NCPA - National Center for Policy Analysis

New Budget Law Needed

August 1, 1996

The Gramm-Rudman act passed in 1985 required Congress to balance the budget by 1991. It set targets for reducing the budget deficit and set up automatic spending cuts, called sequestration, to reduce the deficit to mandated levels if Congress overspent.

Critics charge that the act was a dismal failure because Congress kept exceeding the deficit reduction targets by an average of about $30 billion per year. But some budget experts say it was repealed by pro-spending forces because it was working too well.

  • Compared to 1985 Congressional Budget Office estimates of future deficits without the budget law, the actual 1989 federal budget deficit was about $100 billion less than expected.
  • The deficit fell from 6 percent of gross domestic product to 3 percent under Gramm-Rudman.
  • The deficit fell because the growth of federal spending was trimmed from an annual growth rate of 8.7 percent in the five years before the act to only 3.2 percent in the five years the act was in effect.
  • Even entitlement spending was curtailed under Gramm-Rudman to a 5 percent annual growth rate.

Sen. Phil Gramm (R-Texas) and House Majority Leader Dick Armey (R-Texas) have introduced legislation to restore many of the features of Gramm-Rudman repealed by past Congresses, including deficit reduction targets that, if missed, would trigger automatic across-the-board spending cuts.

Such a new budget law would make it possible to achieve a balanced budget by 2002, as outlined in the House Budget Resolution last year.

Source: Stephen Moore, "Seven Reforms to Balance the Budget," Cato Policy Report, July/August 1996, Cato Institute, 1000 Massachusetts Avenue, NW, Washington, DC 20001, (202) 842-0200.


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