The Magnitude of Changes That Would Be Required to Balance the FY2006 Budget

Publication Date: February 2005

Publisher: Library of Congress. Congressional Research Service

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Research Area: Banking and finance

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Abstract:

A balanced federal budget is a bipartisan goal of many Members of Congress. In addition, moving the budget closer to balance is a long-term necessity because the national debt cannot grow as a percentage of GDP indefinitely, as it would under current policy. The budget deficit in FY2006 is projected to be between $295 billion and $400 billion. Mathematically, the budget could be balanced by reducing total spending by 12%-16%, or mandatory spending by 20%-28%, or discretionary spending by 31%-38%, or non-military discretionary spending by 59%-79%, or by raising income tax rates by 29%-40%, or some combination of these options. The budget is unlikely to return to balance "on its own," as some have suggested, since higher productivity rates are already incorporated in the projections; research suggests that the revenue estimates of tax cuts are unlikely to be significantly overstated; and the decline in the deficit found in the CBO baseline or President's budget rests on assumptions that differ substantially from what is typically thought of as current policy. This report assumes a familiarity with basic budgetary terms and concepts and will be updated as events warrant.