A budget idea
Most people know the federal government has big budget issues, including the recent significant growth in the national debt. N.C. State University economist Mike Walden takes a look at one simple idea to address the budget that might have wide appeal.
“There is an idea that economists call … cycle budget. And what cycle budgeting does is it limits the growth of spending in a country or state or any governmental entity to some average growth rates and tax revenues over some time period.
“Now this doesn’t mean that spending can go up only by so much each year. It can only go up by the average of what your revenue has grown, which means that when the economy is expanding and growing very fast, likely — likely — spending will go up smaller than revenues. So, governments will accumulate a surplus. But then when the economy goes into a recession spending will go up faster than revenues, but then the government can tap into those savings that have accumulated during the good years.
“So this is a way of smoothing out, if you will, the availability of revenues over a long period of time. And countries that have adopted this — and one example is Switzerland — have had a much better fiscal situation than other countries like the U.S. and other western European countries.
“Now one big issue here is what to do about spending on particular social programs like Social Security and Medicare, which on trend are increasing because we have an aging population. What Switzerland does is exempt spending on those programs from these limits. So there are some issues here, but certainly this is an idea worth considering.”
Category: Economic Perspective