2017: The State of the Budget
The New Year heralds a new Congress and a new President. Unfortunately, they will have to grapple with a persistent and worsening problem: the federal debt. FY 2016 closed out with the total federal debt approaching $20 trillion. This amount exceeds the Gross Domestic Product (GDP), the measure of the dollar value of all goods and services produced in the U.S., and represents the highest level of debt since World War II.
This spring, President Trump and the Republican-controlled Congress will face a budget test as the debt ceiling – the statutory limit on the amount of debt that the government can issue to finance deficit spending – will be reset at $20.1 trillion on March 16, 2017. As in previous instances where the debt ceiling was reached, the Treasury Department will be able to take “extraordinary measures” to shift accounts in order to meet the government’s day-to-day fiscal obligations. This leeway will give lawmakers a few additional months to craft a plan to address the problem. In years past, Republicans used the debt ceiling deadlines as way to try and force the Obama administration to agree to policy reforms. While their attempts weren’t always successful, it did result in the Budget Control Act of 2011 that helped to slow the growth in discretionary spending and lead to real savings for taxpayers.
Make no mistake, the debt has been fueled by chronic overspending.
On an annual rate since 1940, federal spending has averaged 20 percent of GDP, while the tax receipts flowing into the Treasury have averaged 17 percent. The government achieved a surplus in only twelve years over this period.
As Congress and President Trump pursue comprehensive regulatory and tax reform to boost the economy, they also need to commit to spending reform such as the Penny Plan. This option would reduce outlays by one percent per year and tie them to 18 percent of GDP. And if, down the road, policy makers seek ways to skirt limits on the federal purse, further options must be put on the table, including a Balanced Budget Amendment to provide a Constitutional backstop protection for taxpayers.