Panel, Conference Presentation
Debt and the Deficit: What's Really on the Table?
- The debt-to-GDP ratio is projected to rise from approximately 73% to nearly 80% under current policies, then stabilize at that level.
- President Obama's proposal aims to return the ratio to current levels through short-term spending increases and long-term deficit reduction.
- Senator Patty Murray's plan is expected to reduce the ratio by a small amount to 70%.
- Congressman Ryan's plan predicts balancing the budget within 10 years and lowering the debt ratio to 55%.
- The current deficit is projected to fall below $800 billion this year compared to $1.1 trillion last year.
- Entitlement reform is anticipated to have no immediate economic impact but save tens of trillions of dollars over time.
- Republicans are expected to seek a 75-year actuarial soundness for Medicare and Social Security in exchange for tax reform revenues.
- The panel hopes to reach a solution regarding entitlements and revenue within the next three to four months.
- If current Medicare cost growth trends persist, the long-term deficit in the program is expected to disappear entirely.
- Deceleration in health care cost growth is expected to be at least partially structural rather than cyclical.
- A new proposal from the Engelberg Center is expected to shift the vast majority of Medicare payments to a capitated form within the next 10 years.
- Relying solely on projected health care cost reductions is considered an unlikely strategy to solve entitlement problems.
- Current non-defense discretionary spending levels are expected to be unsustainable, likely reverting to 3.25% or 3.5% of GDP, adding an extra $2 trillion to the 10-year deficit.
- Maintaining current non-defense discretionary spending levels is expected to be difficult as Congress must fight for them monthly.
- A market-credible plan addressing debt is expected to produce different economic outcomes in the second and third decades compared to the current environment.
- The $600 billion revenue from the fiscal cliff deal is expected to be insufficient for a comprehensive deal without further revenues.
- New revenues on the table are expected to be slightly less than $600 billion as negotiations proceed.
- Tax reform is expected to be necessary to generate pro-growth revenue for a workable political bargain.
- Gradually phasing out all tax cuts rather than just those for upper-income households is expected to help plug the revenue gap before entitlement reforms take effect.
- Limiting total deductions to a cap is expected to significantly affect charitable giving and home ownership, though such limitations are not expected to appear in the final tax reform outcome.
- The debt ceiling is projected to become a critical action-forcing moment around September 15th.
- Serious negotiations regarding a fiscal deal are hoped to begin by July 1st.
- The White House is expected to play a central role in socializing the issue among Democrats and securing House support for a deal.
- Without entitlement reform, pressure to cut spending is expected to materialize too quickly in a more damaging way.
- An interest rate increase of one percentage point is expected to add over a trillion dollars to interest payments over the next ten years.
- If debt reaches $23 or $24 trillion in 10 years with a 5% long-term interest rate, annual interest payments are expected to reach approximately $1 trillion.
- Efforts to reach a solution are expected to be pursued between now and September 15th.
- Achieving the right mix of debt reduction is expected to result in growth rates not seen in some time.
- Resolving the debt problem is expected to be a necessary component of a broader growth agenda involving energy and infrastructure investment.