Editorial Calls for Deficit Plan

John Podesta and Mike Ettlinger of the Center for American Progress have an op-ed in Financial Times today, calling for a 10 year plan to close the budget deficit. Saying that the worst appears to have passed, they call today's deficits "necessary and appropriate," and note that they "accelerate recovery." They also say though that the anticipation of large, sustained deficits throughout the next decade (and beyond) will pose "risks to financial markets and the economy, and [undermine] US standing."

The op-ed points out the scale of the deficit problem and that the risks involved warrant the creation of a long-term plan of action. The Committee for a Responsible Federal Budget supports the creation of a long-term plan, and further believes that implementing such a plan must begin immediately. Podesta and Ettlinger suggest the goals should include achieving fiscal balance by 2014 and having our budget in balance by 2020. They acknowledge overarching deficit goals are only credible if policymakers set these sorts of targets and implement policies that will help them meet these targets. They suggest that Congress:

• Specify year-by-year steps towards these goals;
• Pass strict pay-as-you-go provisions; and
• Make PAYGO meaningful by ensuring that "tax levels and loopholes, as well as spending, are included in rules that automatically adjust the budget in the event of excess deficit levels."

CRFB, as a part of the Peterson-Pew Commission on Budget Reform, supports the idea of setting hard targets as the first step towards a meaningful effort to get our fiscal house in order. In a report issued by the Commission last month, Red Ink Rising, we call on policy makers to stabilize the national debt through a six-step plan. We recommend that Congress and the President commit to a goal of stabilizing the debt at 60 percent of GDP by 2018, develop a credible package over the next year to attain that goal, begin phasing in the plan in 2012, implement a “debt trigger” mechanism to ensure that the process stays on track, and continue to reduce the debt as a share of the economy after 2018. The report states:

"Without a dramatic shift in course, the debt will grow to unprecedented levels, breaking the 200 percent mark in 2038. Well before the debt approaches such startling heights, fears of inflation and a prospective decline in the value of the dollar would cause investors to demand higher interest rates and shift out of U.S. Treasury securities. The excessive debt would also affect citizens in their everyday lives by harming the American standard of living through slower economic growth and dampening wages, and shrinking the government’s ability to reduce taxes, invest, or provide a safety net."