BEYOND THE NUMBERS
What Would It Take to Stabilize the Debt?
With the “fiscal cliff” deal in place, President Obama and Congress are now expected to seek more deficit reduction to replace the automatic spending cuts (“sequestration”) that are scheduled to take effect on March 1. Policymakers can stabilize the public debt over the coming decade, ensuring that it doesn’t grow faster than the economy and risk eventual economic problems, with $1.4 trillion in additional deficit savings over the next decade. Policymakers can achieve the $1.4 trillion with $1.2 trillion in policy savings — tax increases and spending cuts — because that would generate almost $200 billion in savings in interest payments. That $1.4 trillion in deficit savings would stabilize the debt at about 73 percent of Gross Domestic Product (GDP) over the latter part of the decade (see graph).Click here for the full report.