By Michael Ettlinger, Michael Linden, Lauren D. Bazel | December 14, 2009
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Download the executive summary (pdf)
It’s time to show the world that the U.S. government has a path to reducing its budget deficits. Current projections show that annual deficits will be running at above 4 percent of gross domestic product and be on the rise even once the nation is well clear of the Great Recession. That’s too high. The mere prospect of large sustained deficits poses risks to financial markets, endangers the rest of the economy, and undermines U.S. standing in the world. The reality of those deficits would mean pirating public expenditures away from needed public services and investments into the sinkhole of debt service. No one seriously denies that we face a real fiscal challenge. We need lower deficits.
Yet we need to move along a sloping path to get to those lower deficits, not dive off a precipice. It would be unwise to try to completely balance the budget at the same time as we are fighting our way back from the worst economic period since the Great Depression. Deficit spending is needed right now to change the momentum of the economy and to spur growth. Policies that produce immediate GDP growth and attack unemployment will help the economy in the short term and the nation’s fiscal health in the long term.
Spending reductions and revenue increases are the tools for achieving fiscal balance, but just as important are the natural increases in revenue and reduced budget pressures that come from a strong economy. It is not only that jumpstarting the economy is currently a higher priority than deficit reduction; it is also that running deficits now will actually help reduce deficits later by bringing about a faster recovery.
We shouldn’t leap to a balanced budget, but neither can we do nothing. Without a defined path that has credible stepping stones along the way, the markets and the world will wonder at our intentions, worry about purchasing the debt we’re selling, question investments in the United States, and act with excessive caution in fear of higher interest rates. Balancing the budget right now could slam the brakes on economic recovery, but not embracing a way forward could slow our recovery as well, and in the worst case, provoke a crisis of confidence that scuttles the progress we have made.
The path proposed in this paper is a gradual one with an ultimate goal of a fully balanced budget in 2020, an intermediate target for 2014, and benchmarks along the way. Adopting such a path, as well as a way to enforce it, would send a strong signal to financial markets and the world that we are serious about addressing federal budget deficits. It would also create a necessary discipline for Congress and the president.
Read the full report (pdf)
Download the executive summary (pdf)
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