Balancing the Budget: Closing the Fiscal Gap

The Outstanding Public Debt as of June 2, 2006 at 8:59:13 PM GMT was $8,362,719,839,663. In other words, every U.S. citizen (even the little hairless ones that cannot walk yet) owe $27,984.69. Since September 30, 2005 the National Debt has continued to increase an average of $1,750,000,000 per day!

To begin with, many economists agree that a gradual increase in the retirement age could help buffer the crisis looming over every baby boomers conscience. Another necessary action is to lower government spending and increase taxes. For example, Henning Bohn wrote a paper in June of 1991 in the Journal of Monetary Economics called 'Balancing the Budget Through Revenue or Spending Adjustments'. Here's the abstract:

The paper provides a historical perspective on the issue of whether budget deficits are typically eliminated by increased taxes or by reduced spending. By examining U.S. budget data from 1792–1988, I conclude that about 50–65% of all deficits due to tax cuts and about 65–70% of all deficits due to higher government spending have been eliminated by subsequent spending cuts, while the remainder was eliminated by subsequent tax increases.

Simply put, to balance the budget, politicians should adjust by about 2/3 from government spending and about 1/3 from increased taxes. For instance, in order to balance the fiscal year 2005 budget deficit of $427 billion (3.5% of GDP), government should have spent $284.6 billion less and taxes should have collected $142.3 billion more. Once the budget is balanced, I am interested in the budget surplus that would be needed to balance the interest of the annual National debt!