The debt ceiling showdown is really going to heat up this weekend. I have written about my ideas before on the debt ceiling and the federal budget. Here is the simple, 3-step BALANCED approach to BALANCE the budget that I have outlined before.
The federal budget deficit for the fiscal year beginning October 1, 2011 is projected to be $1.2 billion. That is 7.4% of GDP. I have previously written about a budget plan that would commit to reduce the budget deficit by 1% of GDP for each of the next 5 years. This is how to get there in a 3 step plan that is balanced and reasonable and easy for the people to understand.
First, spending cuts of about $160 billion would be required in the 2012 fiscal year to meet the first year goal. Compared to projected spending of $3.8 trillion for next year per the CBO, this would represent a cut of about 4% of total spending. I would think that a vast majority of Americans could see this as very reasonable. This should be the required downpayment on any budget ceiling increase. We don't need funny money involving cuts 10 years out which we will undoubtedly get in any deal with The White House. We need to take some cost out now. These cuts should also be specifically identified before the debt ceiling vote.
Second, there should be a further commitment to reduce the budget deficit by an additional 1% of GDP for the next 4 years. These would automatically be triggered as across the board spending cuts (interest payments excluded) unless an alternative plan was approved by Congress before the beginning of the next fiscal year. In other words, defense, Social Security, Medicare and everything else gets cut across the board unless a better plan can gain a majority of the Congress and it can survive a potential Presidential veto. Following this budget plan would reduce federal spending from the current level of approximately 24% of GDP to 19% of GDP in 2016. Make no mistake, this would not be easy. Each year's cuts would get progressively more difficult. However, we have little choice or we face much more difficult choices later. However, to show how reasonable I am, I would let the Democrats pick the period over which the spending cuts are phased in. If they think 5 years is too quick, take any period up to 10 years.
Third, contingent on these spending budget goals being met, a tax increase would be triggered at the end of the fifth year if revenues are not generating at least 18% of GDP. To put this in perspective, revenues are currently about 15% of GDP. 18% is the historical average since World War II. I know Republicans don't like this talk but if they truly believe that the lower rates will generate greater future economic activity they are risking very little. More taxpayers will assure that revenues will rise if we can get the government out of the way of our people. In return, they are gaining the spending cuts that are absolutely necessary to save our Republic. Most importantly, they position themselves as the Reasonable Party with the voters. The Democrats get the increased revenue they say we need-guaranteed. They just are not going to get the 20% of GDP figure they crave. And they are not going to get anything until they eat their peas! Even if they choose a 10 year phased spending cut plan.
I have no doubt that President Obama and the Demagogue Party would attack this plan as they are sure to do with almost anything that the Republicans propose. However, I would take this plan to the people every day of the week and let the chips fall as they may. I would much rather be in the Reasonable Party than the Demagogue Party heading into 2012.
I know that if you read this closely you see that this plan brings spending down to 19% of GDP and assures that revenues would increase to only 18% of GDP leaving a 1% deficit. Surely this is close enough for government work! However, if absolutely necessary I am willing to split the remaining difference between revenues and spending if we can get there in 5 years (or 10 years for that matter). After all, I AM REASONABLE.
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