Kevin Williamson asks for a realistic plan for eliminating the federal budget deficit without increases in federal tax rates. I agree with the sentiment, and with the underlying request for empirical validation (as the head of a think tank named after John Locke, how could I do anything less?). Kevin’s skepticism about the ability of self-styled conservative politicians to deliver on their fiscal promises is warranted. But his pessimism about the project is unwarranted.
Consider the situation facing New Zealand three decades ago. The country suffered chronic deficits, high unemployment, and declining competitiveness. In 1984, it ran a national budget deficit amounting to about 9 percent of GDP (about the same as ours this year). Its jobless rate was a bit over 9 percent (again, similar). Government consumed 45 percent of GDP, about ten points higher than the current rate in the U.S. Within a decade, as former New Zealand politician Maurice McTigue explains, the situation looked very different. Government’s share of GDP fell to 27 percent, thanks both to fiscal restraint and robust economic growth. Unemployment was negligible. The government ran a series of budget surpluses and paid down most of its debt.
New Zealand didn’t accomplish this through either an immediate, massive reduction in spending or a big tax increase. Instead, a bipartisan consensus emerged behind downsizing, budget reform, tax reform, and privatization, and the consensus held for many years.
Other states and countries have accomplished similar fiscal feats in recent memory. It requires political skill and determination, undoubtedly, but not miraculous intervention. My own view is that federal fiscal restraint will require some radical changes in our budget process, including some kind of constitutional limits on borrowing, transparent accrual accounting policies, an aggressive item-reduction veto, block granting of federal aid to states and localities, and other mechanisms. Banning earmarks and eliminating farm subsidies won’t do it, though I favor doing both.
Two more points: saying that balancing the budget would require a herculean 36 percent cut in federal spending freezes the current “stimulus” spending levels, which is unrealistic. Much of the spending of the past two years won’t be retained no matter who is in charge. Second, The New Republic’s Jonathan Chait says I’ve ignored the experience of the Clinton years. No, read more carefully. I didn’t rule out bipartisan approaches to fiscal restraint, only negotiation strategies based on the GOP’s premature capitulation. And the next time America wins a decades-long, worldwide struggle against international Communism and realizes a short-term peace dividend in the defense budget, I fully support applying the savings to paying off the national debt. Ditto for capital-gains tax realizations from dot-com bubbles.