HomeSet A Budget Target

Set A Budget Target

AUTHOR: Fiscal Future, Site Administrator
Oct 12, 2010

It’s just common sense: you can’t get anywhere unless you know where you’re going. Right?

When it comes to the federal budget and the national debt, however, we don’t have any direction at all. The U.S. government doesn’t have any binding budget goals. None. Zippo. Nada. We have projections, and policies, and of course every year the president and Congress decide on the annual budget. But we don’t have any actual goals about how big our national debt should be, what our tax and spending priorities are, or about our annual deficit. Without goals, we’re just floundering around from year to year, trying to stay out of trouble but ignoring the long-term picture.

That’s why a number of groups, including the Committee on the Fiscal Future, have called for setting a budget target, based on the simple ratio of the national debt to gross domestic product (the total size of the American economy). It’s a basic yardstick that most economists accept (find out more about how GDP works here). But the essential point is, the bigger the debt is compared to the rest of the economy, the more dangerous it is.

The Fiscal Future report called for setting the target at 60 percent of GDP. Our public debt is at about 50 percent now, but projected to pass 100 percent as soon as 2020. (See how other countries fare on this measure). Another panel, the Peterson-Pew commission, also recommended a 60 percent target. The respected Center for Budget and Policy Priorities calls for a somewhat higher target, 70 percent. Other countries already do this (check out some examples).

In all three cases, the experts say that target is a safe number: not so low as to choke off needed programs or impose too heavy a tax burden, and not so high that our economy can’t carry the weight of all that debt.
But the key point is that, regardless of what number we actually pick, setting a budget target gives everyone – the government, our creditors, and the American public – a straightforward, simple guide to when the national debt is a problem, and when it’s not. If we manage our budget to that target, we’ll know how we’re doing , and we’ll know when we’re in trouble.

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