Balancing the Budget When Unemployment Is Low « The Washington Independent
Laurence Seidman, an economist at the University of Delaware, has a perfectly reasonable proposal for balancing the budget over time while ensuring that the government maintains support for the jobless when times are tough:
Congress should enact two statutes to dramatically reduce future deficits. The first would be a normal unemployment balanced budget rule (“NUBAR”), requiring Congress every year to enact a planned federal budget that technicians in the nonpartisan Congressional Budget Office (CBO) estimate would be balanced next year if the economy’s unemployment rate is 6 percent. Note that NUBAR would permit Congress to plan a surplus as well as a balance but not a deficit.
The second would schedule a gradual change in benefit formulas and earmarked tax rates in federal programs that contain them such as Social Security, Medicare and Medicaid.
At the same time, Congress should enact a set of temporary tax cuts and expenditures to stimulate the economy. This legislation must contain a phase-down schedule so that these temporary measures are phased out as the unemployment rate, which is currently over 9 percent, falls below 9 percent, then 8 percent, then 7 percent, and are completely terminated when the unemployment rate falls to 6 percent. Note that these temporary measures would have no effect on NUBAR, because they would be completely terminated when the unemployment rate falls to 6 percent.
It is a good, sensible idea, tackling the long-term problem of debt without worsening the immediate problem of unemployment. And Seidman joins a growing chorus chanting for short-term deficit increases in exchange for long-term debt reduction. Of course, the problem is, it is not at all clear that such sensible measures can pass the Senate, even if it is economic consensus and common sense.