Blog posts

Federal spending can be divided into three main categories. The first category is mandatory spending, which is spending that operates on autopilot based on benefit formulas approved by lawmakers in years past. Mandatory spending makes up about two-thirds of the budget and includes major entitlement programs such as Social Security and Medicare.

On Sept. 8 the national debt increased by over $300 billion, surpassing $20 trillion for the first time in history -- a symbolic reminder of the federal government’s flawed fiscal policy. But how exactly did we get to this point, and why was there such a sharp increase in a single day?

The original purpose of creating a statutory debt limit in 1917 was not to prevent the government from running up too much debt, but to remove the requirement that Congress authorize individual issuances of debt. The intent was to help ensure that sufficient and timely credit would be available to finance World War I. One hundred years later, things are very different. The main use of the debt limit now is to prevent the government from paying its bills on time, putting the nation’s creditworthiness at risk and threatening a global financial crisis.

Some argue that cutting taxes will generate a level of economic growth sufficient to offset a substantial part, if not all, of the revenue lost. Under this theory, tax cuts do not cause deficits, but generate the growth necessary to reduce deficits. Yet, there is little historical or academic evidence from the past decades to suggest that tax cuts alone pay for themselves.

Many politicians and members of the public who are frustrated with the inability of Congress and the president to make responsible fiscal choices have proposed a seemingly simple solution:  Amend the Constitution to require a balanced budget. While the sentiment behind this idea is understandable, it would be very difficult in practice to compel a balanced budget each year, and attempting to enforce it through the courts would be all but impossible.

A common excuse for inaction on federal deficits is that relative to the size of the economy, they aren’t abnormally large and are projected to stay that way for a few more years. Furthermore, current projections may prove to be overly pessimistic, the argument goes, so what reason do today’s policymakers have to act immediately?

When The Concord Coalition was founded in 1992, the national debt was on a sharp upward trajectory. Yet just five years later, Democratic President Bill Clinton signed legislation passed by a Republican Congress that implemented the first balanced budget in decades. By the time Clinton left the White House, the Congressional Budget Office was projecting a 10-year surplus of over $5 trillion and there was even discussion about whether the national debt could be paid off entirely.

This past Saturday marked 20 years since President Bill Clinton signed the Balanced Budget Act of 1997 (BBA). The act was the result of an agreement with the Republican-controlled Congress designed to balance the budget by 2002.

Not all deficits are created equal. In designing policy responses, it is important to distinguish between “cyclical” and “structural” deficits. Cyclical deficits are caused by a weak economy. Recessions drive down government revenue because many workers and businesses are no longer earning as much taxable income. At the same time, government spending rises because more people need assistance through programs such as Medicaid, unemployment benefits and food stamps.