Back in 2012, when America had a budget deficit above $1 trillion, Investor’s Business Daily opined that America’s fiscal mess could have been avoided if politicians had simply adopted a TABOR-style spending cap starting in 1998.
As illustrated by the accompanying chart, IBD showed how a giant deficit would have become very manageable if politicians simply limited spending so it grew no faster than population plus inflation.
What makes this alternative history so bittersweet is that there are places – such as Switzerland and Hong Kong – that already have successful spending caps that deliver positive results.
Indeed, spending caps have such a good track record that even left-leaning international bureaucracies like the International Monetary Fund and the Organization for Economic Cooperation and Development have acknowledged that they are the most effective fiscal rule.
To understand the benefits of spending caps, especially since we’re now back in an environment of $1 trillion-plus deficits, let’s replicate the IBD exercise.
Here’s a chart showing actual spending (orange line) and revenue (blue line) over the past 20 years, along with what would have happened to spending with a 3-percent cap on annual spending increases (grey line).
The net result is that today’s $1 trillion surplus would be a budget surplus of nearly $500 billion.
More important, the burden of spending today would be much lower, which means more resources being allocated by the productive sector of the economy. And that would mean more jobs and more prosperity.
P.S. While a spending cap is simple and effective, that doesn’t mean it’s easy. Abiding by a cap would force politicians to set priorities, which is a constraint they don’t like. In the long run, complying with a cap also would require some much-need entitlement reform, which also won’t be popular with the interest groups that control Washington.
P.P.S. We would need a spending cap of 1.7 percent to balance the budget over the next 10 years.
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It’s way too easy for politicians to vote to spend money. The founders apparently thought that if all spending bills started in the House of Representatives where politicians were answerable to the people every two years, the politicians would restrain themselves from deficit spending.
Good idea, but then, over the years, politicians found out two things. First, there’s no punishment for deficit spending. The second is that people want politicians to give them new things and to make life easy for them. That costs money.
The cognitive dissonance is that people love to get things from the government but never want higher taxes to pay for the things. Don’t be fooled by rich folks like Warren Buffett who claim they would love to pay more taxes. He hasn’t, and won’t, although he could simply write a check to the U.S. Treasury Department. Buffett just wants to curry favor with the IRS and to enhance public opinion about him favorably.
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1.7% is too high. Freeze spending at current levels until the deficit is eliminated.
Exactly. The Federal govt has a spending problem, not a tax revenue problem. Federal govt sets record revenues.
“More important, the burden of spending today would be much lower, which means more resources being allocated by the productive sector of the economy. And that would mean more jobs and more prosperity.”
But it means much less power for the Banksters and Globalists, so, it is not very attractive to them. You seem to forget, Mr Mitchell, that those guys hate our guts and want us dead dead dead, not prosperous and happy.
What about the unbudgeted deficit?
Truth is, this would be so simple to do, yet our elected officials assign the spending to money-happy bureaucrats, and act as if its beyond their control. Get rid of the bureaucracies, and you might have a good start.