Spending and Revenues in the Mid-Session Review

Under the Administration's Mid-Session Review, the gap between spending and revenues is set to persist throughout the decade with barely any change in that gap, even if potentially $1.5 trillion in savings from the Super Committee materializes. Also noteworthy is that both spending and revenues will exceed their historical averages over the past few decades of about 21 percent of GDP for spending and about 18 percent of GDP for revenues.

Even if the Super Committee were to achieve its $1.5 trillion target (a target which we've shown is not up to the challenge of stabilizing and reducing our debt as a share of the economy) and the savings were allocated roughly 2/3 and 1/3 between spending and revenues, respectively, spending would still exceed 22 percent of GDP by 2021 and would be on an upward path.

The Mid-Session Review's revenue estimates include about $870 billion in additional revenues when compared against revenue projections with all the tax cuts being extended as a result of letting the tax cuts on upper-income earners expire and also setting the estate tax at 2009 levels instead of lower levels put in place by the 2010 tax cut package. By 2021, revenues would reach nearly 20 percent of the economy, assuming the Super Committee does not include new revenues.
Lawmakers need to focus on ways to eventually bring spending and revenues back in line which each other in subsequent decades. The Super Committee will be critical in advancing this goal, but unfortunately its current mandate won't be enough to get us there anytime soon.
Click here to read CRFB's reaction to the Mid-Session Review.