Yes, We Can Balance the Budget Next Year
The Bush administration and some congressional allies are considering ways to keep Social Security privatization from adding to the budget deficit: simply put the expenses that necessarily come with privatization “off-budget”, so that they don’t add to the official measure of the US federal budget deficit.
There’s a good justification for doing this, according to some Republicans: the benefits of privatization (including the improvement in future budgets) will come over many, many years into the future, and since the official budget won’t reflect these long-run benefits, it’s not fair to officially count all of the costs today. From the Washington Post:
Republican lawmakers and the Bush administration are examining a number of accounting strategies that would allow the expensive transition to a partially privatized Social Security system without — at least on paper — expanding the country’s record annual budget deficits. The strategies include, for example, moving the costs of Social Security reform “off-budget” so they are not counted against the government’s yearly shortfall.
…”You cannot look at Social Security in the context of a five-year budget,” the window that current White House and congressional spending plans cover, [Republican Senator Judd] Gregg said. “To do so is naive and foolish. . . . If this is simply scored as a five-year exercise, we’re never going to solve the problem.”
Gregg’s thinking mirrors sentiments within the White House, according to administration officials and White House advisers. “The budget should reflect that this is an investment, a down payment that will have very positive implications,” said White House spokesman Trent Duffy.
I think this is a great idea. It seems only fair to exclude from the budget deficit those portions of government spending that are “investments”, with positive effects on the US and its budget for decades to come. In fact, I think that we should be able to wipe out the budget deficit completely with this new accounting system:
- Education: The $50 billion per year that the Federal government spends on education is clearly a long-term investment. It will provide our country with better-educated citizens that will in turn increase productivity and thus income — and government tax receipts — in the US for decades to come. Clearly it is therefore unfair to count our educational spending in the official budget of any one particular year, when it has such long-term payoffs. Let’s move it off-budget.
- NASA: Space exploration costs us $15 billion per year today, but in 50 or 100 years we could have enormous technological capabilities that are the direct result of today’s NASA spending. These NASA-generated advances will potentially provide huge boosts to the US economy. So clearly it’s unfair to just count all of those costs on this year’s budget, since that ignores its stream of future potential benefits. Let’s move it off-budget.
- Iraq: Sure, our adventure in Iraq is costing us $200 billion (and counting), but it is also building a democratic and stable country in Iraq will provide us with greater security, lower oil prices, and lower future defense costs in the Middle East for decades to come, according to the Bush administration. So it’s not appropriate to just count the costs over 1, 2, or even 5 years when it’s really a long-term investment. Let’s move Iraq spending off-budget.
- Defense: For that matter, all of our other defense spending (about $400 bn per year) is really going to have dividends for decades to come, since maintaining a strong defense today is an important ingredient to providing long-term geopolitical stability in the world — clearly a crucial element to long-run economic growth. Since it will generate higher income (and tax receipts) for decades to come, it makes no sense to look at the defense budget just in terms of one-year costs. Let’s move it off-budget.
Hey, look at that! Our budget deficit is gone. Why didn’t we think of this earlier?