As the federal government once again approaches the upper limit on its legal authority to borrow more money, Congress must carefully consider its options.
President Obama insists on a "clean" debt limit increase, no strings attached, so the government can continue its borrowing binge. Some members of Congress want to link the debt limit increase to future spending cuts or even fundamental tax reform. While each approach has its share of advocates and detractors, I believe there is a better alternative: fixing the growth gap.
The single greatest force for deficit reduction is a growing economy. According to the administration's latest estimates, a 1-percentage-point increase in the annual rate of economic growth would reduce the federal budget deficit by $3.5 trillion over the next 10 years.
Unfortunately, we are suffering from a serious growth gap. Since the official end of the last recession in 2009, our economy has performed well below average, racking up a cumulative $1.2 trillion shortfall in economic output and creating 4 million fewer jobs, compared to the typical post-World War II recovery. At our current rate of recovery, we will never close the gap.
What does more growth mean for Texas? Every additional 1 percentage point of economic growth is worth an extra $400 a year in income for every Texan or, cumulatively, close to $25,000 over a decade.
Fixing the growth gap will require a number of federal policy changes, including a sound dollar and a sensible budget process. I have introduced legislation in Congress to address each of these areas.
The Sound Dollar Act would reform the Federal Reserve. Americans have seen the value of the dollar slowly decline due to the steady erosion of inflation.
Inflation destroys savings, impedes planning and discourages investment. That means less productivity and a lower standard of living. Requiring the Fed to focus on preserving the purchasing power of the dollar will create a solid foundation for economic growth.
The Maximizing America's Prosperity (MAP) Act would reform the federal budget process. A rising federal debt is merely a symptom of the real problem. The government spends too much.
When former President Clinton declared "the era of big government is over," federal spending - excluding interest on the debt - was less than 17 percent of the economy. Today, spending is nearly 20 percent. That's a difference of more than $400 billion a year.
The MAP Act would impose a realistic cap on non-interest federal spending, prioritize programs, provide the president a line-item veto, create a sunset commission and prevent government shutdowns. By reducing the size and scope of government, these common sense reforms will provide much needed fiscal discipline. History shows lower spending is more beneficial to the economy than higher taxes.
Failure to increase the debt limit will lead to a government default, a further downgrade in our nation's credit rating and higher interest payments on the federal debt. But our desire to avoid these dire outcomes is not an excuse to continue business as usual. Legislation to increase the debt limit provides a perfect opportunity to change the way Washington works.
Changing Washington benefits Texas. A sound dollar and a sensible budget policy are vital to our nation's economy. Congress and the president must work together to fix the growth gap, create greater prosperity, and restore fiscal responsibility.
Brady, a Republican representing The Woodlands, is chairman of the U.S. Congress Joint Economic Committee.