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Averting A Fiscal Crisis 0 0 0
Averting A Fiscal Crisis 0 0 0
Averting A Fiscal Crisis 0 0 0
Deficit Projections
(Percent of GDP)
12% 10% 8% 6%
1991-2011 Average Deficit: 2.8% 2012-2021 Average Current Policy Deficit: 4.3%
4%
2% 0% -2% -4%
Current Policy
Current Law
Interest 6%
Borrowing 36%
Non-Defense 18%
2011
Defense 20% Social Security 20%
Debt Projections
(Percent of GDP)
200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0%
Realistic Projections 2010: 62% 2025: 90% 2040: 145% 2080: 399%
Current Law
Consequences of Debt
Crowding Out of public sector
investment leading to slower economic growth
One way or another, fiscal adjustments to stabilize the federal budget must occur [if we dont act in advance] the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis.
-Ben Bernanke, Chairman of the Federal Reserve
Debt Drivers
Short-Term Long-Term
Economic Crisis
(lost revenue and increased spending from automatic stabilizers)
Economic Response
(stimulus spending/tax breaks and financial sector rescue policies)
Population Aging
(causing Social Security and Medicare costs to rise, and revenue to fall)
Tax Cuts
(in 2001, 2003, and 2010)
War Spending
(in Iraq and Afghanistan)
Insufficient Revenue
(to meet the costs of funding government)
Projected
Interest
24%
22% 20% 18% 16% 14% 12% Excess Health Care Cost Growth
56%
36%
64%
Aging
44%
10%
8%
2%
0%
Public
Private
Source: 2008 Data from the Organization for Economic Cooperation and Development.
11
16:1
5:1
3:1
2:1
70 65 60 55 50 45 40
Life Expectancy Early Retirement Age
Interest 6%
Interest 19%
Interest 27%
Insufficient Revenue
Unpaid for Tax Cuts in 2001, 2003, and
2010 lowered revenue collection without making corresponding spending cuts or tax increases to offset the budgetary effect
16
$174 $89
$77
$62
Non-Defense Discretionary 15% Health Spending 18% Social Secutity 16% Other Mandatory 12%
Special Rates for Capital Gains and Dividends State & Local Tax Deduction
Charitable Deduction Child Tax Credit
$61
$57
$49 $45
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Social Security
Progressive benefit changes, retirement
age increase, tax increase for high earners
Plausible Baseline
Commission Plan
20
Allows for gradual phase in Improves generational fairness Gives taxpayers businesses,
and entitlement beneficiaries time to plan
2011
4.8%
2015
5.7%
2020
7.9%
Creates announcement
effect to improve growth
2025 0.0% 2.0% 4.0% 6.0% 8.0% 12.3% 10.0% 12.0%
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If not addressed, burgeoning deficits will eventually lead to a fiscal crisis, at which point the bond markets will force decisions upon us. If we do not act soon to reassure the markets, the risk of a crisis will increase, and the options available to avert or remedy the crisis will both narrow and become more stringent.
-Erskine Bowles and Sen. Alan Simpson, Former co-chairs of the National Commission on Fiscal Responsibility and Reform
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