Testifying at today’s House Financial Services subcommittee hearing on federal spending and the debt limit, CBPP Chief Economist Chad Stone explained that policymakers should focus not just on spending but also on revenues in addressing our long-term budget challenges — and the statutory limit on federal debt plays no constructive role in addressing those challenges.
Here’s an excerpt:
Budget deficits result from an imbalance between spending and revenue; rising debt relative to the size of the economy results from persistent large deficits, not from too much spending per se. Any plausible amount of spending to meet society’s needs is sustainable if there are sufficient revenues to avoid large deficits.
[The Congressional Budget Office] projects that under current tax and spending policies, rising debt will ultimately prove unsustainable. This poses a serious challenge to policymakers. At the same time . . . there is not an immediate crisis. Policymakers, however, will have to make hard choices in setting a future course that is both fiscally responsible and realistic about the levels of spending and taxes appropriate to the country’s needs.
These decisions need to be kept separate from the debt limit. . . . [T]he debt limit encourages reckless brinkmanship that makes it harder to work out the compromises necessary to achieve a sustainable deficit-reduction agreement. As former Federal Reserve Chairman Ben Bernanke says in his recent book: “Refusing to raise the debt limit takes the economic well-being of the country hostage [and] ought to be unacceptable no matter what the underlying issue being contested.”