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A public policy blog from AEI
National Review’s Robert Costa says a Republican BBA is on its way:
Frustrated by the months of non-stop budget fights, Senate Republicans are set to mount a fiscal counteroffensive this week with the reintroduction of a balanced-budget amendment. … Senate minority leader Mitch McConnell (R., Ky.) and minority whip John Cornyn (R., Texas) are leading the effort. They hope to unveil a bill by Thursday with unanimous Republican support. … House Republican leaders are also signaling their support. On Monday, former GOP vice-presidential candidate Paul Ryan endorsed the idea on Twitter. .. According to a Senate GOP aide, the legislation would cap federal spending at 18 percent of GDP. It would also require a supermajority for tax hikes and debt-limit increases.
I am not going to repeat here my concerns from earlier today about Washington policy focusing too much on further cutting near-term discretionary spending rather than pro-growth policies and entitlement reform.
Instead, let’s quickly examine whether capping federal spending at 18% of GDP is realistic. I am not sure it is. If the bill excludes interest spending? Maybe. If so, then the BBA would be capping spending at roughly the historical average of around 20% to 21% of GDP. But even doing that for the long term will be tough (especially without slashing defense spending to Europe’s minimalist levels). Recall that the Bowles-Simpson plan has a long-term spending target of 21%.
Over at e21, Charles Blahous explains how the the aging of American society will increase health care spending even if we are able to get a handle on health-cost inflation:
In recent years a seductive but incorrect picture of the federal budget became fashionable; the idea that the main thing we need to do to repair the budget is to conquer health care cost inflation in the public and private sectors alike. Unfortunately, it’s not true. Last year CBO estimated that over the next quarter-century, cost growth in the federal health entitlements and Social Security will be 75% attributable to population aging and only 25% to health cost inflation. Even in the health entitlements considered alone, population aging accounts for 60% of such cost growth, excess health inflation only 40%. Thus even in the unlikely scenario that we completely conquer health cost inflation, we would still have to confront the bigger problem of the growing number of people receiving federal health benefits
What would be a realistic long-term number? Well, back in 2011 a group of AEI scholars put together a budget that, through entitlement reform, was able to limit spending to 22.8% of GDP in 2035 with a debt-to-GDP ratio just shy of 60%. (See the above graphic.) So from where would the extra 2 percentage points or so come to meet a BBA goal of spending cap of 21% of GDP? And if the number really is 18%? …
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