Select Committee on Deficit Reduction -Setting the Stage & Fiscal Challenges Ahead

Dr. Jason J. FichtnerSenior Research FellowMercatus CenterOctober 19, 2011

Mercatus Center at George Mason UniversitySpending and Budget Initiative Event:A Sustainable Approach to Entitlement Reform

Joint Select Committee on Deficit Reduction

Budget Control Act of 2011 Charges Joint Select Committee with finding $1.5 trillion in

deficit reduction, including interest savings, through 2021 Using CBO current law baseline:

$1.5 trillion in deficit reduction -> 60% publicly-held federal debt to GDP

Assumes December 2010 tax law expires in 2012To get 60% debt-GDP goal would require beginning 2013:10% cut discretionary spending only5% cut mandatory spending only4% cut – equal percentages discretionary & mandatory7% increase in tax in income taxes only3% increase in all federal revenues only2% equal spending /revenue

2

Source: Pew Charitable Trusts – Analysis of CBO Datahttp://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Fiscal_Analysis/Essential_Federal_Fiscal_Charts.pdf

Joint Select Committee on Deficit Reduction

Using CBO current policy baseline:Assumes full extension of December 2010 tax law, index AMT

for inflation, override planned cuts to Medicare Part B “doc fix,” etc.

$1.5 trillion in deficit reduction -> 79% publicly-held federal debt to GDP

To get 60% debt-GDP goal would require $6.1 trillion:46% cut discretionary spending only (10%)21% cut mandatory spending only (5%)15% cut – equal percentages discretionary & mandatory (4%)36% increase in tax in income taxes only (7%)16% increase in all federal revenues (3%)8% equal spending/revenue (2%)

3

Source: Pew Charitable Trusts – Analysis of CBO Datahttp://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Fiscal_Analysis/Essential_Federal_Fiscal_Charts.pdf

4

5

6

7

8

9

10

11

12

13

14