Both houses of Congress have now voted to suspend the debt ceiling until May 19, buying lawmakers more time to develop a budget. The Senate would put together a budget for the first time in three years—and the details of that budget are crucial.
To prevent the federal debt from growing further out of control and harming economic growth in the long term, Congress must balance the budget in 10 years and keep it balanced—without raising taxes further.
This 5-point checklist covers the do’s and don’ts of balancing the budget in 10 years:
1. Do not raise taxes. Despite the President’s repeated assertions that he favors a balanced approach to deficit reduction, the latest budget debate over the fiscal cliff concluded by allowing 13 new or higher taxes to take effect, while it produced a net increase in spending of $47 billion. The tax hikes are hurting the economy and American workers by dampening investment and job creation. Yet our debt challenge remains. Only significant reductions in spending will effectively curb debt and deficits.
2. Reform entitlement programs. Congress must make much-needed reforms to entitlement programs to provide an affordable safety net. Congress should first repeal Obamacare or at least stop the subsidies and Medicaid expansion that begin in 2014. Social Security and Medicare should become true safety net programs and focus assistance on seniors in need. The eligibility age for both programs should match and reflect increases in longevity. Social Security’s cost-of-living adjustment should be based on a more accurate measure of inflation.
3. Reduce discretionary spending. Congress should immediately stop all spending for programs that benefit only a few and have even the appearance of cronyism, like subsidies for public broadcasting, agriculture, green energy, and ethanol. The federal government should focus on a limited number of appropriate national duties. States and local governments are better able to meet the needs of local populations in areas such as transportation, education, job training, economic development, and environmental conservation.
4. Do not use budget gimmicks. Congress must put the federal budget on a firm course to balance in 10 years and keep it balanced, without employing budget gimmicks. Congress should abstain from abusing disasters, like Hurricane Sandy, to push through excess spending. Neither should Congress enact laws that count on spending outside the 10-year budget window, as is the case with Obamacare’s coverage expansion provisions.
5. Do not sacrifice the nation’s security. Allowing myopic cuts to reduce military capabilities today risks incurring higher rebuilding costs tomorrow. Congress should responsibly fund defense at adequate levels.
The debate about the debt ceiling is the perfect opportunity to talk about America’s real budget priorities. Growing federal spending has put the nation on a track to fiscal collision, and a significant course correction is necessary.
Average historical tax revenues are 18.5 percent of gross domestic product (GDP). We can’t keep spending more than we take in. Spending must be reduced to this level over the 10-year budget window to balance the budget. The Heritage plan, Saving the American Dream, shows how Congress can prudently balance the budget in 10 years, without burdening Americans with higher taxes or compromising the nation’s national security.
Romina Boccia is research coordinator for the Roe Institute for Economic Policy Studies at The Heritage Foundation.