Budgeting for Fiscal Uncertainty and Bias: A Federal Process Proposal

What is it about?

Balanced budget constraints have forced sub-national governments to anticipate and mitigate the adverse effects of fiscal shocks on budget balance, services, and tax rates. By contrast, the federal government responds to negative budget surprises with increased borrowing. That response is consistent with short-term economic stabilization, national security, and assisting those suffering loss. Nonetheless, an automatic default-to-debt response requires a routine means of restoring debt to planned levels. Otherwise, increases in public debt imply unplanned increases in future tax rates, reduced fiscal flexibility, lower income, and allocative inefficiency. We propose a procedural offset to debt drift from shocks and planning bias.

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