CBO's Projections Make the Case for Comprehensive Fiscal Plan
Although CBO shows debt improving significantly over the coming decade, reaching 61 percent of GDP in 2021, debt will not follow this downward path without lawmakers putting in place specific debt reduction measures. As we have showed in our CRFB Realistic Baseline, debt is much more likely to grow to 82 percent of GDP by 2021 given that they are likely to continue extending the tax cuts and other policies. As we stated yesterday in our analysis of CBO's report, we think it's more appropriate to include the $1.2 trillion savings from the Super Committee "once specific policies have been identified and agreed to."
But even if the special Joint Committee succeeds in achieving its goal of $1.5 trillion in savings, debt would still most likely be on an upward path, reaching 76 percent in 2021 according to our projections.
In order to put the debt on a downward path, we estimate that the Super Committee will need to double or even triple its savings. Doubling it, assuming a reasonable set of phase ins, would likely get debt down to 69 percent of GDP by 2021 and just barely put it on a downward path. Tripling it would do more to actually bring our debt under control in a fashion similar to what was proposed by the Fiscal Commission.
We should note, however, that these projections rely on CBO's economic assumptions which were updated in early July and do not include more recent data showing slower than anticipated growth along with other financial and economic developments. In short, they are likely optimisitic.
If debt continues to rise as we project under CRFB Realistic Baseline, we risk jeopardizing strong economic growth down the road as public debt and borrowing "crowds out" private investment. We also risk having to pay higher and higher interest payments on our debt, reducing the available resources to pay for other spending and tax priorities. By failing to address our debt challenges, we ultimately risk a fiscal crisis.
But let's not focus on the negatives of inaction. If lawmakers "Go Big" and solve our fiscal problems, we can lay the foundation for strong economic growth while giving future generations the budget flexibility to structure spending and tax policies as they see fit. Wouldn't that be great. We're confident that lawmakers will rise to the challenge - afterall, we can either reduce debt on our own terms or be forced to make more abrupt changes by our creditors.