The battle over the future of our federal budget entered a new phase when House Republicans introduced a new budget which calls for annual spending increases of 3.4 percent instead of the current 5 percent. The effect of this relatively modest difference in long-term growth is a reduction of $5 trillion in spending over the next decade, achieving a balanced budget in 2023. Importantly, there are no tax increases included in the budget. This would reduce the size of the federal government to a little more than 19 percent of the total economy.
Senate Democrats are not being left behind, as their budget plan calls for more modest reductions in spending combined with increases in taxes to achieve a steady debt-to-GDP ratio, but that will not achieve a balanced budget.
The battle over the next budget remains sharply polarized with limited paths to compromise. Our federal government has been operating without an approved budget for some time. This plus the sequestration battle and the debt-ceiling increase authorization debate makes our economy appear less stable. This has serious consequences including diminishing investor confidence which drives talent and capital to seeking opportunities elsewhere. We need a breakthrough and we need one soon.
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