Future Retirement Success
  • Politics
  • Business
  • Investing
  • Stocks
  • Politics
  • Business
  • Investing
  • Stocks

Future Retirement Success

Investing

Pathways and Possible Solutions to the US Fiscal Crisis: Testimony

by December 13, 2024
December 13, 2024
Pathways and Possible Solutions to the US Fiscal Crisis: Testimony

Romina Boccia

Below are abbreviated remarks I delivered before the US House Committee on the Budget on December 11, 2024. You can find my full testimony here and watch the hearing here (my remarks are at 20:15 ‑25:55).

Chairman Arrington, Ranking Member Boyle, and distinguished members of the Committee,

Thank you for the opportunity to testify today.

My name is Romina Boccia and I am the Director of Budget and Entitlement Policy at the Cato Institute, a nonpartisan public policy research organization in Washington, DC.

The fiscal health of the United States is at a critical juncture. Rising debt and persistent deficits threaten to undermine our economic prosperity, national security, and the opportunities enjoyed by working Americans and their families.

Without significant reform, we risk a severe fiscal crisis that could diminish America’s economic leadership and undermine our national security.

There is still hope. History and international experiences demonstrate that with the right institutional reforms, even the most challenging fiscal situations can be overcome.

The US debt at 100 percent of GDP with annual deficits above 6 percent of GDP is primarily driven by irresponsible emergency spending, unsustainable entitlement spending—including ever-increasing benefit levels for Social Security and Medicare beneficiaries that outpace inflation—and the rising cost of interest on the debt.

As the debt grows, interest rates are getting pushed up. Interest payments now exceed what the government spends on defense. This will constrain the government’s ability to respond to the next major emergency or economic crisis.

To address the spending-driven debt crisis, institutional reforms like a balanced budget amendment (BBA) could serve as a critical commitment device to guide fiscal policy. A well-designed BBA would require Congress to balance revenues and expenditures over the business cycle, allowing for flexibility during recessions or emergencies but ensuring long-term fiscal stability.

International experience shows that fiscal rules can succeed when they are sufficiently firm, necessarily flexible, and broadly supported.

Switzerland’s constitutional debt brake, adopted in 2003, balances its budget based on economic conditions. Any deviations from spending caps are recorded in a compensation account, which mandates future corrections. The debt brake has proven highly effective, reducing public debt relative to GDP and fostering long-term fiscal stability while maintaining flexibility for emergencies like economic crises, and also paying down those emergency expenditures after the crisis concludes.

Germany’s constitutional debt brake introduced in 2009 limits structural deficits. The framework allows for temporary suspension during crises, provided a repayment plan is established. Oversight by the independent Stability Council ensures accountability. This rule has stabilized Germany’s debt trajectory, even as it accommodated emergency spending during the COVID-19 pandemic, reinforcing trust in fiscal discipline.

In the 1990s, Sweden implemented a fiscal framework with three key pillars: a surplus target over the business cycle, multi-year spending caps, and a debt anchor or debt stabilization target. These rules are monitored by an independent Fiscal Policy Council. Sweden’s structural reforms, such as tying pension benefits to life expectancy and converting a portion of their social security to defined contribution plans, have complemented its fiscal rules, preserving its welfare state without bankrupting the nation.

A BBA alone cannot resolve the nation’s fiscal challenges. It must be accompanied by credible reforms to entitlement programs and structural spending constraints.

Congress could also adopt a BRAC-like fiscal commission to propose reforms and overcome political gridlock—one modeled after the successful Base Realignment and Closure commission.

Such a commission would provide independent recommendations in response to clear and narrow congressional guidelines such as stabilizing the debt below the size of the US economy or achieving primary balance by a certain year. Recommendations could be self-executing, subject to congressional disapproval with expedited consideration, facilitating the adoption of necessary but politically sensitive changes.

The risks of continued inaction are profound. Credit rating agencies have already warned of the dangers of political dysfunction and fiscal irresponsibility. Fitch and Standard & Poor’s downgraded the US debt, while Moody’s altered the US outlook to negative. Subsequent potential downgrades loom, given the US trajectory.

Worse, due to the unique nature of the US dollar as the world’s preeminent reserve currency, bondholders may not send early warning signals. In other words, we may be missing the canary in the coal mine.

The US dollar’s status has created complacency among policymakers. Investor behavior, influenced by herd mentality and the winner-take-all nature of the global bond market, may trigger a self-reinforcing debt doom loop of bond sales and rising interest rates without advance warning. Historically, as Reinhart and Rogoff note in This Time Is Different, debt crises most often arise not from gradual decline but from a sudden collapse in investor confidence.

We shouldn’t find out where the fiscal cliff is by going off it.

Policymakers can chart a new course by adopting a debt brake or balanced budget amendment and pursuing entitlement reforms, possibly by empowering a BRAC-like fiscal commission. International models show the way, but decisive action is needed now to safeguard the United States of America.

Thank you, and I look forward to your questions.

0
FacebookTwitterGoogle +Pinterest
previous post
Protectionist Sightseeing in New York Harbor
next post
Identifying GREAT Trades and Looking Ahead to 2025 Using RRG Charts

You may also like

New Empirical Evidence That Overdose Prevention Centers Save...

March 1, 2024

Concerns over US Manufacturing and the Trade Deficit...

January 31, 2024

Americans Think Increased Manufacturing Employment Would Be Good...

August 29, 2024

Immigrants Didn’t Steal the Election After All

November 6, 2024

Unleashing Innovation in Light of U.S.-China Competition

August 25, 2023

How “Temporary” Emergency Spending Bloats the Federal Budget...

September 25, 2024

Arrest of Telegram CEO Yet Another Threat to...

August 27, 2024

Will Oregonians Strangle Drug Decriminalization Right After Its...

September 20, 2023

Xi Isn’t a Follower of Hayek, But He...

October 5, 2024

Questioning the Housing Crisis: Crisis or Consumer Preference?

December 12, 2024

    Get free access to all of the retirement secrets and income strategies from our experts! or Join The Exclusive Subscription Today And Get the Premium Articles Acess for Free

    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Week Ahead: NIFTY’s Behavior Against This Level Crucial As The Index Looks At Potential Resumption Of An Upmove

      June 7, 2025
    • FLASHBACK: Musk accused Trump, GOP leaders of not wanting to cut spending — here’s where they said they would

      June 7, 2025
    • ‘Right down the line’: Medicaid reform in ‘big, beautiful bill’ divides lawmakers by party

      June 7, 2025
    • FAST distribution and IA

      June 7, 2025
    • Why Independent Digital Platforms Are Gaining Ground Among UK Entrepreneurs

      June 7, 2025
    • Is Decentralisation the Future of Online Services in the UK?

      June 7, 2025

    Categories

    • Business (8,152)
    • Investing (2,019)
    • Politics (15,560)
    • Stocks (3,135)
    • About us
    • Privacy Policy
    • Terms & Conditions

    Disclaimer: futureretirementsuccess.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2025 futureretirementsuccess.com | All Rights Reserved