Bipartisan call for 3 percent deficit target on US deficits
By Rep. Peters and Rep. Huizenga
Americans don’t expect Congress to agree on every spending priority or tax policy, and that’s okay. Our country will always debate how much to invest, whom to tax, and the proper function of government.
But both sides should agree on the urgency of adopting a credible fiscal target. Right now, we lack any deficit target to serve as a benchmark, meaning fiscal discussions are often detached from reality at the very same moment the national debt approaches historic levels.
Our deficits now approach $2 trillion per year, and interest costs exceed what we spend on defense. It has become the norm to run deficits of nearly 6 percent of gross domestic product each year — twice what we need to stabilize our debt burden. We cannot grow our economy, safeguard our national security, or respond effectively to crises if we routinely run deficits this large.
Our projected deficits over the next decade are also nearly twice the average deficit-to-GDP ratio the U.S. experienced between 1970 and 2020. In the wake of the Supreme Court’s recent decision to strike down emergency tariffs under the International Emergency Economic Powers Act, America’s fiscal position has grown even more dangerous. There is simply no excuse to borrow this much, given current market conditions.
Some might be surprised we lack a fiscal target, given all the attention to debt and deficits. Admittedly, it is astonishing the United States does not have a fiscal target given the European Union and other developed nations have had their own such targets for years. Eurozone nations are required under the Stability and Growth Pact to keep annual budget deficits below 3 percent of GDP to promote fiscal stability.
Yet, while the American economy has outperformed Europe’s, we now face the difficult challenge of a national debt bigger than the European Union’s collective GDP. We don’t have a sensible fiscal target in large part because an addiction to low interest rates created an illusion among both Democrats and Republicans that America can borrow as much as it wants without consequence.
A deficit-to-GDP target of 3 percent would correct our fiscal trajectory and ensure our debt does not grow faster than our economy. It is a predictable metric which would allow Congress to maintain discretion over major fiscal policy levers. And it isn’t so strict Congress will abandon it every year.
As chairs of the Bipartisan Fiscal Forum, a group of like-minded lawmakers working together to prioritize our fiscal future, we believe a 3 percent deficit-to-GDP target would be a great start. A deficit-to-GDP target would not settle every policy dispute, but it would anchor fiscal decisions as to what the economy can sustain. Moreover, a 3 percent deficit-to-GDP target would be sufficient to put debt on a downward path relative to the economy and could serve as a first step toward more ambitious goals like a balanced budget. It strikes the right balance between being aggressive enough to reassure markets and realistic enough to be achievable.
To underscore how bipartisan this goal is: the 3 percent deficit-to-GDP target concept has received support from both the Obama administration and Treasury Secretary Scott Bessent. In 2010, the bipartisan Simpson-Bowles Commission included a similar debt stability target.
Many distinguished financial experts, including Ray Dalio, Warren Buffett and Ken Rogoff, agree such a fiscal target is needed. Experts worry if we stay on our current trajectory, we could witness the erosion of confidence in the dollar, higher interest rates and low economic growth. According to Dalio, “If the U.S. doesn’t cut the deficit to 3 percent of the GDP, and soon, we risk facing an economic heart attack in the next three years.” This is an alarming prognosis.
We believe a 3 percent deficit-to-GDP target is long overdue. Furthermore, a 3 percent target should be decoupled from the normal political disputes over fiscal policy and considered the minimum for any serious budget. Our goal is to convince enough lawmakers across the political spectrum to support our bipartisan resolution to establish the 3 percent target; it will reset the debate in Congress over how much debt our country can accommodate.
This target can then be integrated into budget frameworks in the future, so Congress can no longer avoid the fiscal ramifications of new legislation. This will help us live within our means again and ensure our debt does not continue to spiral out of control.
Bill Huizenga represents the 4th District of Michigan in Congress and Scott Peters represents the 50th District in Congress. They are chairs of the Bipartisan Fiscal Forum.