Balancing the federal budget and reducing debt is a formidable task, to say the least. The debt/GDP ratio is now at the highest level in the nation’s history, and it is projected to rise even higher. In our study, we estimate the potential impact of new fiscal rules on the U.S. economy over the next two decades (Merrifield, J., and B Poulson. 2017). Following the precedent set in the Congressional Budget Office’s forecasts, we estimate the magnitude in federal savings required to balance the budget and reduce the debt-to-GDP ratio to tolerance levels over the forecast period. In the most likely scenario, it will take the spending limit based on the debt and deficit levels, plus $600 billion per year in combined entitlement savings and federal asset sales.
We propose the sale of a broader range of federal assets that are now underutilized. For instance, Congress could pass a new Homestead Act, thereby selling federal land, real estate, and mineral rights. This Homestead Act could improve the nation’s finances in several ways. The revenue generated from the asset sales could be earmarked for debt reduction. As assets are transferred into the private sector, profit-maximizing owners and entrepreneurs would bid for the resources, ensuring they will be allocated toward their most productive uses. The more efficient allocation of these resources would generate higher levels of income and tax revenues.
This ‘Grand Bargain’ would strengthen finances at the state and local level. With energy resources and other federal assets shifted to the private sector, the tax base for state and local governments would expand significantly. That would generate the tax revenues to at least partially offset the financial burden resulting from devolution of federal programs to state and local governments.
The Public Land Initiative in Utah should serve as a model for preserving our public land heritage. Transferring land in our national parks, national monuments, and wildlife areas to the states is the best way to implement this model. With state management of these lands, state legislators are more likely to respond to the different interest groups impacted by these policies. The different stakeholders are more likely to participate in the process when they can hold their state legislators accountable.
An indirect effect of this ‘Grand Bargain’ would be a restoration of the balance between the federal government, the states and the people envisioned in the 10th amendment to the constitution. Our state and local governments have learned to live with a balanced budget for several centuries; it is time for the federal government to learn to live with a balanced budget as well.