The left-leaning Center on Budget and Policy Priorities (CBPP) is circulating a chart making the case for three points: (1) The goal of deficit reduction should be stabilizing the national debt at a certain share of the economy; (2) Most of this work has already been accomplished; and (3) Only an additional $1.4 trillion of deficit reduction is necessary to stabilize the debt over the long-term.
First, “stabilizing the debt” is not enough. The Bowles-Simpson commission urged that debt as a share of economy be put on a downward slope. Right now, debt held by the public stands at 82 percent of GDP. It was 36 percent in 2007 before the recessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years. began, and was at 62 percent in 2010. We should aim to chip away at that each year, not merely stabilize it at 72 percent as CBPP suggests (misleadingly, as we’ll see).
Second, almost none of the deficit reduction has actually occurred. These include $1.5 trillion from capping (mostly future) spending levels and $1.1 trillion of sequester cuts that Congress just voted to delay implementing. It’s hardly a sure thing that our elected officials will let these reductions actually occur when it comes time. So far, no programs or agencies have been eliminated and across-the-board cuts have yet to go into effect. We shouldn’t declare victory until some of those hard choices actually go into effect.
Third, CBPP’s stabilized debt chart ends in 2022, which apparently is because that way they can hide that debt explodes again afterward under their plan. The centrist Committee for a Responsible Federal Budget (CRFB) first highlighted this, noting that CBPP’s recommended level of cuts would see the debt grow again after 2022 and reach 94 percent of GDP by 2035. They warn that this is in the “danger zone” (their term, not mine), well above the international standard of 60 percent. They also point out that unanticipated expenses like Hurricane Sandy relief, extended student loan interest reductions, taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. incentive extenders, and other items could add to the budget pressure.
CRFB emphasizes that reforming entitlements and bending the cost curve on health care is more important that a certain dollar figure. I agree. That’s not to say that a chart like CBPP’s can’t inform the debate, but it shouldn’t hide long-term implications after 2022 the way their chart does now.
Figure 1: CBPP's Debt Stabilization Chart, Conveniently Ending in 2022
Figure 2: CRFB's Longer Version of CBPP's Chart, Seeing What Happens After 2022