Why can't we balance the budget by simply limiting its growth?

Great Debates
#1

I know that 1995 called and wants its GOP argument back. But it seems very sensible and I hope we can have this debate without too much partisan sniping. So I am looking at these numbers:

https://www.whitehouse.gov/omb/historical-tables/ (Sorry, it is Table 1.1 and requires an Excel download).

If we look at 2007 outlays you get approximately $2.7 trillion dollars. If you adjust that for inflation using this calculator: (https://westegg.com/inflation/) it is approximately $3.6 trillion in 2019 dollars. That is what the government received in 2019.

So, guess what ladies and gents? If the government since 2007 had simply increased its spending relative to inflation and no more, the budget is balanced in 2019 even including Trump tax cuts, Obamacare subsidies, and increased defense spending.

Again, I don’t want a partisan argument. Maybe we raise taxes and enact UHC. Maybe we lower taxes and cut defense spending. Maybe we raise taxes and pay down debt. Maybe we lower taxes and cut social spending. All of these are arguments for other threads.

My proposition, up for debate, is that the government should balance its budget by only increasing spending relative to inflation and the deficit is solved. What unforeseen problems am I missing with this admittedly simplistic argument?

#2

Oops. The budget is not balanced if we include increased defense spending and Obamacare. *smack. That represents increased spending, sorry. But my point stands. Spending is only increased by the rate of inflation. Budget solved.

#3

My opinion based on 20 years of observation:

The more that government spends, the more that becomes “necessary.” As a small example, witness the detailed statistics that the government collects on the economy. That collection is only a few decades old. For well over a century, the government and the country got along just fine without knowing all those figures. But if anybody proposed cutting out the spending to collect those statistics, there would be howls of outrage from industry, from economists, from business groups, and probably other quarters as well.

Between various lobbies that will fight to the death to keep government money flowing their way; and the segment of the populace, who, when anything bad happens at all, their first reaction is, “There outta be a law!”; and politicians who hardly ever met a government spending program that they didn’t like–the higher that government spending rises, the higher the “acceptable baseline” ratchets up.

Thus, only a sustained, determined effort will make any reduction, no matter how slight–not necessarily in actual spending, but rather in the increase in spending.

#4

The world changes. Those changes affect what is needed to meet the goals underlying the spending.

We are part way through the baby boomers hitting Medicare and Social Security eligibility. It overlaps the period you used and spending under those programs will continue to increase for about a decade. Do we cut their benefits to avoid paying out more or cut other programs to avoid increasing overall outlays?

During recessions government spending goes up as more people draw on social safety net programs. Cutting other spending to pay for that, or raising taxes in the trough of the business cycle, may worsen the recession or slow recovery. Your proposal would also tie the governments hands to do things like temporarily increase eligibility for unemployment payments. I worry your proposal may make the negative effects of the normal business cycle more extreme.

How to measure and implement it is also an issue. We make budgets based on estimates of cost and tax revenue. Are we good for the year even if the economic environment changes and the estimates change? If we aren’t we could be implementing a system that creates great uncertainty about government spending late in the fiscal year. That could create greater inefficiency in government spending as we go through quarterly feast and famine periods. It is also incredibly damaging to long term projects and contracting when we tie things that tightly to current economic performance. “Ooops the Wuhan coronavirus caused a global economic slowdown we didn’t guess. That half research project or building project just got canceled.” There is a reason that the Congressional Budget Office uses decade long estimates for costs to help average out the short term blips.

Then there are the issues caused by balancing the budget. Issuing debt is part of our overall monetary system. Treasury bills are the legislatively mandated investment for surpluses in Social Security. There actually were some problems related to the couple of years in the Clinton admin where we had a surplus. We need to take a good hard look at all the implications before Treasury is not issuing bonds.

#5

Let’s see. Government axes financial regulations and allows un-indicted co-conspirators to nuke the global money system. Follow-up government must spend terabucks to keep the national and global economies from collapsing and provoking widespread calamity. Budget increases tied only to inflation can handle that situation, how?

#6

Why do you want a balanced budget? Why do you want a budget at all? There’s no “unforeseen problems” with your argument, since you’ve declared that you don’t want to discuss any of the issues that real budget politics are about.

#7

To put a finer point on this. Let’s say in 2007, there were 10 million Social Security recipients drawing $10,000 a year.

Then, in 2020, let’s say there are 20 million people eligible for Social Security. Under the UltraVires plan, shall they only receive $5,000 a year (in constant dollars)?

#8

Even if this makes sense, which it doesn’t, wouldn’t you have to raise the budget both with inflation and with population growth? Not just for Medicare, but for everything.

#9

How about increases in population? Do you think a country of 3 million needs to spend more than a country of 2 million? Regardless of the inflation rate?

How about increases in productivity? If this point isn’t clear: Does a country with 6-lane asphalt roads need to spend more maintaining them than one with dirt trails? America’s GDP today is 50% higher than it was at the end of the Bush-43 years. That’s Fifty percent. With an F.

Is SocSec spending on retirees included in your “spending”? Should a country with 35 million people 65 years or older spend no more for their retirement entitlements than it spent when there were only 25 million old people?

Answer these questions. Then we’ll reconsider OP.

#10

It seems appropriate to exclude spending like SocSec which Congress has covenanted to pay workers who paid into SocSec. Similarly the ever-mounting interest payments on the Bush and Trump debt bubbles is not discretionary.

So how has discretionary spending varied in recent decades? For a source, I turn to Whitehouse.Gov:

So, using figures from the current White House, from 1999 to 2019 there has been an additional 0.3% (per GDP) of discretionary spending, all of which was for the military. (Please note that VA benefits to our ever-growing numbers of shell-shocked soldiers is included as NON-defense discretionary spending.)

@ OP - Does this help?

#11

As others have noted, you need to look at per-capita effects of spending. Maintaining a constant defence budget while the population of the defended increases probably doesn’t have any per-capita effect. Maintaining retirement or health care spending while the population both increases and becomes older means that you’re reducing per-capita spending while also delivering less benefits to the recipients than their predecessors. (In other words, even if the overall US population was not increasing, but the percentage of elderly was growing, maintaining constant individual retirement and health benefits would mean that total costs would still rise.) Other government spending programs will have mixed per-capita requirements. It takes more resources to manage a population of 330 million than 300 million. You may not need 10% more roads, but if traffic increases by 10%, you probably want to increase your road maintenance budget and the number of buses.

Another factor is that government spending is part of the economy. You can’t assume that economic growth would be the same whether the government spent $3.6 trillion or $4.8 trillion. The cost effect is obvious, but that extra $1.2 trillion in spending provides economic stimulus that does drive the revenue side of the budget. Some of that spending should be considered investment, where the long term benefits exceed the near term costs.

Interest rates also need to included in your model and not just inflation. Right now, debt is cheap because interest rates are so low. Even so, the US government expects to spend $378 billion on interest payments in 2020. https://www.thebalance.com/u-s-federal-budget-breakdown-3305789 If interest rates go up, overall spending will go up even if all other spending levels are maintained or reduced. Some economists would actually like interest rates to go up, as the economy has been doing well for a long time and lowering interest rates are one of the easy way of stimulating the economy when it takes a downturn. Right now, the US only has a limited ability to take that action.

A fourth factor is that governments like to spend money to get the economy out of trouble, but also like to spend money, or reduce taxes, when they have a surplus. Over the long term, a steady tax and spend policy would be level across the booms and busts of the economy. However governments aren’t very good about saving for a rainy day, whether it’s in terms of keeping the proceeds from the good times (or more realistically paying down debt), or pursuing more constrained fiscal policies.

Having said that, your basic idea is correct. Over the long term, per capita tax revenues should rise as technological improvements lead to increased productivity which leads to economic growth, so long as tax policy remains consistent. If per capita spending increases at a slower rate than revenues, eventually the US budget deficit, and then more eventually the US national debt, will be eliminated. But it will take a long time and steady, stable fiscal policy. Given the current picture of US federal politics, I think you may have to wait a few years for that.

#12

I think the Demographics of retirement and SS/Medicare make this impossible to actually carry out. The cost of healthcare itself, if we limited that to inflation, would still get swamped by more and more people being qualified for Medicare, etc.

#13

Thank you for helping to prove my point. You clearly feel that once the government starts spending money on something, that that spending (by and large) is no longer open for debate. It must continue in perpetuity. Thus government spending can only increase, and never decrease.

This is a very common attitude, as shown by the ludicrous practice of calling entitlement spending “non-discretionary.”

#14

Do you feel like the government could just cut social security payments by 10% and that would be okay? People were promised those payments. They paid into the system.

#15

The outgo from the SocSec Trust Fund is very close in size to that Fund’s income. In you plan, does USG continue to collect payroll taxes? And if not, with the outgo and income balancing, destruction of SocSec becomes a “wash” — what’s the rub?

And you quote mention of interest on the debt. In your plan do you stop paying that?

#16

I haven’t abandoned the thread. I am considering all of the posts and trying to figure it out…

#17

Here’s my initial thought about the population argument. We had approximately 250 million people in 1990. We have approximately 330 million today. https://www.worldometers.info/world-population/us-population/ . About a 1/3 increase.

Yet our government outlays went from $1.25 trillion in 1990 ($2.48 trillion in 2019 dollars). If we increase spending by the population growth as well, we should be spending $3.72 trillion. We are spending $4.45 trillion. That would leave us with a deficit of around $300 billion.

And as others have said, an increase in population doesn’t raise government costs across the board for things like national defense. This also includes things which should be a temporary blip like the Boomers now being in retirement and collecting Social Security and Medicare.

$4.45 trillion

#18

Nobody was promised anything, although many people think that they were. The current payments INTO the system by current workers go straight OUT of the system as payments to current retirees. Your payments do NOT sit around in a pile for 30-40 years until you retire. If that’s the type of plan that you want, you need to be investing your money.

And legally speaking, Congress can do whatever they want to the system. It is a well-recognized principle that no session of the legislature can bind a future session of the legislature. The power to pass laws is inherently the power to repeal laws.

#19

So, in the interest of reducing the deficit, you advocate we keep payroll taxes but stop payments to current retirees?

#20

So just wait about a decade or two and this blip in spending on seniors will take care of itself. No need to cut spending just because you find yourself in the middle of a temporary blip. Just tough it out, and everything will be fine before you know it.