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March 03, 2010

The proposed budget freeze

A freeze on part of the federal budget has been proposed as a way for dealing with the national debt. What does this mean? And is it a viable solution to the nation's fiscal issues?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"It is useful to think of the federal budget in four pieces: defense spending, interest payments on the debt, what we call mandatory spending, and discretionary spending.

"Now defense spending: With the country fighting two wars, the consensus is we need to maintain defense spending, and that is sort of off limits for cuts.

"We can't reduce interest payments on debt. That would mean we would be defaulting as a country on our debt. We can't do that.

"Mandatory spending is spending on programs like Social Security, Medicare, Medicaid. They operate on formulas, and so they are driven by how many people qualify. And those numbers -- that spending can't change unless Congress goes in and changes the formula.

"This leaves discretionary spending as really being the category that Congress can change quickly in a short time. This is where the proposed budget freeze would apply. The problem -- the problem, though -- is discretionary spending takes only 16 percent of the budget. And so this is really not a long-run solution if we want to perhaps bring the budget more in balance. A long-run solution will have to include some of those other components."

Posted by deeshore at March 3, 2010 08:14 AM

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