New 10-year budget projections have been released by the Congressional Budget Office, so it’s time once again for me to show how easy it is to balance the budget with modest spending restraint (though never forget that our goal should be smaller government, not fiscal balance).
- I first did this back in September 2010, and showed that we could balance the budget in 10 years if federal spending was limited so it grew by 2 percent annually.
- I repeated the exercise in January 2011 after new CBO numbers were released, and re-confirmed that a spending cap of 2 percent would eliminate red ink in just 10 years.
- In August of that year, following the release of the CBO Update, I showed again that the budget could be balanced in just a decade by limiting spending so it climbed by 2 percent per year.
- Back in January after CBO produced the new Economic and Budget Outlook, I crunched the numbers again and showed how a spending cap of 2 percent would balance the budget over 10 years.
- Since even a weak economic recovery generates more revenue, the CBO numbers from last August showed that the budget could be balanced if spending was restrained so that it grew by 2.5 percent per year for a 10-year period.
The new numbers show the path is even easier. The budget can be balanced in 5 years if spending grows at the rate of inflation (the green line) and in just 10 years if spending is limited so that it grows 3.4 percent annually (the light blue line).
Today’s path to balance is even easier because of better 10-year growth numbers, and also because of projections that the recent tax increase will generate more revenue (the dark blue line shows total projected revenue over the decade).
Because of Laffer Curve reasons, I’m skeptical about whether all that additional revenue will materialize, so both the chart and the underlying numbers are a bit speculative.
But what they do show is that the nation’s fiscal problems easily can be addressed with some modest spending restraint. Sort of a practical application of Mitchell’s Golden Rule.
Here’s my video explaining the importance of spending restraint. The numbers are now outdated, but the concept is still completely relevant.
As noted at the beginning of the post, I’m much more concerned about reducing the burden of government spending. Balancing the budget is a secondary concern.
That’s why we should impose genuine budget cuts and not just restrain the growth of spending. That would also make it easier to adopt good tax policy.
Maybe, in a parallel universe where politicians are motivated by liberty, we can even get entitlement reform and a flat tax.
International Liberty 
[…] be sure, that doesn’t mean we’re seeing good policies of tax reform and fiscal restraint. And we still face a very dour fiscal future unless entitlements are […]
[…] be sure, that doesn’t mean we’re seeing good policies of tax reform and fiscal restraint. And we still face a very dour fiscal future unless entitlements are […]
[…] be sure, that doesn’t mean we’re seeing good policies of tax reform and fiscal restraint. And we still face a very dour fiscal future unless entitlements are […]
This is basic common sense.
[…] like the swallows return each year to Capistrano, I eagerly await the Congressional Budget Office’s release of its annual Economic and Budget […]
[…] like the swallows return each year to Capistrano, I eagerly await the Congressional Budget Office’s release of its annual Economic and Budget […]
[…] be sure, that doesn’t mean we’re seeing good policies of tax reform and fiscal restraint. And we still face a very dour fiscal future unless entitlements are […]
[…] we could balance the budget as early as 2018 if spending merely was restrained so that the budget grew at the rate of […]
[…] I explained earlier this year, we can balance the budget in just 10 years if spending grows “only” 3.4 percent per year. When people understand that detail, there’s almost no support for higher […]
[…] my Golden Rule was in effect! If we could maintain this approach for a few more years, we’d quickly have a balanced budget and hopefully kill off any pressure for tax […]
[…] in reducing the size of the public sector than I am in fiscal balance, it’s worth noting that you can balance the budget by 2018 with this amount of modest spending […]
[…] And nobody will be surprised to see that I made my usual points that there was no risk of default and that it’s actually surprisingly simple to balance the budget with modest spending restraint. […]
[…] And nobody will be surprised to see that I made my usual points that there was no risk of default and that it’s actually surprisingly simple to balance the budget with modest spending restraint. […]
[…] you’re feeling depressed these days, I very much recommend reading this article by the Cato Institute’s Dan Mitchell. If you understand what Mitchell is saying, then […]
[…] powerful, and relevant argument against the value-added tax in the short run is that we can balance the budget in just five years by capping spending so it grows at the rate of inflation, a very modest level of fiscal […]
[…] powerful, and relevant argument against the value-added tax in the short run is that we can balance the budget in just five years by capping spending so it grows at the rate of inflation, a very modest level of fiscal […]
[…] powerful, and relevant argument against the value-added tax in the short run is that we can balance the budget in just five years by capping spending so it grows at the rate of inflation, a very modest level of fiscal […]
[…] I explained earlier this year, we can balance the budget in just 10 years if spending grows “only” 3.4 percent per year. When people understand that detail, there’s almost no support for higher […]
[…] I explained earlier this year, we can balance the budget in just 10 years if spending grows “only” 3.4 percent per year. When people understand that detail, there’s almost no support for higher […]
[…] P.S. The budget approved by the House of Representatives avoided any tax increases and restrained spending to that it will grow by an average of 3.4 percent annually. Not exactly draconian, but that approach does balance the budget in 10 years. […]
[…] If Spending Is Capped So It Grows at the Rate of Inflation, the Budget Is Balanced in 2018 | Interna…. […]
[…] be sure, that doesn’t mean we’re seeing good policies of tax reform and fiscal restraint. And we still face a very dour fiscal future unless entitlements are […]
[…] be sure, that doesn’t mean we’re seeing good policies of tax reform and fiscal restraint. And we still face a very dour fiscal future unless entitlements are […]
[…] Mr. Mitchell also says simple numbers will get us to balance the federal budget. According to his calculations, the government can continue to grow larger by 3.4 percent per year for the next decade and we […]
[…] This is why almost nobody understands that it’s actually relatively simple to balance the budget with a modest bit of spending restraint. My goal is reducing the burden of government spending, not fiscal balance, but it’s worth noting that we’d have a balanced budget in just 10 years if spending grew by “only” 3.4 percen…. […]
Lets see what other delusions those responsible for compiling and summarizing the ultimate fiscal reality assessment for the American People have concocted. Let me guess. The probably factored in that:
The US will return to its 3% to 4% annual growth trendline, even after the disincentive to production tax increases are factored in, the “so long as you stay home enough with your family (boy, aren’t you going to get bored—nobody to work for…) to make less than 90k per year, from now on someone else will pay for most of your healthcare” ObamaCare incentive to production is also factored in, and the slew of regulation/collective economic management legislation Americans are boxing their industry in, has no detrimental impact to the exceptionally fertile environment America once was for business.
With the new taxes on the rich, the redistribution aspirations of HopNChange have been satisfied for the next decade, the budget will be balanced, and so productive people can move on, confident that the generous proportions of their rewards they have been allowed to keep, will be theirs, secure.
ObamaCare, an entitlement that is even more redistributive in nature than European health systems, will truly only cost one trillion. People will not change their behavior. If they happen to be hit by the new taxes and regulations then… well… too bad… BUT they will keep working with enough enthusiasm to outcompete three billion emerging world souls. If they do qualify for the subsidies, they will work harder, make sure they don’t burden the rest of society with their healthcare costs and, of course, that will generate enough motivation to outcompete three billion emerging world souls. Unable to squeeze the private sector even more, for fear it may fall to international competition, the American voter-lemmings are unable to fund the two main existing entitlement programs of social security and medicare. So, they voted for a whole new permanent and irreversible entitlement, Obamacare which is even more redistributive than the previous two. It gives strong incentives to indolence, but don’t worry, its cost overrun will not be massive.
Oh, let me guess, they factored in that the sequester will take place and hold up to class warfare propaganda for the next ten years, and that this will be the first congress ever to finally stick to the regularly scheduled (but never adhered to) medicare reimbursement cuts.
Ok, let’s just be optimistic. This may all just work out in the end….
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The dynamics of international competitiveness and prosperity depend of very narrow margins. The point of no return has passed. It is time to build Noah’s arc, as the rising tide of three billion emerging world souls drowns the western world voter-lemmings. But wait! Before pulling up the ramp, … don’t miss the one last great hurahh!… it’s time to join everybody in the great European welfare benefits smorgasbord. But secure that floating vessel first…
2013 AD: In a parallel universe, USA++ has the same per capita income as our earthly USA. But USA++ embarks on a program to divest economic activity from government back to the private sector through privatizations. Government spending falls from 39% of GDP down to 15%. Its growth rate rises to a 5% annual trendline, matching the world average.
2046 AD (33 years later): USA++ government still consumes only 15% of GDP but last year it surpassed the earthly USA we know in total government spending.
And guess what? USA++ is still on that 5% annual growth trendline, while USA is still languishing at that 2% trendline (probably worse by then since, in the intervening 33 years, voter-lemmings will have responded to their decline with more redistribution hope at the polls).
Oh yes, I forgot, USA++ per capita income is now 260% of our earthly USA per capita income — though not as evenly distributed.
USA’s military, still consuming a full 4% of GDP, has just fallen behind USA++’s military, consuming a mere 1.5% of GDP.
The divergence in economic trajectories continues. How long will the ever poorer but more equal declining citizens of earthly USA go on before they cry uncle? It is only a matter of when not if.
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Voter-lemming: What? Just as French level government benefits are finally in the horizon you advocate cutting my government job and support and expose me to the private competition of three billion people who are still in line to buy their first car? So that my children can be 160% richer? Forget it! I’ll make sure I hire as many more people as I can at the government office, so that we can make sure we are a permanent majority. We are also instituting French as a second language in school — and Greek as a third language, just in case.
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For those of you interested in the trivial arithmetic:
(1+(5%))^33*(15%) > (1+(2%))^33*(39%)
[(1+(5%))^33] / [(1+(2%))^33] = (260%)
BTW, these simple expressions are all European children need to know to see their future. US children should start paying attention to them too…
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2060: USA military now spends 15% of GDP and is still falling behind other powers at an ever faster pace. Economic decline has inevitably brought military decline, and USA government spending is now 65% of GDP. Growth rate is 0-1% (when it is positive). But there is at least a bit of hope: A new leader got elected under the slogans of : Egalité, fraternité collectivisme, the new trends in hope. That may just finally keep us from sliding even further behind for a few more years, or at least mitigate some of the pain of further decline.
If “We’re all in this together, let’s vote for it” were the recipe to prosperity, then things would be easy. Prosperity would be widespread. It would not have taken the historical serendipity of discovering a brand new continent to become the most prosperous country in the world.
If we had spending restraint, we wouldn’t need democrats.
Reblogged this on The Conservative New Ager.