Obama Budget: Why $4.3 Trillion in Deficit Reduction?
President Obama’s just-released budget includes plans for a total of $1.8 trillion in deficit reduction, for a total of $4.3 trillion in such measures intended to lower deficits for his tenure. “That surpasses the goal of $4 trillion in deficit reduction that many economists believe will stabilize our finances,” Obama said in his weekly address on Saturday.
As the president’s budget is rolled out and discussed, it’s worth reviewing that $4 trillion goal. Why $4 trillion, and not some other number?
$4 trillion in a decade is the number the Simpson-Bowles deficit commission chose as its starting point. Although the bipartisan commission failed, its recommendations have served as a benchmark for both parties since.
It’s also the amount that would roughly stabilize the debt near its current levels in the 10-year budget window. As the left-of-center Center for Budget and Policy Priorities points out, that would take roughly $4 trillion in lowered spending or increased taxes. The fiscal cliff tax hikes and sequester leave the government just $1.4 trillion away from that goal (Obama’s budget includes measures to replace the $1.2 trillion sequester with other policy savings and add on another $600 billion of other deficit reduction measures):
The idea behind the Obama budget’s $1.8 deficit reduction goal, then, is that, if everything goes as planned, the public debt would be not much higher than it is now, at 73 percent of Gross Domestic Product.
Of course, there are any number of reasons to think that not everything will go as planned, and that the federal government faces a severe financing problem beyond the 10-year window.
But setting aside questions about the assumptions undergirding the president’s budget, it’s worth asking why 75 percent of GDP is the goal debt level, other than that it’s about where happen to be right now.
Ethan Pollack of the Economic Policy Institute, for example, has suggested that the debt could just as easily be stabilized at 85 percent of GDP later in the decade, allowing for more stimulus now (although Pollack doesn’t address the longer-term debt problem in his argument). It’s not clear what the difference between 75 and 85 percent would be for the purposes of current planning. It’s also worth mentioning that Japan, a nation that’s followed a fiscal and economic trajectory in many ways similar to the one the U.S. is on, currently maintains a debt level above 200 percent of GDP, and hasn’t yet faced a fiscal crisis.
On the other hand, the fiscal hawks at the Committee for a Responsible Federal Budget think that Obama’s aiming for only have the amount of spending cuts and tax hikes the country needs. In a recent report, the CFRB suggested that the while the level of debt Obama’s aiming for “may not be a disaster, it would still amount to nearly twice our historical average and well above the international standard of 60 percent.”