The the Committee for a Responsible Federal Budget (CRFB) has blasted policymakers for abandoning “any semblance of fiscal responsibilty,” as well as disregarding loose targeting, to keep the U.S. federal budget in a balanced order.
With the national debt now outgrowing the size of the U.S. economy, budget watchdog the CRFB has renewed its call for lawmakers to set a target of borrowing against economic growth.
A push to anchor deficits to 3% of GDP has garnered bipartisan support in recent years, with some policymakers suggesting even an agreed upon target is too loose—a mandate should be written into the consititution.
While budget hawks can throw down such gauntlets, the reality of moving the needle on the U.S. fiscal trajectory will take enormous effort. At the time of writing, the U.S. national debt sits just shy of $39 trillion, with the Treasury now forking out more than $1 trillion in interest payments every year.
Both economists working in public service and business leaders in the private sector are unimpressed by the response demonstrated by administrations on both sides of the party line. The likes of Jamie Dimon, CEO of JPMorgan Chase, have recently warned that a bond crisis is looking like an increasingly likely outcome because politicians won’t change their behavior sufficiently to avoid a market correction.
This is precisely the sort of upset the CRFB would like to avoid, and is pushing for a 3% deficit-to-GDP target as a result. This way, government budgets would be reducing their reliance on borrowing, adding less to the nation’s total debt pile, and face lower service payments as a result.
However, even a 3% benchmark is roughly half the level of current deficits. It would require approximately $10 trillion in deficit reduction over the next decade for the target to be reached by 2036.
“Through most of U.S. history up until the early 2000s, the country had an unofficial fiscal target of balancing the budget. Outside of major wars or recessions, policymakers generally worked to bring spending and revenue in line,” the CRFB wrote yesterday. “Although the budget regularly fell short of balance … nearly every Presidential and Congressional budget included a plan to return to balance.”
At the turn of the century, this mentality was discarded—and it will be an effort to return to the rigor to Washington D.C., the committee added. “Even a 3% deficit target would require ambitious policy change to meaningfully boost revenue and reduce spending—but such policy changes are within reach,” it wote.
“Policymakers could get halfway to the target by securing the Social Security, Medicare, and highway trust funds; discretionary spending caps, health care reforms, new revenues, and other cuts to spending and tax breaks could bring the budget the remainder of the way to the 3% target.”
Social Security timeline
For the incoming class of U.S. senators, there will no longer be any sand to bury their heads in. That’s because in approximately six years, Social Security’s program funds will be exhausted, and cuts to services would ensue. Medicare has a similar insolvency timeline, due to wind down a little over a month before Social Security.
These timings represent a problem for Congress. Not for the senators of today, but for the class that will follow them. Some 33 senators will see their terms expiring in early January 2027, with their seats up for election later this year.
In an interview with Fortune last month, Michael Peterson, CEO and chairman of the Peterson G. Peterson Foundation—an organization that advocates and lobbies for fiscal sustainability—was eyeing the looming deadline as an initial test of political willpower.
“The fact that the U.S. senators getting elected now are going to have it on their to-do list during their term, my hope would be that come January the campaign is over and [they] lay down some of the weapons and pick up some of the calculators and pencils, and try and come up with a solution,” Peterson said.