The Deficit and the Growth Imperative

Worried about the budget deficit? Cut spending and boost the economy.

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The budget deficit will be $407 billion this year and $407 billion next year, according to a new forecast from the Congressional Budget Office. (Keep in mind that these numbers included about $180 billion in Social Security surplus funds.) Now my budget guys tell me that the actual number could be anywhere from $500 billion to $700 billion depending on the economy, Fannie and Freddie, and any additional government stimulus spending.

But what really strikes me is the CBO's anemic growth forecast: Just 1.8 percent next year, 3.3 percent from 2010-2013 and 2.3 percent from 2014-2018. This economy should be growing more like 3.5-4.0 percent year after year. And it could with the right economic policies.

One other interesting factoid: Freezing discretionary spending to the nominal growth rate of the economy (not counting inflation) would save $1.3 trillion over the next decade. Our budget problem is nothing that better economic growth and spending restraint can't solve.