How to Make a Stimulus Package Fiscally Responsible

The Committee for a Responsible Federal Budget (CRFB) reiterated its suggestion that any stimulus package include a credible mechanism to ensure that the country pay back the massive debt we are accumulating after the economy recovers.

"The United States is going to have to engage in never before seen levels of borrowing-there is no way around that," explained Maya MacGuineas, President of CRFB. "If we don't show our lenders that we are serious about repaying this debt, though, borrowing will become increasingly difficult and expensive."

The United States is in a period of serious economic difficulty and a significant stimulus package is appropriate at this time.  To be effective, a stimulus package should be financed with borrowed money. But, there is a very real risk that a massive accumulation of public debt could weaken the long-term economy, and even lead to another economic crisis.

Accordingly, CRFB recommends that any stimulus package include a mechanism to help begin the process of addressing the nation's long-term budget imbalances.  This could take the form of a Members Working Group, or a Task Force to present recommendations that could be implemented once the economy has stabilized. Or it could include specific policies that would be phased in once the economy was growing again, to repay all the borrowing. For instance, an energy tax in the future could be used to pay for "green stimulus" now.  Such actions would send an important signal to markets and our creditors that the current economic crisis is not being viewed as an excuse to borrow endlessly with no plan to repay the debt.

"Politicians will be offering policies they were supporting before the downturn by calling them 'stimulus' now," said MacGuineas. "One of the real tests will be if we are willing to cover the costs of all these stimulus measures once the economy can afford to. If we don't, we run the risk that the next economic crisis will be as a result of the trillions of dollars in new government debt we are racking up."

The Committee for a Responsible Federal Budget is a bipartisan organization committed to educating policy makers and the public about issues related to fiscal policy. The Committee is located at the New America Foundation. Please visit www.crfb.org.