The Committee for a Responsible Federal Budget on Wednesday issued a model deficit-reduction plan that it says would put the United States on a sustainable fiscal path and secure the solvency of Social Security and Medicare trust funds while also helping to fight inflation.
“Ideally, debt should be gradually reduced to its half-century historical average of about 50 percent of GDP,” the group says. “Given political constraints, we suggest at least stabilizing the debt at its current level within a decade, requiring roughly $7 trillion in savings.”
The deficit reduction would be achieved through a mix of savings, spending cuts and tax increases, including about $1.5 trillion in health care savings, $1 trillion in new income tax revenue, $1.5 trillion in discretionary spending cuts, $500 billion of energy and infrastructure savings, $1 trillion from Social Security reforms that would both raise more from taxes and raise the retirement age, $500 billion of other savings, and $1 trillion from reduced interest payments.
Overall, about 40% of the deficit reduction in the blueprint would come from higher revenue and 60% from changes in spending. (That’s roughly the same balance as the Bowles-Simpson deficit reduction plan from a decade ago.)
The group estimates that the plan would cut debt to 94% of GDP and bring deficits below 3% while potentially reducing near-term inflationary pressures by about 1 percentage point. It warns though, that the national debt would remain high by historical standards. “While all incremental improvements to the budget outlook are welcomed – and enacting even a $1 trillion deficit reduction plan would be an important step in the right direction – our plan should be viewed as the minimum of what is ultimately needed,” it says.
