(Updated with added table!)
I promised myself (and my readers) that I’d take a break from fiscal policy and focus on the real economy for a while—very important not to get sidetracked into every morsel of crazy being doled out down here in DC.
But given some arguments I’ve been having with those insisting we’re Greece or worse, once more into the breach with a very simple set of numbers.
The table below is based mostly on the numbers I wrote about here, thinking about what more it would take given the spending cuts and tax increases legislated thus far to stabilize the debt/GDP ratio over the next ten years (I humbly submit that my CBPP colleagues have done the best work on this).
The first row shows the $1.5 trillion of enacted spending cuts when the 2011 BCA lowered spending caps on the discretionary side of the budget (none of these figures include interest savings) and the $600 billion in new tax increases from the fiscal deal just passed. The second row takes the $1.2 trillion needed to stabilize the debt over the ten year budget window as described here. As you can see, in my never-ending quest for the balance the Buddha taught us to seek, I’ve divided them equally between spending cuts and tax increases.
Here’s what I take from this little-bitty table:
–The grand $3.3 trillion total plus interest savings would be ample to stabilize the debt/GDP ratio over the next ten years.
–$1.2 trillion is not nothing, but over 10 years, it’s 0.6% of GDP, and in a rational political system, it would not be a heavy lift to find the $600 billion from each side of the ledger (see table below for the same numbers as shares of GDP).
–Given the split I’ve made for the outstanding $1.2 trillion, the ratio of spending cuts to tax increases is 1.75; however, if the R’s have their way and the whole $1.2t comes from the spending side, that ratio will be 4.5 spending cuts to tax increases, a highly imbalanced outcome.
So, the next time some wild-eyed hyper-ventilator explains why they need to threaten default on our national debt to have their way on spending cuts, or claims that unless we scrap the entitlements, we’ll sink into the sea, please show them these little calculations. It may not work, but at least it might quiet them down for a moment.
[Here’s the same table as shares of GDP over the next decade: