October 2, 2014

For Long-Term Deficit Reduction, Focus Should Be on Policy Reforms

  • The national debt has grown significantly in recent years due to rising annual deficits. A deficit occurs in any year the government spends more...

As policymakers look towards the upcoming budget debates over the debt ceiling and “automatic” spending cuts (the sequester), those concerned with fiscal responsibility should be more focused on policy reforms than achievement of a specific deficit-reduction target.

The idea that we can pinpoint a specific amount of deficit reduction necessary within a 10-year time frame can be a distraction from the fiscal sustainability conversation we need to have, according to Concord Coalition Policy Director Joshua Gordon.

First, getting caught up in exactly when the debt-GDP-ratio would stabilize, or whether we might miss that goal by a few percentage points at the end of the 10-year budget window, assumes a precision in economic and technical estimating that no entity actually possesses.

Second, our main emphasis should be on ensuring long-term stabilization of the growth rate of the debt rather than the specific level at which it stabilizes.

Finally, Gordon argues in a recent blog post, policymakers will need to focus on tax reform and changes in mandatory spending programs because the discretionary budget has already been cut substantially. In addition, the projected growth in debt is tied to the growth in mandatory spending programs and the lack of sufficient revenue to pay for them.

However, changes to these programs will likely have to be phased in over a longer period of time than just the 10-year budget window. Ensuring that the right choices are made is more important than how the proposals “score” within an arbitrary time period.

That is why it is more important for policymakers to concentrate on changes they can make for the long term than on achieving a precise amount of deficit reduction in the short term.