Even after economic and financial conditions have returned to normal, however, in the absence of further policy actions, the federal budget appears to be on an unsustainable path.And it's a Thelma & Louise sort of unsustainable path. According to one estimate, our national debt as a percentage of GDP is on track to reach 85 percent by 2018 and 100 percent by 2012. Not exactly the sort of profile that conjures up a FICO credit score gold star.
Mint.com Budgeting: Federal Edition
It will be interesting to see if serious momentum builds in Congress to do some budget cutting ahead of the November mid-terms. But before you start in with any snarky asides at the odds of that happening, I'd recommend you take a spin through the Stabilize The U.S. Debt calculator and see how good you are at slashing our federal debt. Created by The Committee for a Responsible Federal Budget, the Stabilize the Debt calculator anoints you Budget-Cutter-In-Chief and challenges you to get the federal debt down from 66 percent today to a mere 60 percent of GDP in 2018. That entails paring $1.32 trillion from the current budget by choosing among more than five dozen potential spending cuts. It's a Mint.com budget tool on steroids.
Social Security, not surprisingly, is one of the eight broad categories in the tool with nine separate a la carte spending changes to consider, including raising the Full Retirement Age to 68 (savings: $110 billion).
In aggregate the Social Security cuts listed in the calculator would get you nearly half way to the $1.32 trillion in cuts. If that's not where you want to apply the scalpel, you could opt for cuts including reducing the troops in Iraq and Afghanistan to 60,000 (savings: $740 billion) or canceling the unused TARP and American Recovery and Reinvestment Act funds (savings: $350 billion).
The Tax Trap
To play honest, make sure you weigh in on what to do about the soon-to-expire Bush tax cuts. If you want them extended for all, that's going to add about $3.3 trillion to our debt tab. Think there's a lot of savings if only folks making more than $200,000 ($250,000 for married couples filing a joint return) get their tax rates rolled back to pre-Bush levels? Think again. Raising the income and cap gains/dividend rates for that contingent, yet preserving the cuts for everyone else, will still cost us $2.6 trillion.
The intended lesson from all of this is that we face hard choices. That's not news. And nor is it an excuse for kicking the can down the road any longer. Remember, we're already far along an unsustainable path. But the calculator does a nice job of illustrating the complexity of the task. Now if we could only have a mature debate on how best to proceed.