Balancing The Budget: The Need For Revenues In Deficit Reduction
Key Highlights :
The debate over the federal budget is heating up as members of the ultraconservative House Freedom Caucus express their disapproval of the recently-reached debt ceiling deal. While deficit reduction is an important part of long-term economic health, right-wing Republicans are looking for balance in the wrong places. Too much fiscal austerity too fast can harm the economy, and while the deal reached by President Biden and House Speaker Kevin McCarthy is less aggressive than the House-passed bill, it still could have a mild retardant effect on economic growth.
The U.S. economy is currently running hot, with unemployment in April matching the lowest since 1969, but there are still signs of a recession on the horizon. The Conference Board’s index of leading economic indicators declined in April for the 13th consecutive month, signaling a worsening economic outlook. Economically speaking, reducing federal budget deficits is important but not urgent, as Japan's central government debt has totaled 221 percent of its GDP in 2021, compared with 115 percent for the United States.
Eventually, something will have to be done, as the Congressional Budget Office predicts that by current law, U.S. debt held by the public will reach 195 percent of GDP in 2053, double the level of 98 percent in 2023. At that point, an uncomfortably large portion of federal spending has to be devoted to paying interest on the debt. While cutting Social Security and Medicare is tough, and cutting defense is also difficult, cutting discretionary spending other than defense is tough because it accounts for only about 15 percent of outlays and does many valuable things. This leaves higher taxes as the underexplored option.
According to the Congressional Budget Office, by current law, total outlays by the federal government are projected to rise to 30.2 percent of GDP by 2053 from 23.7 percent in 2023. To keep debt from soaring, either outlays need to increase more slowly as a share of GDP or revenues need to increase more rapidly. Higher taxes are the only way to make a significant difference in the outlook for deficits and debts.
It is important to note that tax increases alone are not enough to balance the budget. We must also look for ways to cut costs and make government spending more efficient. However, if we are unwilling to raise revenues and cut big costs, there is only so much balancing we can do. This is why it is essential that we look for a mixture of spending cuts and tax increases in order to achieve a balanced budget.
The debate over the federal budget is an important one, and it is essential that we look for a balanced approach to deficit reduction. We must recognize the need for higher taxes and make sure that we are not cutting vital programs and services that are essential to the health and well-being of our citizens. We must also look for ways to make government spending more efficient and reduce costs. Only by looking for a balanced approach to deficit reduction can we ensure that the budget is balanced and that our economy is healthy and prosperous.
