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Stopping the National Debt Spiral: A Better Rule for Solving the Federal Fiscal Crisis

September 23, 2016

The authors propose a new fiscal rule for the United States, a deficit/debt brake, that would impose a stringent limit on government expenditures in the United States.

Stepping on the brake

In recent years, the United States has emerged as one of the world’s most indebted nations. The federal debt now exceeds $20 trillion. With annual deficits in excess of $500 billion, debt continues to grow at an unsustainable rate. As a share of Gross Domestic Product, our national debt is now comparable to that of Brazil, Greece, and Portugal, all countries threatened with default.

America’s national debt crisis can be solved by adopting a “national debt brake” similar to the one in place in Switzerland for several decades. In this new Heartland Policy Brief, Prof. John Merrifield and Dr. Barry Poulson define and propose a debt brake that would halt debt accumulation and allow the United States to avoid the economic instability that has occurred in other insolvent countries. As they write,

Fiscal discipline is achieved with a modest 1 percent reduction in the rate of growth in spending over this period [1993 to 2013]. The government would be able to meet the need for emergency spending, including military spending, while still restraining discretionary spending overall. A 1 percent reduction in the rate of growth in general fund spending is a small price to pay for a sustainable long-term fiscal policy.

They also use a dynamic scoring simulation model to assess the impact of the proposed rule on U.S. fiscal policy and the economy. They compare the key simulated fiscal and economic outcomes to actual outcomes in both the United States and Switzerland. and find a national debt brake would significantly boost GDP and personal income growth.

For three decades, Congress has failed to propose a balanced budget amendment to the U.S. Constitution. Maybe the time has come for the states to use Article V of the Constitution to propose such an amendment. The Heartland Institute’s Center for Constitutional Reform has assembled a wealth of information about that option at www.heartland.org/constitutional-reform.

Author
Barry W. Poulson is Emeritus Professor of Economics at the University of Colorado.
media@heartland.org
Author
Dr. Merrifield is a professor of economics at The University of Texas at San Antonio, a position he has held since 1987.
john.merrifield@utsa.edu