Erskine Bowles and Alan Simpson have just released an updated version of their two year old plan to bring our national debt under control. The new plan is called A Bipartisan Path Forward to Securing America’s Future. It is very worthwhile to compare their new plan with a recent Report from the Congressional Budget Office.
Bowles and Simpson propose additional deficit reduction of $2.4 trillion over 10 years (which includes the $1.1 trillion in the sequester cuts currently scheduled to take effect on March 1, 2013). This would have the effect of reducing the national debt from its current level of 76% of GDP in 2013 to 73% in ten years. The CBO report presents three different scenarios. Their middle route would require an additional $2 trillion in deficit reduction over and above current law (i.e. assuming that the $1.1 trillion in sequester spending cuts will take place as scheduled). This CBO middle route would reduce the Debt/GDP ratio to 67% by 2023.
In other words, for an additional deficit reduction of $700 billion over ten years, we’ll get an additional 6% of Debt/GDP reduction. These numbers have huge practical significance. Simpson-Bowles says that we need an additional $1.3 trillion in deficit reduction over and above the sequester cuts, which presumably will soon be enacted, just to stabilize the national debt over a ten year period at the historically very high level of 73% of GDP. That’s $130 billion a year for ten years. Many people are complaining about the approximately 5% cuts in discretionary spending which will be required by the sequester. But just to stabilize, not really shrink, the Debt/GDP ratio over ten years will require more than twice as much deficit reduction as the sequester.
To even mildly shrink the Debt/GDP ratio to 67% by 2023 will require yet an additional deficit reduction of $70 billion per year. In other words, we will essentially have to triple the size of the sequester effect in order to achieve real debt reduction over ten years. And all of this assumes favorable economic conditions such as steady growth and continued low inflation.
Do our national leaders have the will to do what should be easily understood as needed by anyone looking at the numbers with any degree of objectivity? Let’s hope so because the future of our country depends on it!