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Restoring Fiscal Sanity

Restoring Fiscal Sanity: How to Balance the Budget

Copyright Date: 2004
Pages: 138
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  • Book Info
    Restoring Fiscal Sanity
    Book Description:

    The United States is standing at a critical juncture in its fiscal outlook. After experiencing a brief period of budget surpluses at the turn of the century, the federal government will run deficits that add about $4 trillion to the national debt over the next decade. Substantial deficits will likely continue long into the future because the looming retirement of the baby boom generation will raise spending in Social Security, Medicare, and Medicaid. At the same time, the federal government appears to be neglecting spending in key areas of social and economic policy. The nation thus faces a vital choice: continue down a path toward future fiscal crisis while under investing in critical areas, or increase resources in high-priority areas while also reducing the overall budget deficit. This choice will materially affect Americans' economic status and security in the immediate future as well as over long horizons. In Restoring Fiscal Sanity,a group of Brookings scholars with high-level government experience provide an overview of the country's likely medium- and long-term spending needs and the resources available to pay for them. They propose three alternative fiscal paths that are more responsible than the current path. One plan emphasizes spending cuts, the second emphasizes revenue increases, and a third is a balanced mix between the two.

    The contributors address the policy choices in such areas as defense, homeland security, international assistance, and programs targeted to the less advantaged, the elderly, and other domestic priorities. In the process, they provide an understanding of the short- and long-run trade offs and illustrate how the budget can be reshaped to achieve high priority objectives in a fiscally responsible way.

    eISBN: 978-0-8157-9639-8
    Subjects: Political Science, Finance

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Foreword
    (pp. vii-x)
    Strobe Talbott

    Few issues are more crucial to the future of the United States than the fiscal policy of our government, and none is more deeply associated with our core task at Brookings, which is to apply independent analysis to public policy. So this book, edited by Alice Rivlin and Isabel Sawhill, is not only a timely contribution to the public debate—it’s also an exemplar of the Institution’s mission.

    For much of the past hundred years, budget meant deficit. After experiencing a brief period of surpluses at the end of the last century, the federal government is projected to run deficits...

  4. Acknowledgments
    (pp. xi-xii)
  5. Executive Summary
    (pp. 1-14)

    Federal spending and taxation have a large impact on the economy and on the lives of individuals and families. Good budget choices can strengthen the economy; bad choices can weaken it. Decisions about the federal budget are always difficult. People differ on what government should do and how to pay for it. Some people believe that the federal government should do more, others less. Many believe that government spending priorities are wrong or that taxes are burdensome or unfair. People also differ on how much deficits matter and on how quickly they need to be addressed.

    One fact is indisputable:...

  6. 1 Growing Deficits and Why They Matter
    (pp. 15-30)

    This book is about the difficult choices that citizens and policymakers must make about the priorities in the federal budget. Its basic theme is: we can’t have everything; we have to choose what we want most and how we want to pay for it. Right now, we are trying to have it all: lower taxesandincreased spending—for Social Security, Medicare, defense, homeland security, and many other programs. The result is a government budget that is out of control and that poses substantial risks to the future. Our government is now borrowing about half a trillion dollars a year....

  7. 2 Getting to Balance: Three Alternative Plans
    (pp. 31-55)

    When a budget is in deficit there are only two ways—other than faster growth in the economy—to bring it into balance. Spending must be cut or revenue increased. Both are difficult to achieve politically and sure to cause pain. After all, deficits do not happen accidentally. Spending programs are enacted because a majority in Congress deems the activities they support to be necessary or at least desirable. Beneficiaries of federal spending—whether they receive Medicare or a contract to build Navy airplanes or work in a local Head Start program—are sure to oppose cuts in their particular...

  8. 3 Reassessing National Security
    (pp. 56-77)

    Two years after September 11, 2001—with two major military operations undertaken, two uncertain nation-building ventures under way, and the risk of a deadly combination of terrorism, rogue regimes, and weapons of mass destruction still unacceptably high—security remains at the top of the nation’s agenda. The war on terrorism has not only greatly expanded spending on security, but also introduced great uncertainty into the ten-year budget outlook—uncertainty that argues for humility in estimating future spending. The budget for national security has grown by roughly $200 billion above anticipated needs in just two and a half years and has...

  9. 4 Restructuring Domestic Spending
    (pp. 78-92)

    This chapter discusses the domestic spending component of the better government plan. For purposes of the chapter, domestic spending consists of all budget outlays except defense, international affairs, homeland security, and the three large entitlement programs (Social Security, Medicare, and Medicaid), which are discussed elsewhere. In fiscal year 2003, domestic spending, apart from interest on the debt, accounted for 31 percent of the total budget and 6.3 percent of GDP. In our baseline budget these programs grow less rapidly than the economy, shrinking to 4.8 percent of GDP by 2014.

    The better government plan is based on the premise that...

  10. 5 The Impact of an Aging Population
    (pp. 93-110)

    Balancing the budget over the next decade is an important goal for the nation in part because later decades threaten to bring even larger budget challenges. The first baby boomers become eligible for early Social Security retirement benefits in 2008 and for Medicare in 2011. As the baby boomers increasingly become eligible for these programs, the federal budget is expected to begin running deficits vastly larger than those projected over the next decade.¹

    Balancing the budget by 2014 will help prepare both the economy as a whole (through higher national saving, which raises our future productivity) and the federal budget...

  11. 6 Meeting the Revenue Challenge
    (pp. 111-126)

    Between 2000 and 2003, federal revenue fell from 20.8 percent of the economy to 16.5 percent, its lowest share since 1959. Although revenue will increase as a share of GDP as the economy recovers from the recent recession, it will remain insufficient to match spending needs under any of the plans sketched earlier in the volume.¹ As a result, all of those plans will require higher taxes if the budget is to be balanced by 2014.

    This chapter is a guide to revenue options that would help balance the budget. Accordingly, we present a menu of options for revenue increases...

  12. Budgeting for National Priorities Advisory Board
    (pp. 127-132)
  13. Index
    (pp. 133-138)
  14. Back Matter
    (pp. 139-139)