Both houses of Congress have now submitted their budget plans. The House plan is the handiwork of Republican Rep. Paul Ryan and balances the budget within 10 years by cutting spending. The Senate plan, offered by Democratic Sen. Patty Murray, puts the debt on a downward trajectory relative to the economy but is far less draconian. It includes a balanced mix of spending cuts and revenue increases but does not aim to balance the budget.
No one who has looked at the numbers thinks it’s realistic to balance the budget within 10 years while simultaneously increasing defense spending and reducing the top tax rates (personal and corporate) to 25 percent. The only way Ryan is able to achieve this feat is by eliminating Obamacare and slashing funding for Medicaid and other domestic programs, including those targeted on low-income families.
That said, getting our fiscal house in order should be a high priority. The issue is not only how to do this—but also how quickly. Too much fiscal austerity in the near term could tank the economy. The spending cuts enacted in 2011 after the debt ceiling crisis and the tax increases agreed to in early 2013 will, in combination, halve the growth rate of the economy in 2013, according to the Congressional Budget Office. The Democrat’s budget includes $100 billion of short-run spending on infrastructure, education and technology to help the economy recover more rapidly. Whatever one thinks of such stimulus measures, the fact remains that without stronger growth, businesses and households will not thrive, revenues will not recover and debt will continue to grow even if spending is reduced.
In my view, we should enact reforms to both taxes and entitlements now but phase them in gradually so as not to undermine the recovery. Whether we balance the budget at the end of 10 years is less important than whether Democrats and Republicans can set aside their starkly different priorities and enact these painful but much needed reforms. The big challenge is not balancing the budget; it’s restoring confidence that our government can work.