There has been some good news recently with the deficit coming down. But as they say, you have to take the good news with the bad. Our latest brief, “The State of the Debt” takes a look at both.
The Good News
- Since August 2010, Washington has enacted $2.7 trillion of deficit reduction over the next ten years – and $3.9 trillion if the sequester is maintained and extended beyond 2021.
- Health care cost growth has slowed noticeably since 2008.
- The economy appears to be on the rebound, improving revenue collection and pushing down spending.
- Debt is projected to stop growing relative to the economy between 2014 and 2018.
- Every prominent budget proposal agrees on the need to put debt on a downward path relative to the economy.
The Bad News
- The current debt path remains unsustainable, and there is no plan to slow the growth in debt over the long term or promote long-term economic growth.
- Enacted deficit reduction has been piecemeal, has focused on the short term, and has not dealt with the long-term debt drivers of population aging and health care cost growth.
- Recent measures have inhibited rather than promoted economic growth by phasing in too abruptly, cutting important investments, and raising rates without reforming the tax code.
- Sequestration is politically difficult to sustain, focuses on the wrong parts of the budget, hurts the most vulnerable, and offers no savings beyond 2021.
- With politically easier deficit reduction out of the way – such as setting future caps and raising taxes on the top 1 percent – there may be less political appetite for the more difficult changes.
- The Social Security system is still on the road toward insolvency and our tax code is broken and in desperate need of reform.
There is still work to be done to fix the debt in a sensible way that enhances the economy. Policymakers need to work together and agree on a comprehensive plan that addresses all parts of the budget.
Read the full brief.