CAP Takes the Spending Challenge

The Center for American Progress recently discussed what it would take to meet the President's fiscal goal of a primary balance in 2015, or finding about $250 billion in savings. After illustrating what it would look like to meet this goal completely through either spending cuts or tax increases, CAP argues that we will ultimately need a mix of both spending cuts and tax increases if we are to avoid large, painful cuts or economically harmful tax changes. CRFB certainly agrees.

Authors Michael Linden and Michael Ettlinger show that finding about $250 billion savings by 2015 "would require a nearly 6.8 percent cut on all primary spending, across the board." They argue that spending cuts of this size do not make sense, given a few reasons, namely that some spending programs are more important than others, and some programs would be exempted because they would be politically impossible to cut. Therefore, after removing the politically untouchable Social Security, Medicare, and Medicaid outlays, they found that all remaining spending would face 14 percent cuts. Taking out veterans' benefits, federal retirement benefits, and unemployment insurance would drive the needed cuts up to 16 percent. Additionally, they point out, some spending is important to economic growth, and cutting it would thus be counterproductive. The authors argue that "doing it all through spending would be irresponsible, unwise, and unpopular."

Yet the growth of federal spending is what is driving our future budget imbalances, as we pointed out a week ago.

On the tax side, Linden and Ettlinger show that finding about $250 billion in additional revenue would require a 7.3 percent increase in all federal taxes and fees. They argue that although tax increases of this size would raise revenues to about 20 percent of GDP and would still keep the U.S. in the bottom third of OECD tax rates, raising everyone's tax by this amount "might not be desirable or politically feasible."

The authors hope, like we do, that the President's fiscal commission can figure out how to cut or raise $250 billion in 2015. They say the Commission "needs to recognize that solving this problem is no mere accounting exercise. Every option to reduce the deficit has broader consequences and deeper implications."

We recommend checking out CAP's memo on how to bring down future deficits, and certainly agree that in order to begin bringing down future deficits, focusing on just one side of the budget is neither realistic, nor ideal.

See past Spending Challenge posts here.