January 26, 2016 1:10PM # The Simple Solution to America’s Deteriorating Fiscal Outlook By [Daniel J. Mitchell](https://www.cato.org/people/daniel-mitchell) --- SHARE The Congressional Budget Office has just released its [new 10-year fiscal forecast](https://www.cbo.gov/publication/51129) and the numbers are getting worse. Most people are focusing on the fact that the deficit is rising rather than falling and that annual government borrowing will again climb above $1 trillion by 2022. This isn’t good news, of course, but [it’s a mistake to focus on the symptom of red ink](https://danieljmitchell.wordpress.com/2009/12/15/the-problem-is-spending-not-deficits/) rather than the underlying disease of excessive spending. So here’s the really bad news in the report. - The burden of government spending has jumped from 20.3 percent of GDP in 2014 to 21.2 percent this year. - By the end of the 10-year forecast, the federal government will consume 23.1 percent of the economy’s output. In other words, the [progress that was achieved between 2010 and 2014](https://danieljmitchell.wordpress.com/2014/12/02/two-very-depressing-charts-for-president-obama-two-very-encouraging-charts-for-americas-taxpayers/) is evaporating and America is on the path to [becoming a Greek-style welfare state](https://danieljmitchell.wordpress.com/2015/06/19/americas-greek-fiscal-future/). There are two obvious reasons for this dismal trend. - Notwithstanding [laughable claims from the White House](https://danieljmitchell.wordpress.com/2012/03/03/in-the-entire-world-is-there-anybody-who-is-suprised-that-obamacare-is-turning-out-to-be-far-more-expensive-than-the-president-promised/), Obamacare is contributing to rising spending on healthcare entitlements. - Republicans keep [capitulating on the BCA spending caps](https://danieljmitchell.wordpress.com/2015/10/27/summarizing-the-new-budget-deal-spend-more-now-and-promise-to-spend-less-in-the-future/), enabling more wasteful outlays for so-called discretionary programs. Here’s a chart that shows what’s been happening. It shows the rolling average of annual changes in revenue and spending. With responsible fiscal policy, the red line (spending) will be close to 0% and have no upward trend. Unfortunately, federal outlays have been moving in the wrong direction since 2014 and government spending is now growing twice as fast as inflation. ![Media Name: CXfOigiW8AE1kOT.png](/sites/cato.org/files/styles/pubs_2x/public/download-remote-images/pbs.twimg.com/98784477492/CXfOigiW8AE1kOT.png?itok=zKsgPU5s) By the way, don’t forget that we’re at the very start of the [looming tsunami of retiring baby boomers](https://danieljmitchell.wordpress.com/2015/08/26/in-one-image-everything-you-need-to-know-about-americas-demographic-challenge/), so this should be the time when spending restraint is relatively easy. Yet if you’ll allow me to mix metaphors, bipartisan profligacy is digging a deeper hole as we get closer to an entitlement cliff. Now let’s shift to the good news. It’s actually relatively simple to solve the problem. Here’s a chart that shows projected revenues (blue line) and various measures of how quickly the budget can be balanced with a modest bit of spending restraint. ![Media Name: CBO-Jan-2016-Balance-Budget.jpg](/sites/cato.org/files/styles/pubs_2x/public/download-remote-images/freedomandprosperity.org/164150665857/CBO-Jan-2016-Balance-Budget.jpg?itok=CtvPyiKx) Regular readers know I don’t fixate on fiscal balance. I’m far more concerned with [reducing the burden of government spending](https://danieljmitchell.wordpress.com/2012/03/04/a-fiscal-policy-tutorial-everything-you-need-to-know-about-the-economics-of-government-spending/) relative to the private sector. That being said, when you impose some restraint on the spending side of the fiscal ledger, you automatically solve the symptom of deficits. With a spending freeze, the budget is balanced in 2020. If spending is allowed to climb 1 percent annually, the deficit disappears in 2022. And if outlays climb 2 percent annually (about the rate of inflation), the budget is balanced in 2024. And if you want to give the politicians a 10-year window, you get to balance by 2026 if spending is “only” allowed to grow 2.5 percent per year. In other words, the solution is a [spending cap](https://danieljmitchell.wordpress.com/2015/10/23/a-growing-consensus-for-spending-caps-and-the-map-act/). Here’s [my video](https://danieljmitchell.wordpress.com/2010/10/04/heres-how-to-balance-the-budget/) on spending restraint and fiscal balance from 2010. The numbers obviously have changed, but the message is still the same because good policy never goes out of style. Needless to say, a simple solution isn’t the same as an easy solution. The [various interest groups in Washington](https://danieljmitchell.wordpress.com/2014/11/04/how-washington-profits-by-pillaging-america/) will team up with bureaucrats, politicians, and lobbyists to resist spending restraint. ##### Related Tags [Government and Politics](https://www.cato.org/government-politics), [Tax and Budget Policy](https://www.cato.org/tax-budget-policy) [![Creative Commons License](/build/cato_2020/images/creative-commons.svg)](http://creativecommons.org/licenses/by-nc-sa/4.0/) This work is licensed under a [Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License](https://creativecommons.org/licenses/by-nc-sa/4.0/).