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Choosing the Nation’s Fiscal Future
Intermediate path 1: spending and revenues rise gradually to about one-fourth of GDP and spending on the elderly population would be constrained to support only modest expansion of other federal spending. The growth rates for Social Security, Medicare, and Medicaid would be slower than under current policies. This path reflects the view that the federal government should make selective new public investments to promote economic growth, preserve the environment, and build for the future.
Intermediate path 2: spending and revenues would eventually rise to a little more than one-fourth of GDP. Spending growth for health and retirement benefits for the elderly population would be slowed but less constrained than in the intermediate-1 path. Spending for other federal responsibilities would be reduced. This path reflects the view that the government’s implicit promises for the elderly are a higher priority than other spending.
The scenarios demonstrate that it is indeed possible to reduce the risk of financial disruption and put the budget on a sustainable course using the illustrative debt target of 60 percent of GDP and timeline to reach it. The choice of the starting date and timeline, as with the level of the target, will ultimately be a decision of elected leaders, taking into account the best information available to them when they must make budget choices.
The committee recognizes that this task is extremely difficult: the pain, whether cutting the growth of spending, increasing taxes, or both, must begin very soon, while the gain of avoiding a fiscal train wreck and its consequences is in the future and of uncertain magnitude. Although it may be natural to want to delay action, the committee has concluded that doing so would be costly and possibly perilous. With delay, revenues would have to be raised even higher or spending reduced even more to bring the debt to a prudent level while also incurring higher interest payments. With delay, also, the risk grows that the nation’s creditors—especially, those abroad—will conclude that the United States has no plan to restore fiscal stability and will therefore demand higher interest rates or make other tough economic demands. The margin for error then would be smaller, and the options for corrective action even more painful than they are today.
The committee recognizes that fiscal sustainability cannot be achieved without major near-term policy changes, particularly forceful actions to slow the growth of spending in Medicare and Medicaid. Because of the difficulty of such changes, the committee proposes that elected leaders annually assess the country’s progress and develop concrete proposals to