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What Would It Take To Balance The Budget?


June 28, 2022

We live beyond our means.

It is really that simple. It is frustrating to me that neither party is proposing solutions — perhaps because each knows that there are no acceptable answers. Unless you believe Modern Monetary Policy which I don’t.

I found this article to be both helpful and disheartening:

Organization And Its Qualifications

The Committee for a Responsible Federal Budget is a nonpartisan, non-profit organization committed to educating the public on issues with significant fiscal policy impact.

Our bipartisan leadership comprises some of the nation's leading budget experts, including many past heads of the House and Senate Budget Committees, the Congressional Budget Office, the Office of Management and Budget, and the Government Accountability Office.

As an independent source of objective policy analysis, we regularly engage policymakers of both parties and help them develop and analyze proposals to improve the country’s fiscal and economic condition. These efforts have reinforced the Committee’s role as an authoritative voice for fiscal responsibility and an educational resource for policymakers and the general public. We are also a trusted budget watchdog that assists journalists across the country in understanding fiscal developments in Washington.

During the first half of 2022, the Committee for a Responsible Federal Budget sought to educate and engage the public, policymakers, and the media about the major fiscal issues facing our nation, from President Biden’s FY 2023 budget to the impact of inflation on our national debt. We also launched a new suite of interactive tools as part of our Trust Fund Solutions Initiative – Insolvency Countdown, which allows users to see how long each trust fund has until it reaches insolvency.

For an in-depth look at our impact in Washington and beyond, see our recent highlights.

Our History

In 1980, Robert Giaimo (D-CT) and Henry Bellmon (R-OK) both left Congress. Mr. Giaimo had served in the House of Representatives for 20 years, including four as Chairman of the House Budget Committee. Mr. Bellmon had served 12 years as a Senator and was the ranking Republican on the Senate Budget Committee from its inception in 1975.

These two fiscal policy leaders convened a group of other former Budget Committee Chairmen, former Directors of the Office of Management and Budget, leading economists, and business leaders. The group concluded that the country needed an organization outside government that was committed to a sound budget process. They formed the Committee for a Responsible Federal Budget, and it was incorporated on June 10, 1981.

What Would it Take to Stabilize the Debt?

MAY 21, 2021

Federal debt held by the public is now larger than annual economic output and is on track to reach 113 percent of Gross Domestic Product (GDP) by 2031 under current law. Absent no new initiatives, we estimate it would take $4 trillion of deficit reduction over ten years to stabilize debt at 100 percent of GDP by 2031, $11 trillion to reduce it to 80 percent of GDP, or $17 trillion to reduce it to 60 percent of GDP. It would require roughly $9 trillion of deficit reduction - depending on the path of deficit reduction - if policymakers wanted to balance the budget by 2031. The amount of needed deficit reduction will rise if policymakers want to enact new spending or tax increases or extend policies set to expire under current law.

In her recent testimony before the Senate Budget Committee, Maya MacGuineas, president of the Committee for a Responsible Federal Budget, discussed many of these issues.

Based on our current law projections, which build off of the Congressional Budget Office’s (CBO) latest baseline to include the budgetary effects of the American Rescue Plan, it would require roughly $4 trillion of noninterest savings to stabilize the debt at 100 percent of GDP by the end of Fiscal Year 2031. This means raising revenue by 8 percent or cutting spending by 6 percent. Thought of another way, holding the debt at today's record levels would require enacting every single one of President Biden’s proposed tax increases - including those suggested in the campaign but not proposed in his recent plans - while enacting none of the proposed spending. Alternatively, policymakers would have to enact nearly every spending cut proposed in former President Trump’s final budget – including those with no policy behind them or unrealistic savings estimates. Even this, however, would not prevent debt from rising beyond 2031.

More ambitious targets would require even more savings. Reducing debt to 80 percent of GDP (roughly the pre-pandemic level) by 2031 with no new initiatives would require $11 trillion of deficit reduction, the equivalent of reducing spending by 18 percent or increasing revenue by 21 percent. Reducing debt further to 60 percent of GDP would require $17 trillion of deficit reduction and balancing the budget by 2031 would require $9 trillion of savings.

If policymakers want to enact new initiatives, it would require even more savings to reach the same targets. For example, stabilizing the debt at 100 percent of GDP while enacting $5.5 trillion of new initiatives - the rough combined cost of the American Jobs Plan, American Families Plan, and President Biden’s FY 2022 discretionary spending request – would require $10 trillion of deficit reduction through 2031. That's the equivalent of cutting spending by 16 percent or increasing taxes by 20 percent. Enacting a $30 trillion agenda would require $34 trillion of deficit reduction to stabilize debt at 100 percent of GDP by 2031. That's the equivalent of cutting spending by 55 percent or increasing taxes by 69 percent. More ambitious debt targets would require greater savings.

Savings Needed to Meet Various Fiscal Targets

[see link above] Achieving these levels of savings would not be easy. As described above, it would take all of President Biden’s proposed revenue increases from the 2020 campaign – which already represent a fairly aggressive set of tax increases on the rich and on corporations – to achieve $4 trillion of deficit reduction by 2031. Other tax increases on high income earners and corporations could generate additional revenue. For example, policymakers could further increase individual income and corporate income tax rates (for example, to 50 and 35 percent, respectively), enact a financial transaction tax, impose a wealth tax, and cut additional tax breaks for high earners. Even then, it would be a major challenge to pay for President Biden's current proposals and stabilize the debt at 100 percent of GDP after ten years.

President Biden's 2020 Campaign Tax Plan

[See link above]

Policymakers would likely need to look at spending cuts and/or broad-based taxes to cover the difference. To generate the next $6 trillion - enough to pay for all of the proposals President Biden put forward during the 2020 campaign policymakers would need to enact the equivalent of raising all individual income tax rates by roughly 7 percentage points. That would mean raising the bottom income tax rate from 10 percent to 17 percent and, in combination with other taxes on the rich, could very well leave the top income tax rate above its revenue-maximizing level.

Should policymakers desire a more expansionary set of policies, such as Medicare for All, free college, student debt cancellation, broad-based Social Security benefit increases, or a Green New Deal the necessary offsets would be much larger. Even if net revenue needs could be kept to $30 trillion, it would require the equivalent of a 32 percent payroll tax, a 25 percentage point increase in all income tax rates – including raising the bottom rate to 35 percent and the top rate to percent 62 – a 42 percent Value-Added Tax (VAT), or some combination.

While it is fair to argue that the wealthy should pay their fair share, we need to be realistic about how much revenue could reasonably be raised from top income earners. While taxes on high earners and corporations can raise trillions of dollars, it is unlikely they would be enough both to pay for an ambitious new agenda and put the debt on a more sustainable long-term path. More broad-based revenue options, user fees, and spending reforms will also need to be on the table.

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