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As Fiscal Year Comes to a Close, AFP Recommends Next-Generation Budget Targets to Advance Responsible Budgeting

Sep 12, 2022 by AFP

Arlington, VA – With the fiscal year ending on September 30th and another potential government shutdown looming, AFP senior fellow in fiscal policy Kurt Couchman is releasing a new report on failed budget targets of the past and promising options for our future. He shows how smart budget goals can help break the cycle of crisis-to-crisis governing that produces waste, shuts out too many members, and otherwise lets the American people down.

In the report, “Better Budget Targets Can Help Congress Balance Near- and Long-Term Needs,” Couchman explains why many enacted or proposed accountability measures to keep spending in check, such as debt and deficit limits, spending caps, and revenue ceilings, among others, have failed or would fail. Instead, Couchman argues Congress needs budget targets that are comprehensive, neutral, practical, and adaptable to changing circumstances.

Of these better budget goals, Couchman says:

“U.S. states and many other countries have effective fiscal targets. The U.S. government does not currently have them, but it can. Congress has tried or proposed many options, but each has fallen short or would fall short if tried. Learning their lessons and drawing inspiration from other countries and from the states illuminates several promising directions for new approaches to federal budget targets.”

Two main options exist for well-designed budget targets: 1) structural primary balance, and 2) medium-term debt-to-GDP targets.

Structural primary balance could let non-interest spending (primary spending) grow with trend economic growth. Surpluses during good years would offset deficits during recessions, and that provides policy stability and predictability across booms and busts. Congress could focus more on long-term needs with advance notice of upcoming adjustments. Senator Mike Braun and Representative Tom Emmer’s Responsible Budget Targets Act takes this approach.

Medium-term debt-to-GDP targets would require Congress to reduce the debt-to-GDP ratio by one percentage point by the end of each five-year period. Compounding savings would get debt under control, and the medium-term focus gives Congress room to account for the condition of the economy.

Congress could help enforce these targets in several ways:

  1. Conditionally suspend the debt limit: Well-crafted budget goals are a better way to control deficits and debt than the clunky debt limit. The debt limit could increase automatically as long as the budget is on track, and avoiding a vote to raise the debt limit would encourage Congress to stick to the targets.
  2. Adopt a real budget: A real, comprehensive budget would include all spending — discretionary and mandatory — as well as all revenue in a single annual budget bill. This unified budget would give Congress an effective legislative vehicle to meet budget targets by providing regular management of all fiscal policies.
  3. Create automatic budget enforcement: Instead of “goofy meat axe” sequestration, a more reasonable kind of automatic budget enforcement would trigger repeatable, small adjustments to a wide variety of federal programs. This approach could not only offset budget breaches but also push Congress to be responsible in the first place.

Read the paper and learn more about better federal budgeting.

Read the two-page overview.