax rates remain unchanged. Their conclusion is that over the next decade, "government revenues would remain at about 19 percent of GDP, near their historical averages." That's actually a bit higher than the historical average, but is within the bounds of reason.

A balanced budget in 2020 based on 19 percent of GDP would mean $1.3 trillion in cuts over the next decade, or about $129 billion annually out of ever-increasing budgets averaging around $4.1 trillion. Note that these are not even absolute cuts, but trims from expected increases in spending.

To get a more concrete sense of what getting to 19 percent means, here is a table of projected major budget expenditures in total dollars, followed by the amount that needs to be cut each year from the expected budget to get an annual 3.6 percent decrease across the board.

Read the article for a break-down of suggested cuts. It would serve Congress well to take a close look at Gillespie's and Rugy's proposal, as the contentious debates over the omnibus spending bill and the extension of tax rates continue.

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