Balanced Budget Agreement & the US Economy

MONETARY AND FISCAL POLICY, THE BALANCED BUDGET AGREEMENT, AND THE UNITED STATES ECONOMY

During the four fiscal years in which Jimmy Carter was president (fiscal years 1977-1980), the federal budget deficits totaled $226.8 billion. This cumulative Carter Administration deficit followed a cumulative deficit of $144.1 billion in the 1973-1976 fiscal year period of the Nixon/Ford presidency. The cumulative four year deficit increased $82.7 billion, or 57.4 percent, from Nixon/Ford to Carter, in terms of current dollars.

Under President Reagan, the cumulative budget deficit in the Administration's first term (fiscal years 1981-1984) was $599.9 billion. The cumulative four year deficit increased $373.1 billion, or 164.5 percent, from Carter to Reagan, in terms of current dollars. The deficit for the second term of the Reagan Administration was $776.2 billion�a 28 percent increase over the first term, and a 242.2 percent over the cumulative Carter Administration deficit which, during the 1980 election, was decried by candidate Reagan as being irresponsible, and severely damaging to the economy. During the four years of the Bush Administration, the budget deficit continued to climb. The advent of the Clinton Administration has witnessed a decline in the level of the federal budget deficit, along with renewed interest in balancing the budget.

Federal budget deficits did not originate with Nixon, Ford, Carter, Reagan, Bush or Clinton. The last federal budget surplus occu

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ll to prevent the use of trust fund monies for any purpose other than those for which they are collected, the Bush Administration fought the bill and defeated it. Aside from the erroneous reasons given by the Bush Administration for fighting the bill, the real reason was to permit the Bush Administration to continue to include trust fund collections in the budget calculations, so that the budget deficit can be made to appear smaller than it really is. This practice continues in 1997, and may be expected to continue in 2002, when the current balanced budget agreement targets a balanced budget. Thus, for a balanced budget agreement to be effective, it must also include safeguards to prevent Administrations and Congresses from using subterfuge to circumvent the intent of any balanced budget agreement. A balanced budget agreement also does not stop the practice of Administrations and Congresses in which many federal government expenditures are not included in the budget calculations, but are, rather, classified as off-budget items. If these off-budget items were included in the current federal budget calculations, the budget deficit would be much higher than that reported. Thus, for a balanced budget agreement to be effective,

Category: Economics - B