Program Cuts Far Outweigh Tax Increases in Deficit Reduction to Date

January 10, 2013 at 3:17 pm

President Obama and Congress have enacted roughly $2 trillion of policy savings (tax increases and spending cuts) over the past few years to help reduce budget deficits, our recent report points out, and 72 percent of them have come through program cuts — most notably, those in the 2011 Budget Control Act (see graph).

As we noted yesterday, our analysis finds that policymakers can stabilize the public debt as a share of the economy over the next decade with $1.2 trillion in additional policy savings over the decade, which would generate almost $200 billion in interest savings — for a total of $1.4 trillion in deficit reduction.

Our paper also explains that:

even if the additional savings were divided evenly between revenue increases and program cuts, the total deficit reduction under the three deficit-reduction packages would be heavily weighted toward budget cuts:  64 percent budget cuts to 36 percent revenue increases, or a ratio of nearly 2 to 1.  To achieve a 50-50 split for the combined deficit-reduction packages, policymakers would have to obtain nearly 90 percent of the additional $1.2 trillion in savings from revenue increases.

In contrast, if all of the additional savings were to come from program cuts, as Republican congressional leaders have suggested, the overall ratio would be still more skewed, with more than four-fifths coming on the spending side — a ratio of nearly 5 to 1.

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2 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. JIm #
    1

    Could you update the chart to reflect the sequester?

  2. Henry Markant #
    2

    An actual decrease in life expectancy due to obesity in the developed world could be the shock the public needs to become concerned about health habits. In order to stave off an imminent crisis, “universal” programs will have to be paid for by substantial new taxes, increased federal debt or individual health insurance savings accounts that will emphasize preventive medicine financed by nontaxable deductions from gross income—or a combination thereof. The only alternative is to slash benefits. According to its board of trustees, Medicare will be insolvent before 2019 since its so-called “Trust Fund” is already used to compensate for monthly shortfalls.

    Before 2017, Medicare payments will amount to 15 percent of GDP and require 24 percent of all federal income taxes if changes are not made in 2012. The situation is clearly unsustainable. Of the federal budget 84 percent is non-discretionary, consisting of the following: Defense, 23 percent; Social Security, 20 percent; Medicare & Medicaid, 19 percent; interest on the national debt, 5 percent (and going up substantially); plus “other mandatory,” 17 percent. These figures do not include TARP (Troubled Asset Relief Program) bailouts, Quantitative Easing, or emergency funds for foreign aid or natural disasters. There is absolutely no hope of paying our national (and state) debts. This charade of solvency of the “Ponzi Scheme” cannot end well.

    If we were to spend 15 percent of GDP today, that would take 95 percent of federal reve



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