The New Target: At Least $2.4 Trillion of Additional Deficit Reduction
President Obama was recently quoted in the Washington Post as saying that an additional $1.5 trillion of deficit reduction would hit the $4 trillion total that many have cited as the target for total deficit reduction. While we agree on the enacted savings total, we disagree on the math. The $4 trillion that plans like Simpson-Bowles aimed to hit is actually much higher in the current context and would require more than $1.5 trillion of savings.
Instead, we think that a total of $2.4 trillion of additional savings is necessary to put our debt on a sustainable path. In light of CBO's newest baseline, we have updated our paper about how lawmakers should proceed on deficit reduction. With a new budget window and some changes to projections we now call for that amount of additional savings. Lawmaker have already enacted roughly $2.65 trillion in budgetary savings already (from 2014-2023), but it is too early to declare victory on debt and deficits. Current projections show that debt will be on an upward path at the end of the decade and will quickly become unsustainable as interest costs explode. Getting $2.4 trillion in deficit reduction compared to current policy should be enough to put debt on a downward path in 2023 and provide at least some wiggle room for the debt in case the projections deteriorate.
The Center for Budget and Policy Priorities initially called for $1.4 trillion in savings to stabilize debt the end of the decade, they also have since updated their target for the new budget window and now call for $1.5 trillion in additional savings through 2023. We will have a fuller response to their report later this week.
In an appendix to the paper, we show how a $2.4 trillion plan stacks up to a slightly smaller deficit reduction plan in terms of debt in the face of adverse circumstances. Whether it's slower economic growth or deficit-increasing legislation being enacted, the $2.4 trillion plan at least stabilizes the debt in each situation, if not putting it on a downward path. A less sizeable plan does not do the same, however.
With many opportunities in the next year to take a careful look at our budget and priorities, we hope lawmakers take advantage of this moment and enact a smart, targeted deficit reduction plan that would put debt on a downward path. They should avoid budget gimmicks and instead target the future drivers of our debt by taking up tax and entitlement reform. With the risks that the current projections entail, we cannot miss this chance.