Tax Analysts Blog

Memo to Republicans: You Still Need $386 Billion of Budget Cuts

Posted on Mar 15, 2011

The debate on Capitol Hill is now raging over the budget for the current fiscal year (ending September 30). House Republicans are hoping for about $60 billion of cuts for the remainder of the fiscal year--which translates into about $100 billion for a full year.
Assuming this is the high water mark for discretionary spending cuts, big cuts in Social Security and Medicare and/or big tax hikes will be necessary to bring the deficit under control.

This conclusion is based on an excellent overview of budget issues from the Concord Coalition. The Coalition provides a budget baseline that assumes the Bush tax cuts will not expire and finds the deficit in 2016 will be about $1.2 trillion--or about 6.2 percent of GDP. Most experts say that just to put America's finances on a "sustainable" path--that is, to get the debt as a percentage of GDP to stop growing--will require a annual deficit equal to about 3 percent of GDP. (You can forget about balancing the budget.) So, using the Concord Coalition baseline we need deficit reduction of 3.2 percent of GDP to get finances under control by 2016. In today's dollars that's $486 billion--for a single year!

If the House Republicans get their $100 billion of spending cuts, we still will need $386 billion or so. Where will that come from?

When it comes to the deficit, until you hear politicians talking about cutting entitlements and/or raising taxes, they are just blowing smoke.

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