The semi-virtue of a balanced budget

Wayne Crews and Ryan Young Competitive Enterprise Institute
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Paul Ryan’s just-released budget proposal, the Path to Prosperity, would balance the budget in 2023. This would certainly be an improvement over President Bush’s then-record $400 billion deficits, not to mention his successor’s trillion-dollar overruns. Better still, it accomplishes this without tax increases. But we argue that Rep. Ryan has his eyes on the wrong prize.

We’re for a balanced budget, and maybe even an amendment. But we’re more for the principle of limited government. The Ryan budget’s main deficit-reducing tactic is to increase federal spending by 3.4 percent per year instead of the currently projected 5 percent. Again, this is certainly an improvement. But after 12 years of breakneck Bush-Obama government growth, it is well past time for actual cuts, in which spending goes down.

Then again, politics is the art of the possible. And if the sequestration debate taught us anything, it is that substantive spending cuts are simply not possible in the current political environment. That’s why the Path to Prosperity depends on economic growth, not spending cuts, to raise the necessary revenue to close today’s trillion-dollar budget gap.

Think about it another way. Congress could balance the budget today simply by cutting spending in half. But that still wouldn’t change the more important fact that over-regulation in every economic sector is hobbling job creation, innovation, and growth. This begs for reform. Federal regulations alone have compliance costs of $1.8 trillion per year. Imagine what entrepreneurs could accomplish if they were allowed to find more productive uses for even a tenth of that money. That this would generate additional tax revenue is an added fiscal benefit.

Ryan’s budget does, fortunately, address regulation. It “would end the bailout regime enshrined into law by the Dodd-Frank Act,” which alone could save tens of billions of dollars. Repealing the health care bill would save an estimated $1.8 trillion over ten years. But much more needs to be done if economic growth is going to be fast enough to generate the tax revenues needed to balance the Ryan plan’s still-growing budget.

To that end, here are three ways to encourage that growth. Note also that they would help ease Washington’s fiscal troubles whether or not the Ryan budget passes.

One, President Obama should establish an annual Regulatory Reduction Commission. The Commission’s bipartisan members would comb through the 169,000-page Code of Federal Regulations each year for rules that are obsolete, unnecessary, burdensome, or harmful. It would submit its reform package to Congress, which would be required to vote on it within, say, 10 legislative days to avoid the possibility of reform being swept under the rug. The vote would also be a straight up-or-down without amendment. This would avoid vote-trading that could water down the package.

Two, Congress should pass the Regulations from the Executive in Need of Scrutiny (REINS) Act, which would require Congress to vote on all new regulations costing more than $100 million. Currently, regulatory agencies have a nasty habit of enacting regulations without authorizing legislation from Congress. One such rule from the FCC would cost $25 billion per year.

That rule, currently being fought in court, would implement net neutrality policies even though Congress explicitly declined to pass a net neutrality bill. This is regulation without representation, and it needs to stop. REINS would at least stop the more egregious offenses. The bill even enjoys some bipartisan support, so passage is a possibility. Whatever the Path to Prosperity’s fate, this should be a priority.

Three, Washington makes its deficit looks smaller than it actually is by using unfunded mandates — making states or the private sector pay for federal programs, thus keeping them off-budget. Rep. Virginia Foxx’s Unfunded Mandates Information and Transparency Act (UMITA) would spread some sunshine on this practice. When a balanced budget becomes a political priority, Congress will look to use more unfunded mandates rather than actually reduce government’s footprint. Rep. Foxx’s transparency measure is a necessary start to reining in such shady maneuvering.

A balanced budget would be a fine thing to have. But it is not a goal in and of itself — especially if spending keeps going up year after year. Economic recovery, easier job creation, faster innovation, and an end to cronyism all require limiting government. As the saying goes, you don’t have to teach grass to grow. But you do have to take the rocks off of it.

The Ryan plan’s opponents will no doubt cry “cut” at every opportunity, even though that isn’t true. That will open the door for reformers to start a conversation not just about a balanced budget, but about the proper role of government in a 21st-century economy.

Wayne Crews is Vice President for Policy at the Competitive Enterprise Institute, where Ryan Young is Fellow in Regulatory Studies.