Is it possible to balance the federal budget

They argue that the national debt must be compared to national wealth. In particular, it should be compared to the Gross Domestic Product GDP —the total amount of wealth the country produces in one year. Today, although the national debt is far higher, it amounts to only about 50 percent of GDP. The percentage has dropped because the economy has grown faster than the national debt. Deficit doves further believe that deficits often help the economy to grow.

For example, during the Great Depression of the s , businesses failed, millions lost their jobs, tax revenues plummeted, and the economy was in shambles.

Investors feared putting any money into businesses. The economy didn't fully recover until the government started massive deficit spending to finance World War II. At the war's end, many predicted the large debt would lead to stifling inflation. Instead, it led to the prosperous decades of the s and s. Many deficit hawks agree that deficit spending can spur economic growth in a depressed economy. But they fear deficits that are too large in relation to economic growth. They point to the decade of the s, when the economy boomed.

During this period, the national debt as a percentage of GDP grew from about 25 percent to more than 40 percent. Both deficit hawks and doves want the next generation to avoid economic troubles. The hawks believe trouble will come if we revert to deficit spending.

Doves believe trouble will come if the federal government does not start spending more on the nation's infrastructure —its transportation, education, and communication systems. It is not easy to run a balanced budget since it usually entails tax raises, cuts in federal spending, or a combination of both. Eberly and James H. They increase indebtedness to foreigners, which is both expensive and risky.

The United States is the largest net debtor in the world. The income of Americans will ultimately be reduced by the interest, dividends, and profits paid to foreigners who have invested in the United States.

Moreover, if foreigners lose confidence in the American economy—or begin to worry that the United States is not managing its fiscal affairs responsibly—they may reduce their investment. This can decrease the value of the dollar and raise the prices we have to pay for imported goods. One out of every five tax dollars will need to be set aside for this purpose. They impose enormous burdens on future generations. This shift in federal finances from deficit to surplus would not be a serious concern if it were temporary.

These projections are based on those of the Congressional Budget Office CBO , but they assume that the tax cuts enacted in recent years are made permanent, as the president has proposed, and that Congress will amend the alternative minimum tax AMT to prevent an increase in the number of taxpayers subject to the AMT.

They also assume discretionary spending increases in line with population growth as well as with inflation—that is, real discretionary spending per person is held constant—and include the cost of the prescription drug benefit and other changes in Medicare enacted at the end of the first session of the th Congress. Alice M. A major additional reason for concern about continuous large deficits is that pressures on the budget are certain to escalate rapidly as the baby boom generation retires and longevity continues to increase.

The CBO projects that even if medical care costs rise only 1 percent faster than per capita GDP—an optimistic assumption in view of recent increases—expenditures for providing existing benefits under Social Security, Medicare, and Medicaid would rise from 9. These exploding future costs highlight the need to address the challenge of reforming these entitlement programs as soon as possible. They also make clear the importance of fiscal policy that contributes to future economic growth by enhancing national saving—not reducing both growth and saving by running continuous deficits over the coming decade.

Deficits are very sensitive to the rate of economic growth. Should the economy grow faster than the 3 percent rate, in real terms, assumed by the CBO and most private forecasters, deficits will be smaller. If the economy grows more slowly than this, they will be still larger. Some believe that recent changes in tax law will lead to higher rates of economic growth. But as long as these tax cuts are deficit financed, the weight of professional opinion suggests that they will not lead to higher growth.

If the recovery continues and the economy performs well, the deficit should decline for this reason alone. However, many analysts are skeptical that it will decline as much as the administration predicts. The full costs of the wars in Afghanistan and Iraq are not included. Positions on whether the Constitution should be amended to require a balanced budget reflect opposing views about whether such an amendment would be an appropriate solution to the problem of persistent federal deficits and growing federal debt.

In its simplest form, a balanced budget amendment would add a budget rule to the Constitution that would require federal spending not to exceed federal receipts. The amendment would make it unconstitutional for the federal government to run annual budget deficits. Most amendment proposals go further than requiring a balanced budget or budget surpluses. The goal of the Federal Budget Challenge is to reduce the amount of annual deficits over the next 10 years.

Your starting point will be the CBO's estimate for these deficits under current law -- assuming Congress and the President pass no legislation over that time. To learn about the budget decisions that lead to these annual deficits click here.

Federal Budget Challenge. Take the Challenge Start Now!