The current system for controlling the public debt, the debt ceiling, is a proven failure. Each time the ceiling must be raised is further evidence of that failure.
The problem is that Congress is unwilling to make the budget cuts necessary to generate a surplus. The Congress knows the benefits of limiting the public debt, and individual member often speak out about that fact, but when the time comes for action very few in Congress want to be responsible for denying constituents benefits or federal employment. This is not because the members of Congress are irrational, but rather it is because the people that they represent are disinterested in the issue. Most people don't care about the dangers of runaway debt because it seems to be a vague and unlikely concept to them. The people, on the other hand, can easily recognize and observe the effects of cutting people's benefits or firing government workers. Thus, the people see real consequences to spending cuts, and only a vague and mystical danger from runaway debt.
This disinterest can be combatted with education by pointing out the consequences suffered by other nations whose economies have experienced credit problems, but education requires people to stop and listen, and the American people are busy working and living their lives as they should be. In order to get the people interested in controlling public debt, it needs to be made worth their while. Therefore, I propose that a new law be created to appeal to the rational self interest of the people by rewarding them for demanding that Congress generate a budget surplus.
The new law would be: Each year on a specific date (late October or the first of November seems reasonable to get the decision in before election day) the public debt will be calculated and compared to the public debt of the previous year calculated on the same date. If the current years public debt amounts to 95% of the debt of the previous year, then it shall be announced that every person and corporation will only have to pay 90% of their federal taxes for that year. Thus when the taxes become due in the spring of the following year, people will pay less or will receive a significant refund of projected payments.
Here's how it will work in the near term: The current national debt is about $14 trillion. In order to reduce that to 95% of its current value, it would need to be reduced by $700 billion. The current budget year's deficit is projected to be $440 billion. Thus, the budget would need $1.04 trillion in new revenue and/or decreased spending in order to reach the goal. The current years projected tax revenue is projected to be about $3.4 trillion. 10% of that is $340 billion. So if the budget goal is reached entirely by spending cuts (because raising taxes may not actually increase revenue), then the net surplus is $360 billion, and the debt is reduced.
In the long term, if tax revenues remain constant then the equilibrium point for the national debt should settle at around $6.8 trillion when 5% of $6.8 trillion is equal to 10% of $3.4 trillion. However, this is not as simple a goal to reach or maintain as it seems. Each year, social security, medicare, and medicaid expenses that aren't yet funded are added to the budget, and these are all expected to rise significantly in the coming years. If tax revenues fall, the equilibrium point falls which makes sense because having less money coming in should correspond to holding less debt, and if tax revenues rise then the equilibrium rises which is also reasonable because having a greater income allows for the maintenance of a higher debt. In every case, the people and therefore their representatives will have a strong motivation to reduce the debt to the equilibrium point and maintain it there.
Alternatively, if the spending cuts are too painful in the near term, then the triggering percent reduction in the debt can be started at between 2% and 2.5% to set the equilibrium point at around the current National Debt. This should effectively prevent further rises in debt, but would not reduce it. After a few years, the law can automatically and incrementally increase the triggering percent reduction in debt by 0.5% until it reaches 5%.
I've started a petition for this proposal on the Whitehouse.gov site
The problem is that Congress is unwilling to make the budget cuts necessary to generate a surplus. The Congress knows the benefits of limiting the public debt, and individual member often speak out about that fact, but when the time comes for action very few in Congress want to be responsible for denying constituents benefits or federal employment. This is not because the members of Congress are irrational, but rather it is because the people that they represent are disinterested in the issue. Most people don't care about the dangers of runaway debt because it seems to be a vague and unlikely concept to them. The people, on the other hand, can easily recognize and observe the effects of cutting people's benefits or firing government workers. Thus, the people see real consequences to spending cuts, and only a vague and mystical danger from runaway debt.
This disinterest can be combatted with education by pointing out the consequences suffered by other nations whose economies have experienced credit problems, but education requires people to stop and listen, and the American people are busy working and living their lives as they should be. In order to get the people interested in controlling public debt, it needs to be made worth their while. Therefore, I propose that a new law be created to appeal to the rational self interest of the people by rewarding them for demanding that Congress generate a budget surplus.
The new law would be: Each year on a specific date (late October or the first of November seems reasonable to get the decision in before election day) the public debt will be calculated and compared to the public debt of the previous year calculated on the same date. If the current years public debt amounts to 95% of the debt of the previous year, then it shall be announced that every person and corporation will only have to pay 90% of their federal taxes for that year. Thus when the taxes become due in the spring of the following year, people will pay less or will receive a significant refund of projected payments.
Here's how it will work in the near term: The current national debt is about $14 trillion. In order to reduce that to 95% of its current value, it would need to be reduced by $700 billion. The current budget year's deficit is projected to be $440 billion. Thus, the budget would need $1.04 trillion in new revenue and/or decreased spending in order to reach the goal. The current years projected tax revenue is projected to be about $3.4 trillion. 10% of that is $340 billion. So if the budget goal is reached entirely by spending cuts (because raising taxes may not actually increase revenue), then the net surplus is $360 billion, and the debt is reduced.
In the long term, if tax revenues remain constant then the equilibrium point for the national debt should settle at around $6.8 trillion when 5% of $6.8 trillion is equal to 10% of $3.4 trillion. However, this is not as simple a goal to reach or maintain as it seems. Each year, social security, medicare, and medicaid expenses that aren't yet funded are added to the budget, and these are all expected to rise significantly in the coming years. If tax revenues fall, the equilibrium point falls which makes sense because having less money coming in should correspond to holding less debt, and if tax revenues rise then the equilibrium rises which is also reasonable because having a greater income allows for the maintenance of a higher debt. In every case, the people and therefore their representatives will have a strong motivation to reduce the debt to the equilibrium point and maintain it there.
Alternatively, if the spending cuts are too painful in the near term, then the triggering percent reduction in the debt can be started at between 2% and 2.5% to set the equilibrium point at around the current National Debt. This should effectively prevent further rises in debt, but would not reduce it. After a few years, the law can automatically and incrementally increase the triggering percent reduction in debt by 0.5% until it reaches 5%.
I've started a petition for this proposal on the Whitehouse.gov site