We Need More Than $13 Trillion in Deficit Reduction Over the Next 20 Years

In light of CBO's updated long-term projections, and our subsequent CRFB Realistic Long-Term Projections, CRFB has taken a fresh look at the minimum savings lawmakers still need to enact to control the debt for both this decade and the long-term. The bottom line is that we need still another $2.2 trillion in savings over the next ten years to put the debt on a clear downward path, and about $13.5 trillion over the next 20 years.

The Progress Made So Far

Importantly, lawmakers made some very welcomed progress on addressing deficits over the past few years, but the tough work of tax reforms and entitlement reform still remains. CRFB's calculations show that lawmakers have enacted as much as $2.7 trillion in savings over the next ten years, by some measures. These legislated savings have stemmed almost entirely from reducing and capping discretionary spending and from raising taxes on higher-income Americans.

CRFB has estimated that these already-enacted savings have helped reduce the debt from a projected 85 percent of GDP in 2023 to the current projections of 72 percent of GDP in 2023. It is a notable improvement, but unfortunately the debt remains on an upward path later this decade and even more so over the long term.

The Savings Still Needed This Decade and Over the Long Term 

The savings that lawmakers have already enacted have almost entirely avoided addressing the central drivers of future debt: health care, retirement, and interest costs.

CRFB has called for at least $2.2 trillion in further savings over the next ten years to ensure the debt is on a downward path relative to the economy. That figure is sufficient to not only put the debt on a downward path this decade against current projecitons but also in the face of slightly slower economic this decade, higher deficits in the face of Congressional fiscal irresponsibility, or a faster phase-in of savings.

Over the long term, the necessary savings will be far higher. Extrapolating our “minimum path” beyond 2023, we find that policymakers must identify about $13.5 trillion of deficit reduction through 2033, which is about 2.5 percent of GDP over the same time period. The necessary savings increase to more than 5 percent of GDP through 2050 and more than 11 percent of GDP through 2080. Obviously, long-term projections rely on many uncertainties, but it drives home the extent to which we still have to tackle the debt.

Public Debt as a Share of the Economy

Looking only at the size of deficit reduction needed and not the composition of savings, we have enacted over one-half of the savings needed this decade to put the debt on a clear downward path. But compared to a long-term extrapolation of CRFB's ten-year minimum path, we have enacted only 40 percent of the minimum necessary savings by 2033, about one-third by 2050, and roughly one-quarter by 2080.

Ideally, lawmakers would go beyond the minimum necessary to control the debt this decade. Plans such as the Bipartisan Path Forward and the Domenici-Rivlin Debt Reduction Task Force would go well beyond these savings, address all areas of the budget, and focus on the long-term drivers of the debt to keep debt on a downward path after 2023.

Importantly, size isn't all that matters. The composition, timing, scope, and trajectory of savings -- including the extent to which a reform plan control health care costs and retirement costs and whether it enhances economic growth -- will also determine how far lawmakers actually go in fixing the debt.