Today, Third Way has released their analysis of the February CBO Economic and Budget Update, reaching a similar conclusion to our report on the new baseline: the budget path going forward after ATRA is clearly unsustainable. They also set a goal for additional deficit reduction to be achieved in the upcoming negotiations, at $1.9 trillion ten-year primary savings (not including savings from the sequester), and include suggestions how lawmakers should go about finding those savings.
Some commentators and President Obama have put forward $1.5 trillion in deficit reduction over the next ten years as a target, which we believe is to low. As we have said before on The Bottom Line, lawmakers should look to find $2.4 trillion in ten year savings, as that would make it likely that debt would be on a downward path and below 70 percent of GDP by 2023. This is the minimum needed to get our nation's finances on a sustainable path as we look to address the challenges of increasing health care costs and aging going forward.
Source: Third Way
To achieve their $1.9 trillion mark, Third Way uses a combination of reforms to entitlement programs and the tax code and targeted defense cuts. Third Way calls for a 1:1 replacement of the non-defense discretionary sequester cuts with mandatory program savings. However, they would keep sequestration levels of defense spending, while removing the across-the-board cuts to allow for targeted reductions in military spending. On the tax side, Third Way calls for $500 billion in new revenues from tax reform, including a cap on deductions for those making over $250,000 (with the charitable deduction excluded) and the use of the chained CPI for the tax code. On Social Security, Third Way proposes a joint panel tasked with proposing a plan that would ensure 75-year solvency that Congress would be required to vote on with a simple majority in 2015. In the meantime, the chained CPI would also be applied to Social Security benefits. Finally, Third Way calls for an end of continuing debt ceiling crisis by reforming the debt limit to grow with sustainable debt projections.
The Third Way plan is a step in the right direction with a mix of tax and entitlement changes and a more ambitious goal than just barely stabilizing debt as a percent of GDP in 2023. Lawmakers should consider the arguments we made in our most recent paper, and shoot for a plan that would put debt on a clear downward path as a share of the economy.
Click here to read the full report.