http://blog.heritage.org | Today marks the 1,000th day since the United States Senate has passed a budget. While the House has put forth (and passed) its own budget, the Senate has failed to do the same. To help illustrate how extraordinary this failure has been, our new video highlights a few of impressive feats in history that have been accomplished in less time.
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I have to be frank and it seems that this budget proposal presented on 2-13-2012 to Congress was just an attempt by a President to get himself re-elected by promising a lot of free lunches to a lot of special interest groups.
In his recent State of the Union address, President Obama said that he wanted an American economy that is “built to last.” Today’s release of his fiscal 2013 budget proposal shows that the president still thinks he can build economic prosperity with more spending, taxes, and debt. Those are the building materials for an economic time-bomb that will explode on future generations.
The following charts show that federal spending and debt as a share of the economy would remain at elevated levels under the president’s budget proposal:
Given that policymakers always seem to find an excuse to spend more money than was planned – and that there are virtually no limits on what the government can spend money on – these figures could prove to be optimistic.
So forget about the president’s cheap sloganeering about “investing in our future.” And ignore the double-talk about “re-establish[ing] fiscal responsibility.” The fact is the president is proposing to spend $47 trillion dollars over the next ten years – almost $6 trillion of which would go toward interest on the debt alone. This budget isn’t about creating an economy that’s built to last – it’s about keeping the president’s Democratic constituencies satisfied in November and selling voters on the impossible promise of more free lunches.
Senator Mark Pryor wants our ideas on how to cut federal spending. Take a look at this video clip below:
Senator Pryor has asked us to send our ideas to him at cutspending@pryor.senate.gov and I have done so in the past and will continue to do so in the future.
On May 11, 2011, I emailed to this above address and I got this email back from Senator Pryor’s office:
Please note, this is not a monitored email account. Due to the sheer volume of correspondence I receive, I ask that constituents please contact me via my website with any responses or additional concerns. If you would like a specific reply to your message, please visit http://pryor.senate.gov/contact. This system ensures that I will continue to keep Arkansas First by allowing me to better organize the thousands of emails I get from Arkansans each week and ensuring that I have all the information I need to respond to your particular communication in timely manner. I appreciate you writing. I always welcome your input and suggestions. Please do not hesitate to contact me on any issue of concern to you in the future.
Reducing the number of consultants employed by the federal government by 150,000;
Suspending acquisition of new federal office space;
Trimming the federal vehicle budget by 5 percent; and
Freezing the federal travel budget at $8 billion15 (Total annual savings: $11 billion).
Implement some additional housekeeping items, including:
Taking back grants to state and local governments that have not been spent within the past three years;
Rescinding any remaining appropriated funds to promote the new $20 bill (2004 spending: up to $53 million, discretionary); and
Consolidating the dozens of small, irrelevant education programs that divert money from more effective education programs ($200 million, discretionary).
Entitlement spending is on autopilot, with annual spending determined by benefit formulas and caseloads.
Entitlements (excluding net interest) account for 56 percent of all federal spending and 14 percent of GDP—up from 10 percent of GDP three years ago.
The three largest entitlements are Social Security, Medicare, and Medicaid. Their total cost is projected to leap from 8.4 percent of GDP in 2007 to 18.4 percent by 2050.
Unless those three programs are reformed, policymakers will eventually have to choose from among:
$12,636 per household by 2050, and further thereafter;
Eliminating every federal program except Social Security, Medicare, and Medicaid; or
Increasing the national debt to unprecedented levels that could cause an economic collapse.
There is considerable academic research on the growth-maximizing level of government spending. Based on a good bit of research, I’m fairly confident that Cato’s Richard Rahn was the first to popularize this concept, so we are going to make him famous (sort of like Art Laffer) in this new video explaining that there is a spending version of the Laffer Curve and that it shows how government is far too large and that this means less prosperity.
Reagan: “Only a constitutional amendment will do the job. We’ve tried the carrot, and it failed. With the stick of a balanced budget amendment, we can stop government’s squandering, overtaxing ways, and save our economy.”
The growing momentum toward requiring Washington to actually balance its budget shows that House Republicans have connected with the American people. Leading Democrats are another story. Senator Reid and President Obama are still trying to fool the American people into thinking we can keep borrowing and spending like there is no tomorrow.
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What we are doing now is not working. President Ronald Reagan said, “Only a constitutional amendment will do the job. We’ve tried the carrot, and it failed. With the stick of a balanced budget amendment, we can stop government’s squandering, overtaxing ways, and save our economy.”
In case you’re not keeping track, it has been nearly 1,000 days since the United States Senate passed a budget. Meanwhile, America’s fiscal nightmare keeps growing, and those on the left—including Members of the Senate—keep advocating for even more spending despite America’s $15 trillion national debt. That’s an important record to keep in mind as the Senate votes today on two versions of the Balanced Budget Amendment (BBA).
A BBA is constructive, but it’s not the final answer to America’s fiscal woes despite the tools it offers—in large part because it fails to tackle entitlement reform, the most detrimental driver of spending in this country. A BBA is not a neatly packed solution, as no constitutional amendment can replace the hard work of true spending reforms.
However, Republicans ensured earlier this year that the 2011 Budget Control Act required a vote on a BBA. Their commitment to ending big government’s reckless behavior was well-meaning but flawed, and a BBA has already failed in the House.
The proposed amendment being debated in the Senate was chosen from several previous versions and is sponsored by Senators Orrin Hatch (R–UT), Mike Lee (R–UT), and John Cornyn (R–TX), among others. It is stricter and it fundamentally differs from its counterpart in the House, but it still lacks in several areas.
Cornyn spoke at The Heritage Foundation last month about the BBA, saying that the American people are “justifiably very skeptical of Washington” right now. “I think we need to prove to them that we are serious about solving the problem, not that we are just going through the motions,” Cornyn said. “I think [a BBA] is called for under the circumstances we are in.”
The proposed amendment addresses many key issues requiring disciplinary action on the $15 trillion federal debt. These include a spending cap of 18 percent of GDP, a three-fifths vote to raise the debt ceiling, and a two-thirds votes to raise taxes—all helpful actions to getting America back on the right path. It also requires that the President submit a balanced budget to Congress every year.
While the details of this proposal are an improvement to some of the previous, weaker BBA proposals, it still doesn’t solve America’s spending problem.
The Heritage Foundation has supported and covered extensively our ideas for a balanced budget in the Saving the American Dream plan. A major component of that plan would be to undertake entitlement reform by amending existing federal laws that provide permanent or indefinite appropriations to federal agencies or programs. This BBA does not provide this kind of essential direction for long-term budget maintenance.
As Heritage’s David Addington has noted, an appropriate BBA should be intentionally focused on driving down spending, taxation, and borrowing. Such focus is especially important right now because of the massive federal debt and these yet-to-be reformed entitlement programs.
Even more importantly, a supermajority must be able to temporarily waive a BBA if it is crucial to national security, as such is the first constitutional priority of the federal government.
The Lee version of the BBA permits only a partial waiver when the U.S. is engaged in a congressionally authorized “military conflict”—and the particulars can get sticky. The flexibility for national security is essential if a BBA is to be amended to the Constitution.
An acceptable BBA should also provide its own enforcement and prevent government from borrowing money to meet the balance requirement. Any loopholes that contradict the BBA’s overall purpose will serve only to push America further from fiscal prosperity.
As Heritage’s Matt Spalding explained just before the failed House vote last month, Congress should be taking every opportunity it has to first and foremost cut and cap federal spending:
A part of the long-term agenda to rein in government is an appropriate and sound amendment to the Constitution that would keep federal spending under control in subsequent years. Indeed, the principal reason for adopting a balanced budget constitutional amendment is to limit the size and scope of the federal government by limiting its spending.
Despite its weaknesses, the BBA retains worthy components, making it harder to raise taxes by requiring a two-thirds super-majority of both houses.
As Hatch said in conference call with bloggers on Monday, the BBA “will finally put a straightjacket on Washington’s ability to continue profligate spending of the American people’s money.”
He said that the failure of the congressional super committee to reach an agreement to cut between $1.2 and $1.6 trillion from the federal debt over the next 10 years demonstrated a need for a BBA.
But it’s important to be cautious when approaching what some have deemed the answer to America’s fiscal disaster.
While considerable work has been done to develop a robust amendment, questions of amendment language (both in terms of operational construction and enforcement) have not yet sufficiently been resolved to meet the high and deliberative standard of the United States Constitution.
Like the House version, the Senate BBA is not expected to pass today, which will leave more quality time for consideration of what is best for renewing America’s course to fiscal repair.
Amending the Constitution requires that the American people have sufficient time to converse and comprehend the implications such a change would bring. The Senate should consider carefully today all the factors involved now and in the future for a BBA.
Reckless spending increases under both Bush and Obama have resulted in unprecedented deficits. Congress will soon be forced to increase the nation’s debt limit by an astounding $1.8 trillion. Government borrowing has become such a big issue that some politicians are proposing a deficit reduction commission, which may mean they are like alcoholics trying for a self-imposed intervention.
But all this fretting about deficits and debt is misplaced. Government borrowing is a bad thing, of course, but this video explains that the real problem is excessive government spending.
Fixating on the deficit allows politicians to pull a bait and switch, since they can raise taxes, claim they are solving the problem, when all they are doing is replacing debt-financed spending with tax-financed spending. At best, that’s merely taking a different route to the wrong destination. The more likely result is that the tax increases will weaken the economy, further exacerbating America’s fiscal position.
If America does not get welfare reform under control, it will bankrupt America. But the Heritage Foundation’s Robert Rector has a five-step plan to reform welfare while protecting our most vulnerable.
The 2012 Index of Dependence on Government, released today, should be a wake-up call for America. Published by The Heritage Foundation for the past 10 years, the Index tracks the growth in government dependence dating back to the early 1960s. This year’s edition shows an alarming trend. Among the most troubling facts:
One in five Americans—the highest in the nation’s history—relies on the federal government for everything from housing, health care, and food stamps to college tuition and retirement assistance. That’s more than 67.3 million Americans who receive subsidies from Washington.
Government dependency jumped 8.1 percent in the past year, with the most assistance going toward housing, health and welfare, and retirement.
The federal government spent more taxpayer dollars than ever before in 2011 to subsidize Americans. The average individual who relies on Washington could receive benefits valued at $32,748, more than the nation’s average disposable personal income ($32,446).
At the same time, nearly half of the U.S. population (49.5 percent) does not pay any federal income taxes.
In the next 25 years, more than 77 million baby boomers will retire. They will begin collecting checks from Social Security, drawing benefits from Medicare, and relying on Medicaid for long-term care.
As of now, 70 percent of the federal government’s budget goes to individual assistance programs, up dramatically in just the past few years. However, research shows that private, community, and charitable aid helps individuals rise from their difficulties with better success than federal government handouts. Plus, local and private aid is often more effectively distributed.
This much dependence on government has not been seen before in our nation, and it spells grave danger for the republic. A dose of reality would inform politicians that federal handouts, while politically expedient, will doom the republic if they are not curtailed.
Why not pass the Balanced Budget Amendment? As you know that federal deficit is at all time high (1.6 trillion deficit with revenues of 2.2 trillion and spending at 3.8 trillion).
On my blog www.HaltingArkansasLiberalswithTruth.com I took you at your word and sent you over 100 emails with specific spending cut ideas. However, I did not see any of them in the recent debt deal that Congress adopted. Now I am trying another approach. Every week from now on I will send you an email explaining different reasons why we need the Balanced Budget Amendment. It will appear on my blog on “Thirsty Thursday” because the government is always thirsty for more money to spend.
As Congress considers what to do about federal overspending and overborrowing, conservatives must maintain focus. We must pursue the path that drives down federal spending and borrowing and gets to a balanced budget, while preserving our ability to protect America and without raising taxes. An important part of that conservative agenda is adoption of a sound—repeat, a sound—Balanced Budget Amendment.[1] A Balanced Budget Amendment is not sound if it leads to balancing the federal budget by tax hikes instead of spending cuts. Thus, a sound Balanced Budget Amendment must prohibit raising taxes unless a two-thirds majority of the membership of both Houses of Congress votes to raise them. Without the two-thirds majority requirement, the Balanced Budget Amendment becomes the means for big spenders to raise taxes.
Supporters of the Balanced Budget Amendment rightly want to force the federal government to live within its means—to spend no more than it takes in. Because the government has failed for decades to follow that balanced budget principle, America is now $14.294 trillion in debt, a debt of more than $45,000 for every person in the United States.[2]
President Obama is making things worse. In discussions with congressional leaders, he has pushed hard to get authority to borrow yet more trillions of dollars and hike taxes. And the White House reiterated this week that President Obama opposes amending the Constitution to require the federal government to balance its budget.[3]
A Sound Balanced Budget Amendment Must Require Two-Thirds Majorities to Raise Federal Taxes
Like 72 percent of the American people, The Heritage Foundation favors passage by the requisite two-thirds of both Houses of Congress and ratification by the requisite 38 states of an effective Balanced Budget Amendment to become part of our Constitution.[4] Heritage has made clear that an effective Balanced Budget Amendment must control spending, taxation, and borrowing; ensure the defense of America; and enforce, through the legislative process and without interference by the judicial branch, the requirement to balance the budget.[5] A sound Balanced Budget Amendment will drive down federal spending and end federal borrowing.
To date, Congress has proposed one largely sound Balanced Budget Amendment for consideration—Senate Joint Resolution 10, often called the Hatch-Lee Amendment after its main proponents.[6] It has a number of important features, such as an annual federal spending cap of not to exceed 18 percent of the economy’s annual output of goods and services (called the gross domestic product, or GDP) that Congress cannot exceed, except by a law passed with two-thirds majorities in both Houses of Congress or in specified circumstances involving military necessity.
A crucial feature is included in section 4 of the Balanced Budget Amendment proposed by Senate Joint Resolution 10: “Any bill that imposes a new tax or increases the statutory rate of any tax or the aggregate amount of revenue may pass only by a two-thirds majority of the duly chosen and sworn Members of each House of Congress by a roll call vote.” The requirement that no tax hikes occur without the approval of 290 Representatives and 67 Senators is essential in a sound Balanced Budget Amendment. Without the requirement for two-thirds majorities for any tax increase, the Balanced Budget Amendment becomes a sword for big spenders to use to raise taxes, instead of a shield to protect Americans from tax hikes. Those who seek to anchor into our Constitution a requirement to balance the budget must always remember that, if the only requirement is “balance,” that can be achieved two ways—cut spending or hike taxes. A sound Balanced Budget Amendment will balance the budget by driving down federal spending and not by driving up federal taxes.
Balanced-Budget States That Allow Simple Majorities for Tax Hikes Face Situations Very Different from That of the Federal Government
Some look at the experience of states that have requirements in their constitutions for a balanced state budget and draw the wrong conclusion about the need for two-thirds majorities for taxation. They mistakenly conclude that a requirement merely for simple majorities in state legislatures to raise taxes suffices to keep state taxation under control and therefore that a federal Balanced Budget Amendment should require only simple majorities in Congress to raise taxes. But the balanced budget requirement at the state level occurs in a very different context from such a requirement at the federal level.
As a practical matter, state legislators regularly work and live among the people they represent, often do their legislative work face-to-face with their constituents, and often depend upon direct contact with voters to persuade voters to keep the legislators in office. As a result, state legislators tend to be closely attuned and responsive to the need of their constituents for reasonableness in taxation. In contrast, U.S. Senators and Representatives spend much of their time distant from the people they represent, often deal with their constituents through the insulation of large staffs, and amass large campaign funds through political fundraising that allow them to depend more upon expensive mass communications than upon direct contact with voters to persuade the voters to keep them in office. As a result, U.S. Senators and Representatives tend to be less directly attuned and responsive to the need of their constituents for reasonableness in taxation than state legislators are. Accordingly, while a requirement for merely simple majorities in state legislatures to raise taxes may suffice to keep taxes under control in that state, simple majorities are not likely to keep taxes under control at the federal level—as the experience of federal tax increases in the last 50 years proves.
Some who recognize the need for taxpayer protection by requiring supermajorities, rather than just simple majorities, of the two Houses of Congress to raise taxes think a supermajority of three-fifths of both Houses would suffice. While three-fifths would add a modicum of taxpayer protection in the House, three-fifths would add little if anything in the way of taxpayer protection in the Senate, which already often requires a three-fifths majority to proceed to consideration of legislation. The existing three-fifths rule in the Senate has often failed to protect taxpayers from federal tax increases in the past. A sound Balanced Budget Amendment would add protection for taxpayers in both Houses of Congress by a requirement for two-thirds majorities of the membership of both Houses to raise taxes.
Conclusion: Adopt the Two-Thirds Majority Requirement for Tax Hikes, to Make the Balanced Budget Amendment the Instrument of Spending Cuts and Not Tax Hikes
America’s soon-to-be New Minority—people who pay federal income tax—need protection from unreasonable taxation.[7] When all Americans have the right to vote, but only a minority has the duty to pay the federal income taxes from which all Americans benefit, the risk is high that a non-taxpaying majority will elect a Congress pledged to adopt taxation that oppresses the taxpaying minority. The impulse to seek something for nothing has regrettably taken root in the American body politic in the past century. The requirement in the Balanced Budget Amendment of a two-thirds majority of the membership of both Houses of Congress to raise taxes will protect a taxpaying minority against oppressive taxation.
As Congress continues on the path toward adopting a joint resolution to recommend a Balanced Budget Amendment to the states for ratification, Congress should ensure that the Amendment includes a requirement for approval by two-thirds of the membership of the two Houses of Congress for tax hikes. Absent such a requirement, the Balanced Budget Amendment will encourage tax hikes instead of spending cuts as the means to balance the budget, making the Amendment the friend of the tax, spend and borrow crowd, instead of the friend of those who believe in limited government, free enterprise, and individual freedom.
Edwin Meese III is the Ronald Reagan Distinguished Fellow in Public Policy and Chairman of the Center for Legal & Judicial Studies at The Heritage Foundation.
Edwin Meese III is a prominent leader, thinker and elder statesman in the conservative movement – and America itself.
Meese holds the Ronald Reagan Chair in Public Policy at The Heritage Foundation, where he is responsible for keeping the late president’s legacy of conservative principles alive in public debate and discourse.
He also is Chairman of Heritage’s Center for Legal and Judicial Studies, founded in 2001 to educate government officials, the media and the public about the Constitution, legal principles and how they affect public policy.
These two Heritage “hats” keep Meese, a trusted counselor to Reagan before becoming Attorney General, among the major conservative voices in national policy debates at an age when most men and women enjoy quiet retirements.
In 2006, for example, Meese was named to the Iraq Study Group, a special presidential commission dedicated to examining the best resolutions for America’s involvement in Iraq.
Immediately after Reagan’s death in 2004, and in the years since, Meese appeared on the major cable and broadcast news programs to discuss the lasting impact of his old friend, mentor and boss. He often summarizes the Reagan legacy in three accomplishments: 1) Reagan cut taxes and kept them low. 2) He worked to defeat and end the Soviet Union and its worldwide push for communism. 3) He restored America’s faith in itself after years of failure and “malaise.”
“I admired him as a leader and cherish his friendship,” Meese wrote in a 2004 essay for Heritage members and supporters. “Ronald Reagan had strong convictions. He was committed to the principles that had led to the founding of our nation. And he had the courage to follow his convictions against all odds.”
Meese spent much of his adult life working for Reagan, first after the former actor, sports announcer and athlete was elected Governor of California in 1966 and then when he sought and won the presidency in 1980.
Meese served as the 75th Attorney General of the United States from February 1985 to August 1988. As the nation’s chief law enforcement officer, he directed the Justice Department and led international efforts to combat terrorism, drug trafficking and organized crime.
From January 1981 to February 1985, Meese held the position of Counsellor to the President – the senior job on the White House staff – and functioned as Reagan’s chief policy adviser. In 1985, he received Government Executive magazine’s annual award for excellence in management.
Meese joined Heritage in 1988 as the think tank’s first Ronald Reagan Distinguished Fellow – the only policy chair in the country to be officially named for the 40th president.
His relationship with Heritage began eight years earlier, however, when Meese met with senior management to discuss the think tank’s landmark policy guide, Mandate for Leadership, prepared for the incoming administration. Meese later recalled that Reagan personally handed out copies of the 1,093-page book to members of his Cabinet and asked them to read it. Nearly two-thirds of Mandate’s 2,000 recommendations would be adopted or attempted by the Reagan Administration.
Meese took on a new role as Chairman of Heritage’s Center for Legal and Judicial Studies more than a decade after joining the think tank. Under his guidance, the center has counseled White House staffers, Justice Department officials and Senate Judiciary Committee members on the importance of filling judicial vacancies with qualified men and women who are committed to interpreting the Constitution according to the founding document’s original meaning.
The center also became known for hosting “moot court” practice sessions to sharpen the arguments of attorneys slated to bring important cases before the Supreme Court. Those cases addressed constitutional issues ranging from property rights to racial preferences in primary and secondary schools to restrictions on free speech in campaign finance law.
Meese headed the center’s Advisory Board for the writing and editing of the best-selling book, The Heritage Guide to the Constitution (Regnery, 2005). The book assembles 109 experts to walk readers through a clause-by-clause analysis of the Constitution. Sen. Tom Coburn (R-Okla.) was among those keeping the reference work handy during Judiciary Committee hearings on Supreme Court nominees.
Meese’s other books include Leadership, Ethics and Policing (Prentice Hall, 2004); Making America Safer (Heritage, 1997); and With Reagan: The Inside Story (Regnery Gateway, 1992).
He also is a Distinguished Visiting Fellow at the Hoover Institution at Stanford University in California and lectures, writes and consults throughout the United States on a variety of subjects.
As both Attorney General and Counsellor to President Reagan, Meese was a member of the Cabinet and the National Security Council. He also served as Chairman of the Domestic Policy Council and the National Drug Policy Board.
After Reagan won the White House in the 1980 election, Meese headed the transition team. In the campaign, he was the Reagan-Bush Committee’s senior official.
During the Reagan governorship, Meese served as Executive Assistant and Chief of Staff from 1969 through 1974 and as Legal Affairs Secretary from 1967 through 1968. He previously was Deputy District Attorney in Alameda County, Calif.
Reagan never forgot Meese’s loyalty and hard work over the years. During a press conference at which reporters questioned Meese’s actions at the Justice Department, Reagan replied: “If Ed Meese is not a good man, there are no good men.”
Meese had a career outside government and politics. From 1977 to 1981, he was a Professor of Law at the University of San Diego, where he also directed the Center for Criminal Justice Policy and Management.
He was an executive in the aerospace and transportation industry as Vice President for Administration of Rohr Industries Inc. in Chula Vista, Calif. He left Rohr to return to the practice of law, doing corporate and general work in San Diego County.
Edwin Meese III was born Dec. 2, 1931, to Edwin Jr. and Leone Meese in Oakland, Calif. He graduated from Yale University in 1953 and holds a law degree from the University of California-Berkeley. A retired Colonel in the Army Reserve, he remains active in numerous civic and educational organizations.
He and his wife, Ursula, have two grown children and reside in McLean, Va.
Ronald Reagan and Bill Clinton both reduced the relative burden of government, largely because they were able to restrain the growth of domestic spending. The mini-documentary from the Center for Freedom and Prosperity uses data from the Historical Tables of the Budget to show how Reagan and Clinton succeeded and compares their record to the fiscal profligacy of the Bush-Obama years.
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Over the years the liberals keep on calling for more spending but our solution is to restrain government growth. The funny thing is that BILL CLINTON BALANCED THE BUDGET BY RESTRAINING SPENDING BUT NOW DEMOCRATS ACT LIKE THEY HAVE FORGOTTEN THE RECIPE FOR SUCCESS.
Good fiscal policy doesn’t require miracles — or dramatic showdowns. All politicians have to do is limit the growth of the public sector. Combined with normal revenue growth, this approach eliminates red ink very quickly.
This is what happened in the U.S. during the Clinton-Gingrich years. Between 1994 and 1999, total government spending increased by an average of just 3% annually. The budget deficit, which was projected in early 1995 (18 months after the 1993 tax increase!) to remain above $200 billion for the rest of the century, quickly became a budget surplus once spending was restrained.
Fiscal discipline also works when it is tried in other nations. Data from the Economist Intelligence Unit reveal that four nations — Canada, Ireland, Slovakia and New Zealand — dramatically reduced budget deficits in recent decades by imposing strict limits on government spending.
Daniel Mitchell is a senior fellow at the Cato Institute in Washington, D.C.
Interestingly, these data also reveal that the tax burden was stable or falling during these periods of fiscal progress.
Canada, for instance, was in deep fiscal trouble. The burden of government spending had climbed above 53% of gross domestic product in 1992 and the deficit was more than 9% of economic output. Then lawmakers embarked on a new course. Government was put on a diet, and between 1992 and 1997 Canada’s budget rose from $374 billion Canadian to $391 billion, an average annual increase of less than 1%.
This period of frugality paid big dividends. The burden of government spending dropped to 44% of GDP. The budget deficit, meanwhile, completely disappeared. After five years of fiscal discipline, record levels of red ink were transformed into a small budget surplus.
Ireland was in a tailspin by the mid-1980s. The burden of government spending had skyrocketed to more than 60% of GDP and the nation’s deficit was consuming more than 12% of economic output. To avoid a crisis, Irish policy froze the budget. The Irish budget was 14.7 billion euros in 1985, and it was only 14.7 billion euros in 1989.
This four-year spending freeze was enormously successful. The burden of government spending plunged to less than 43% of GDP. The budget deficit also fell dramatically, consuming just 2.7% of economic output at the end of this period.
Slovakia, like many other nations that emerged from the collapse of the Soviet empire, was saddled with a large public sector. To solve the problem, policymakers restrained government. From 2000-03, the Slovakian budget grew from 11.5 billion euros to 11.8 billion euros, an average increase of 1.3%.
This modest period of fiscal discipline had a big impact. The burden of the public sector dropped from 36.9% of GDP down to 29.2% of economic output. During this time, the deficit fell from 8.7% of GDP to 2.0%. Combined with pro-growth policies such as the flat tax and personal retirement accounts, the nation has enjoyed robust growth.
Last but not least, let’s look at New Zealand. The burden of the public sector by the end of the 1980s had climbed to more than one-half of economic output. The Kiwis staged a turnaround by putting a clamp on public-sector spending. Between 1990 and 1995, the New Zealand Budget actually dropped from $39.3 billion New Zealand to $38.8 billion.
This five-year spending freeze put the nation in a much stronger position. The burden of government spending plummeted by more than 10 percentage points of GDP in New Zealand, dropping from 53.5% of economic output down to 43.1%. And a deficit of 4.5% of GDP was transformed during those five years to a surplus of 2.8% of GDP.
This pattern should not be a surprise. Restraining government spending generates good results because the private sector grows faster than the public sector.
Many self-proclaimed deficit hawks in Washington argue that deficit reduction is impossible without substantial tax increases. But American policymakers implemented a big tax cut, in 1997, during the period when the deficit became a surplus.
In other nations, the tax burden actually dropped by significant amounts during the relevant periods — falling by 8.1 percentage points of GDP in Ireland, 1.1 percentage points of GDP in Slovakia, and 3.1 percentage points of GDP in New Zealand. The overall tax burden did rise in Canada, but only by 0.3 percentage point of GDP.
The moral of the story is that limiting the growth of government spending is the right recipe. If the politicians in Washington replicated the spending discipline of these other nations, we would enjoy similar results.
Two percent annual spending increases would lead to fiscal balance by 2021. Limiting spending growth to 1% annually would balance the budget by 2019. A spending freeze would balance the budget by 2017.
Spending Restraint, Part II: Lessons from Canada, Ireland, Slovakia, and New Zealand
Nations can make remarkable fiscal progress if policy makers simply limit the growth of government spending. This video, which is Part II of a series, uses examples from recent history in Canada, Ireland, Slovakia, and New Zealand to demonstrate how it is possible to achieve rapid improvements in fiscal policy by restraining the burden of government spending. Part I of the series examined how Ronald Reagan and Bill Clinton were successful in controlling government outlays — particularly the burden of domestic spending programs. http://www.freedomandprosperity.org
Agriculture is easily the most distorted sector, with high tariffs and, in developed countries at least, large amounts of government subsidies through price supports and direct payments. On the other hand, developing countries, who have a comparative advantage in these products, cannot afford to subsidize their agriculture sector and face prohibitive tariffs for their products abroad. The powerful agriculture lobby groups, particularly in the large developed countries, make reform politically difficult. Chris Edwards, Sallie James and Dan Ikenson discuss the inequities of American farm policies.
Most federal revenues come from individuals. Personal income taxes provide the largest portion of total tax revenues, though some of this is small-business income. Social Security and Medicare payroll taxes are the second-largest source.
The charts in this book are based primarily on data available as of March 2011 from the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO). The charts using OMB data display the historical growth of the federal government to 2010 while the charts using CBO data display both historical and projected growth from as early as 1940 to 2084. Projections based on OMB data are taken from the White House Fiscal Year 2012 budget. The charts provide data on an annual basis except… Read More
Authors
Emily GoffResearch Assistant
Thomas A. Roe Institute for Economic Policy StudiesKathryn NixPolicy Analyst
Center for Health Policy StudiesJohn FlemingSenior Data Graphics Editor
Federal Revenues Have More Than Tripled Since 1965
Tax Receipts Return to Historical Average
The Daily Hatch 