off the charts
BEYOND THE NUMBERS
BEYOND THE NUMBERS
The Next Act: Further Deficit Reduction Must Include a Mix of Revenues and Spending Cuts
The revenue increases in the new budget deal (the American Taxpayers Relief Act, or ATRA), coupled with the large cuts in discretionary spending that policymakers enacted in 2011, will achieve more than $2 trillion in deficit reduction over the next ten years. That’s a substantial amount, but it’s not enough to stabilize the country’s debt as a share of the economy over the decade ahead. To reach that goal, policymakers will need to produce about $1.2 trillion in additional revenue increases and spending cuts. President Obama has said that future deficit reduction should come through a balanced mix of revenue increases and spending cuts; as a first step, he required that ATRA’s two-month delay in scheduled across-the-board budget cuts (“sequestration”) be offset with an even split of revenues and spending reductions. By contrast, some Republicans leaders have indicated that they will push to achieve the additional deficit reduction entirely through spending cuts, with no further revenue increases at all. The President’s approach is the sound and equitable one. If this Republican view holds, then when all of the deficit reduction efforts are tallied together, spending cuts will outpace revenue increases by nearly 5 to 1 — hardly a balanced approach. If future deficit reduction comes through an even split of revenues and spending cuts, total spending cuts will still outpace revenue increases by nearly 2 to 1. (These ratio estimates do not include the effects of interest savings; if those savings are included, the share of savings that come from spending cuts rises further.) Congress has passed various major pieces of deficit-reduction legislation since 2011:
- Several pieces of legislation, culminating in the 2011 Budget Control Act, reduced spending on discretionary programs — for both non-defense and defense programs — by $1.5 trillion over the 2013-2022 period. All of these savings are on the spending side.
- The ATRA includes $563 billion in revenue increases. (This cost is relative to the revenues that would have been collected if policymakers had extended all expiring income and estate tax cuts, net of other tax changes in the law including the cost of continuing the so-called tax “extenders” through 2013). The bill contains no significant net reduction in spending.
- These policy changes together will yield roughly $300 billion in interest savings that will accrue because the debt will be smaller.
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