One might think, given all the debate over tax increases and spending cuts and averting a “fiscal cliff” at year’s end, that the White House’s pursuit of a $4-trillion, 10-year solution suggests the government’s habit of deficit spending could be cured.
One might be wrong.
“It will take almost $6 trillion in deficit reduction during the next decade to make a minimum down payment that puts the nation on a sounder fiscal footing.”
This is the conclusion of a Bloomberg Government study that examines the ratio of federal debt to the nation’s gross domestic product.
That ratio stands at about 73 percent today.
The “most likely” package to come out of the negotiations over averting the fiscal cliff of automatic tax increases and spending cuts scheduled at year’s end — that $4 trillion agreement — would allow the ratio of debt to GDP to grow to 80.2 percent, the BGov study shows. The study, written by BGov Director of Research Robert Litan and three other analysts, shows that it would require a $5.9-trillion, 10-year deficit reduction plan to hold the debt-to-GDP ratio at today’s level.
And holding course is not the most prudent course.
“`A 60 percent debt-to-GDP ratio is considered the financially sound level for countries to maintain,” Litan and company write. That would require a $9-trillion plan, more than double what’s likely to come out of the cliff talks.