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An Excellent Budget Plan

by Elaine Schwartz    •    Jul 29, 2011    •    278 Views

A debt reduction suggestion.

Let’s use what the President’s budget commission suggests. Proposing legislation that will mandate restraint and discourage political opportunism, they are bipartisan. And, they get people on the right and the left agitated which means that everyone is sacrificing something.

Called “The Moment of Truth,” The National Committee on Fiscal Responsibility and Reform has a 65 page blueprint for our fiscal future. They deal with reducing annual spending. They have suggestions for preserving Social Security, Medicare and Medicaid. They would stabilize debt by 2014. And, citing important incentives and legislative restraints, they understand how to make the Congress and each of us work toward fiscal responsibility. (They even suggest a 3-year pay freeze for members of Congress!)

Specifically, they deal with 6 categories:

  1. Discretionary spending cuts
  2. Comprehensive tax reform
  3. Health care cost containment
  4. Mandatory savings (like cutting agricultural subsidies)
  5. Social Security
  6. Process changes (like measuring inflation more accurately)

The plan is excellent.

The Economic Lesson

Discussing the budget, people always seem to refer to the GDP. Here is why. Because the GDP is the total dollar value of the goods and services we produce during one year, it reflects our affluence. So, just like you look at your income from what you produce when you decide what you can spend, the government can look at the value of what it produces.

The President’s budget commission believes we can afford to spend 21% of our GDP. It also says that the deficit, the amount by which annual spending exceeds annual revenue, should be close to 2.3% of GDP. (p. 16)

An Economic Question: Using this NY Times interactive graphic, specifically, how would you cut discretionary spending?

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