14 May 2011

Spending Caps a Good Compromise on Debt Limit Increase

David Brooks’ column from a few days ago makes a good point. We’re not going to get some in depth and substantive compromise hammered out in just a few weeks, there just isn’t enough time, but something more simple is possible, and could even be better in the long run.

Not that we could reasonably expect the blind partisans running the two major parties to do something so logical, but if they chose to they have the power to make something like this happen:

Congress won’t be able to produce specific program cuts and policy reforms in the next few weeks, but it can come up with structural rules that will obligate future Congresses to make cuts and reforms for years ahead. The important argument now is over what kind of restrictions to impose on future Congresses. (This by itself is a sign of just how far rightward the debate has shifted).

Republicans and a few moderate Democrats are rallying behind a spending cap plan, co-sponsored in the Senate by the Republican Bob Corker and the Democrat Claire McCaskill. In its simplest form, the bill would cap federal spending at 20.6 percent of gross domestic product, the recent historic average. If spending rose above that, automatic cuts would ensue.

I haven’t seen the details of this plan – if such a plan even exists, but if it were up to me it would have to include a ‘PayGo’ clause, requiring that new tax revenue would need to cover any new spending. Saying that spending has to stay that low isn’t remotely enough.Wouldn’t help our situation if spending stayed below 20.6, but taxation was at 19%… as a matter of fact, I’d even build in a clause that says taxation is forced to be OVER the spending level until the debt is down to something like 20% of GDP.

This highlights the core problem of the national debt and yearly budget deficits. It wouldn’t help our situation if spending stayed below 20.6, but taxation was only at 19%, dozens or hundreds of billions a year to the national debt, on top of the billions being added through interest on the already impossibly huge debt.s a matter of fact, I’d even build in a clause that says taxation is forced to be OVER the spending level until the debt is down to something like 20% of GDP.

As a matter of fact, I’d even build in a clause that says taxation is required to be OVER the spending level, so long as the economy is growing. I call this idea ‘PayGo Plus’, and if the leaderships in the two major parties had any fiscal sense, they’d have made something like this law long ago, and keep it in place until the debt is down to single digit percentages of GDP.

This isn’t the only idea that could get us to sound, long term fiscal footing, but it’s one of the more simple ideas. A couple decades ago, I think this sort of thing might have been possible, but each election cycle that seems less and less likely.

Until that basic level of political sanity returns to American politics, the best we can hope for is that our economy will stay strong enough to keep the debt to GDP ratio low enough to be able to handled by a future generation that’s able to bust the stranglehold the corrupt and out of touch factions in the two major parties have over our country today.

Read the rest of Brooks’ article »

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