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Heads Up!

July 25, 2016 | Weekly Commentary

We have made the case in recent articles for the U.S. Government improve management of its spending and debt. But, according to the Wall Street Journal, no matter who wins the White House in November, don’t expect to hear new calls for reduced spending.

Gone are the fights of yesteryear over striking a “grand bargain” to slash the debt. In their place a new debate has emerged over whether America’s borrowing capacity has gone up—and how the nation might take advantage of it.

The top candidates from both major parties have made scant mention of addressing rising long-term deficits and are calling instead for an increase in federal stimulus.

Republican nominee Donald Trump has outlined massive tax cuts and, without getting specific, has promised big federal outlays on infrastructure, border security and an expansion of health-care services for veterans.

The GOP platform calls for a constitutional amendment requiring balanced budgets, but that’s easier said than done, as illustrated by congressional Republicans’ inability to pass a budget resolution this year.

Hillary Clinton, the likely Democratic nominee, also has issued proposals for spending on roads and higher education, projects she would fund with new taxes on higher-income earners and the financial industry.

Four years ago, the Democratic Party platform referred seven times to cutting the deficit. The platform that delegates will consider at this week’s convention in Philadelphia doesn’t mention the deficit and pledges to pay for new spending.

So what accounts for the shifting political dynamic?

First, an expanding economy and the budget agreements of recent years have returned near-term deficits to their long-run averages. Second, health-care cost growth, a major driver of projected deficits, has slowed. Third, markets indicate borrowing costs may be lower for longer than anyone expected just a few years ago amid weaker global growth prospects.

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