NCPA - National Center for Policy Analysis

The Cost Of Not Balancing The Budget

December 1, 1995

Not balancing the federal budget could cost a typical American family $2,308 in the year 2000. Continued deficit spending financed by borrowing will add to the federal debt, push up interest rates and slow down economic growth. In addition, under the Republican balanced budget plan, the tax burden on families would be reduced.

Thus, if a balanced budget plan with tax relief isn't enacted into law, it could have the following effects on a typical family with one child in the 15 percent income tax bracket:

  • By the year 2000, interest rates on a fixed home mortgage are expected to be 8.14 percent without a balanced budget, for a monthly payment on a $100,000 loan of $744.
  • With a balanced budget, interest rates are expected to be 5.92 percent, saving a family $121 per month.
  • Higher interest on a $11,000 student loan would cost $4 more a month and on a $15,000 car loan, $9 more a month.
  • Without the $500 per child tax credit included in the budget plan, the family would face about $42 a month in higher taxes.

Finally, balancing the budget with capital gains tax cuts will create greater economic growth and higher personal income. A conservative estimate of the loss in income to a typical family due to slower growth is $194 a year.

Thus, for a typical family, not enacting a balanced budget plan would cost $192 per month, $2,308 a year in 2000 and more than $12,000 over a five-year period.

Source: Dan Miller, "The Price of Failure: The Costs of Not Balancing the Budget," December 1995, Policy Analysis, Joint Economic Committee of Congress, Washington, DC.

 

Browse more articles on Tax and Spending Issues