The 1990 budget deal suspended the automatic sequester and replaced the Gramm Rudman deficit-reduction targets with caps on discretionary spending and a pay-as-you-go requirement for direct spending and revenue legislation.
Here's what a new and improved Gramm-Rudman would look like: It would set annual deficit-reduction targets beginning in 2010 and ending with a balanced budget by 2016. Instead of annual dollar-amount deficit targets, the new Gramm-Rudman should have percentage of gross domestic product (GDP) deficit targets, starting at 10 percent of GDP in fiscal 2010 and declining in proportionate steps all the way down to zero in 2016. By setting annual deficit ceilings as a share of the economy, Congress would have more incentive to adopt pro-growth economic policies and avoid anti-growth policies such as increasing tax rates on work effort and investment or imposing value-added taxes.
The new deficit-control process should include all government expenditures in the across-the-board sequester except for interest payments and Social Security benefits. To avoid cheating and gaming, there also should be a second, "look-back" sequester to prevent Congress from back-loading spending programs to avoid the initial sequester, as it did in the late 1980s. For national and homeland security spending, the President would have the flexibility to protect specific defense and homeland spending from the automatic spending cuts.
Balancing the budget by 2016 is admittedly tough - some will say impossible. But it can be achieved through the combination of firm spending restraint and, most important, rapid economic growth. Remember, in the late 1990s, the Republican Congress and Mr. Clinton cut spending and reduced the capital-gains tax, which rapidly produced huge budget surpluses: From 1997 to 2000, the federal balance sheet went from a $21 billion deficit to a $236 billion surplus.
So balancing the budget in six years is achievable, but members of Congress will need the threat of automatic spending cuts to force them to get the job done. Before Members of Congress raise the debt ceiling by $1.8 trillion, they ought to impose the fiscal discipline of firm deficit limits enforced by automatic spending cuts on themselves.