Is $1.4 Trillion in Deficit Reduction All We Need?
In his Monday press conference, President Obama suggested that the federal budget is only $1.4 trillion in deficit reduction from stabilizing the debt:
The consensus is we need about $4 trillion to stabilized our debt and our deficit, which means we need about $1.5 trillion more. The package that I offered to Speaker Boehner before we -- before the new year would achieve that. We were actually fairly close in terms of arriving at that number.
The president’s remarks accord with the analysis of the left-of-center Center for Budget and Policy Priorities. However, although $4 trillion in total debt reduction over the next 10 years would stabilize the debt at about 73 percent of gross domestic product on paper, there are good reasons to believe $4 trillion isn’t enough.
The Committee for a Responsible Federal Budget makes two strong arguments for aiming for more than $4 trillion. The first is the simple point that aiming to just barely stabilize the debt in the best case scenario leaves little margin for error. CRFB shows that the budget wouldn’t stabilize in the 10-year window if economic growth happened to come in a little under expectations:
This chart shows what happens if growth is a quarter-percentage point lower than the Congressional Budget Office’s projections each year: the debt would be 77 percent of GDP and growing in 2022.
Of course, that’s still a fairly rosy scenario. It’s not hard to imagine that we could face another recession, a large-scale war of necessity, a series of natural disasters, or any number of other unanticipated setbacks. It would be better to be able to manage any of those without the risk of prohibitive budgetary pressures.
The second problem with settling for $1.4 trillion in deficit reduction is that there is a likelihood that it might leave the very long-term budget unsustainable even if the debt has temporarily leveled off by 2022. CRFB provides another chart to illustrate the possibility that the debt could rise again after 2022, quickly passing 90 percent of GDP:
Of course, it’s not terribly helpful to plan for budgeting more than 20 years out – too much can change in the meantime. But the underlying issue is the growth of government health care spending. Given that it represents the long-term threat to the budget, health care spending should be a priority for budget reform, even if it doesn’t represent an immediate threat in terms of the debt. A $1.4 trillion deficit reduction package that included only tax hikes and non-health care spending cuts would not address the long-term problem.