The House Limit, Save, Grow Act has set the stage for the U.S. to achieve fiscal responsibility and return to a long-term path of sound money and growing prosperity. Here is how I understand what is now going on:
- House Republicans are now negotiating with the Biden Administration over the FY 2024 budget and an increase in the debt ceiling. The main element of the House budget plan would return discretionary spending in FY 2024 to 2022 levels and then limit increases to 1% per year, achieving savings of $3.5 trillion over 10 years. According to CBO, this would stabilize our debt at 110% of GDP (see chart below).
- Also, according to the CBO, a budget cut of this size will reduce economic growth in 2024 by about .5%, thereby slowing down inflation. This means that the Fed will be able to reduce interest rates more quickly, thereby boosting business growth and investment. In other words, significant budget cuts will help the Fed fight inflation, which is critical for restoring economic health.
- As the House/Biden Administration negotiations proceed, default on our debt need not be a live option. Tax receipts are continuously coming into the U.S. Treasury. “There is no month of the year when interest on the debt will outstrip federal tax receipts.” In other words, we can achieve a budget agreement to restore fiscal responsibility without an unnecessary, and artificial, debt ceiling deadline.
Conclusion. The House Budget Plan not only makes a major contribution to fiscal responsibility, by stabilizing the national debt, but also will significantly help the Fed fight inflation. President Biden’s latest approval rating is a low 37% because inflation is still so strong. This means that the House Budget Plan, while highly beneficial for the country as a whole, will also help President Biden’s approval rating! It should be considered a win-win for both sides!
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