We detected a whiff of complacency when President Barack Obama declared, in the State of the Union address, that $2.5 trillion in 10-year budget savings achieved so far put the nation “more than halfway towards the goal of $4 trillion that economists say we need to stabilize our finances.” The president added: “We need to finish the job.”
Deficit reduction is still more urgent than these words imply, recent favorable trends notwithstanding. The U.S. might be able to get to the $4 trillion mark with relatively modest additional measures — but “the job” of truly stabilizing America’s long-term finances would still be anything but finished.
The president’s view tracks with analyses by the Center on Budget and Policy Priorities, or CBPP, the distinguished left-of-center Washington think tank. The CBPP, relying on economic and technical assumptions from the nonpartisan Congressional Budget Office, has argued that $1.5 trillion in additional deficit reduction over the next decade would help get the federal debt to 73 percent of gross domestic product by 2018 and keep it there through 2023.
Yet a debt-to-GDP ratio of 73 percent would be extremely high by historical standards, leaving little “fiscal space” below the 90 percent ratio economists often cite as a drag to growth. What’s more, even if the government were to achieve the “stable” debt level Obama envisions, demographic changes will push health care spending higher soon thereafter, and, with it, the debt. Even the CBPP does not claim that we can save another $1.5 trillion and call it quits. The latest version of its analysis, published last week, acknowledges that the 73-percent-of-GDP scenario represents “the minimum appropriate budget policy.”
Now, not later, is the time to put the debt on a downward trajectory. The sudden, blunt-force spending shrinkage embodied in the “sequester” scheduled to take effect on March 1 might do more harm than good.
What’s needed instead is a serious, sustained effort to reform the entitlements that increasingly dominate the federal budget: especially Medicare and Social Security, including the latter’s fast-growing disability program.
The Washington Post (Feb. 17)