Deficit Driven by Uncontrolled Spending

COMMENTARY Budget and Spending

Deficit Driven by Uncontrolled Spending

Nov 29th, 2017 1 min read
COMMENTARY BY
Adam Michel

Policy Analyst

Adam N. Michel focuses on tax policy and the federal budget as a Policy Analyst in the Thomas A. Roe Institute.
Tax reform that grows the economy can ease the burden of paying down the debt. iStock

Key Takeaways

The U.S. deficit matters.

Revenue is certainly not the problem.

Robust economic growth is a necessary component of managing our debt.

Does the U.S. deficit matter? Of course it does. It matters a lot. But the Congress hasn’t run up $20 trillion of debt because we haven’t taxed people enough. It’s because we spend too much.

Revenue is certainly not the problem. The Congressional Budget Office projects that under current law tax, revenue will continue to grow above the historical norm. In a sane world, this would mean that most taxpayers could expect a sizable tax cut.

Alas, we do not live in such a world. Washington’s inability to decrease the growth rate in federal spending constrains every decision Congress makes.

Thankfully, a small dose of sanity was included in the 2018 budget. Congress allowed tax reform to decrease revenue over 10 years by $1.5 trillion, or about 3.5% of projected revenue over the same time.

The static budget score of $1.5 trillion provides zero useful information about how the reform will actually affect the deficit.

Properly designed tax reform will lead to a larger economy and higher wages. Each of these economic benefits can result in more tax revenue. Independent analysis from the Tax Foundation, using a dynamic model, shows that tax reform would make back about $1 trillion of the supposedly lost $1.5 trillion revenue. The true reduction in revenue will be closer to 1%, not 3.5%.

Holding pro-growth tax reform hostage over the deficit unwittingly makes fiscally responsible spending reforms harder.

The deficit cannot be eliminated with tax increases. The notion that we can tax our way out of trouble denies the fundamental problem: The deficit is driven by uncontrolled spending.

Tax reform that grows the economy can also ease the burden of paying down the debt. Robust economic growth is a necessary component of managing our debt. Pro-growth tax reform that allows for a larger and more robust economy means our debt relative to our output shrinks and makes the necessary spending reforms easier.

This piece originally appeared in USA Today