Politico reports this afternoon that the Senate may try to pass a package of “tax extenders” (targeted tax breaks set to expire at the end of the year) before they leave town for the holidays. This graph shows why policymakers should fully pay for any such package.
Paying for the “extenders” that Congress continues would have a surprisingly big impact on the long-term debt, as our recent report explains. The publicly held debt amounted to 75 percent of GDP (gross domestic product) in 2013, and we project that it will climb under current policies to 99 percent of GDP in 2040. This estimate assumes that policymakers continue the extenders but don’t pay for them.
On the other hand, if policymakers offset the roughly $50 billion annual cost of continuing the extenders, the debt-to-GDP ratio will rise about eight percentage points less, reaching 91 percent in 2040. An eight-percentage-point improvement would eliminate about one-third of the projected rise in the debt ratio by 2040 under current policies.
We’d still need to do more to address long-term deficits and moderate the debt ratio, but paying for the extenders would represent important progress.