CRFB: Federal Deficit Must Be Cut More Than $1.4T

Although a reduction in the federal deficit of $1.4 trillion would keep U.S. debt stable through 2022, it would fall short of the what is needed for the long term, the Committee for a Responsible Federal Budget said Wednesday.

“To be sure, $1.4 trillion of deficit reduction would be a very welcome package of savings, but would almost certainly need to be followed with additional deficit reduction in order to put the debt on a truly sustainable path,” CRFB said on its blog page.

CRFB made the point after the Center on Budget and Policy Priorities said in a recent report that $1.4 trillion decrease in the deficit would be sufficient to stabilize debt. President Obama has also suggested a $1.5 trillion reduction in the deficit.

But the committee’s view is in line with Fitch Ratings, which warned Tuesday that it may downgrade its rating for U.S. debt if a credible medium-term deficit reduction plan is not developed, regardless of whether the debt limit is raised.

CRFB said that $1.4 trillion of deficit reduction would leave “no margin for error” so that U.S. debt would be pushed back on an upward path in the event of slower economic growth, higher interest rates or deficit-increasing legislation.

“Given budgetary pressures from health care, aging, and rising interest payments, $1.4 trillion in highly unlikely to stop debt from rising in the early to mid-2020s, let alone over the longer-term,” the committee added.

Finally, CRFB cautioned that with $1.4 trillion of deficit reduction, U.S. debt would be $18 trillion, or 73% of gross domestic product, in 2022 and the interest costs would be $700 billion, or 2.9% of GDP, that year.

“By reducing rather than merely stabilizing the debt, policymakers can help ensure fiscal sustainability for future generations,” CRFB said.

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