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A Schuldenbremse-styled constitutional cap on the federal deficit in the U.S. would both constrain spending-by forcing Congress to make necessary cuts to the budget to meet the debt brake, including entitlement liabilities-while at the same time slowly bring down the aggregate public debt outstanding over time.
Congress could choose to raise taxes instead of cutting spending. But the reality is that Congress already taxes American citizens when it overspends revenues, forcing Treasury to issue more debt. Since this debt will have to be paid off eventually with taxpayer money, running a debt-financed deficit is in effect raising taxes on future generations. The debt brake would just force Washington to be more honest with voters if Congress decided to try and sell a tax hike to the America people.
In an ideal world, Congress should adopt a constitutional limit on the size of the federal budget itself, instead of just focusing on debt and deficits. The average federal budget over the past 60 years has been 17.8 percent of GDP, meaning at the very least we could pare the budget down to around that level without the horrific Social Darwinism so feared by progressives. In lieu of this reform, a constitutional debt brake is the next best option that has shown some real world results.
The real take away from Europe is that weak debt control mechanisms ought to be strengthened—not weak ones such as the debt ceiling eliminated, especially if we want to avoid Europe's current miserable economic fate.
originally appeared at RealClearMarkets.