The federal budget deficit was roughly 6 percent of gross domestic product for each of the past three fiscal years. During a three-year span of low unemployment, economic expansion, increasing revenue and no major foreign wars, the budget deficit was larger as a share of the economy than any year of the 1930s, the decade of the Great Depression.
After years of neglect, four members of Congress are trying to set a target to get back not even to a balanced budget, but just to a sane one. A resolution introduced Thursday by Reps. Lloyd Smucker (R-Pennsylvania), Scott Peters (D-California), Bill Huizenga (R-Michigan) and Mike Quigley (D-Illinois) would direct Congress to target a deficit of 3 percent of GDP by 2030.
This effort is not chest-thumping by budget hawks demanding a balanced budget immediately. It is bipartisan recognition that the path the deficit is on undercuts the federal government’s ability to function.
The government loses its capability to spend more on defense or social programs in the face of ever-rising debt. Interest payments on the debt already cost more than the military or Medicare last year. Only Social Security cost more.
Aside from questions of spending priorities, the federal government has become woefully unprepared for any major emergency or recession. If the deficit is already greater than Great Depression levels during a peacetime expansion, where will it go during the next crisis?
Getting back to a deficit of 3 percent of GDP would go a long way to stabilize the debt-to-GDP ratio, which has increased from roughly 65 percent before the 2008 financial crisis to roughly 120 percent today. The goal was last achieved in 2015 — not ancient history.
Simply having a target set by Congress is better than the current policy of not having one at all. Treasury Secretary Scott Bessent has also said that he wants the deficit at 3 percent of GDP. The resolution directs the president and Congress to target that goal in their respective contributions to the budgeting process. That’s not a big ask.
While the goal is reasonable, however, the hard truth is that hitting it won’t be easy. Congress will need to look at mandatory spending (mostly Social Security, Medicare and Medicaid), which, along with interest payments, accounts for roughly three-quarters of annual expenditures. Mandatory spending currently takes place on autopilot, outside the annual budget process. Everything needs to be on the table to get the debt under control.
Hitting the target will also require buy-in (and sacrifices) from both parties. That’s a simple fact of congressional process and the likelihood of divided government, but also of financial markets. For any fiscal reform to stick, bondholders need to have confidence that both parties are committed to upholding it. If bondholders believe the opposition party will throw out reforms the moment it regains power, they won’t act much differently than if reforms were never made at all.
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