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This paper identifies the following issues as important in an understanding of the Federal budget deficit problem: (1) consideration of the budget and the economy as one mutually interacting system; (2) the recent history of government spending; (3) the total public budget, i.e., the combination of the Federal budget with all state and local budgets; (4) the distinction between government spending on purchases of goods and services and spending on transfer payments; and (5) government revenues. The author suggests that transfer payments must be made the centerpiece of serious efforts to get government spending under control; that an achievable reference level of the economy should be chosen, and a balanced budget sought around that level over the business cycle; that permanent spending indexation should be eliminated and all increases to the Federal budget should be voted annually rather than built in; and that "revenue-neutral" tax reform would help to lower deficits in indirect ways.

This report is part of the RAND Corporation paper series. The paper was a product of the RAND Corporation from 1948 to 2003 that captured speeches, memorials, and derivative research, usually prepared on authors' own time and meant to be the scholarly or scientific contribution of individual authors to their professional fields. Papers were less formal than reports and did not require rigorous peer review.

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