A Letter from Peter G. Peterson to the Super Committee
November 02, 2011
The Honorable Patty Murray, Co-ChairThe Honorable Jeb Hensarling, Co-ChairJoint Select Committee on Deficit Reduction825-C Hart Senate Office BuildingWashington, DC 20510
Dear Senator Murray and Representative Hensarling:
Now more than ever, our nation needs a long-term fiscal plan that restores strength to our economy and sustainability to the federal budget. The Peter G. Peterson Foundation is dedicated to accelerating action on America’s long-term, unsustainable fiscal challenges. In our view, the public has never been more united in the belief that Congress and the President must reduce long-term deficits and ensure that our economy is strong.
Why is this so important? Rapidly growing federal debt levels threaten the future of our economy, and ultimately the ability of the U.S. to remain a global leader. On our current path, interest expenses alone will reach $1 trillion in 10 years, and will eventually exceed 100% of federal revenues. This unsustainable fiscal path would significantly impair our ability to invest publicly and privately in our future, and would effectively shatter the American dream for future generations.
Many economists and other observers have noted that to put America on a sustainable fiscal path for the long term, the Joint Committee on Deficit Reduction would have to “go big” and “go long” by finding more than $1.2 trillion in deficit reduction and agreeing to fiscal reforms that have meaningful impact beyond the 10-year window. In fact, the $1.2 trillion in additional savings over 10 years required by the Budget Control Act (BCA) would only represent 10-20% of the projected deficits during this period.
Most importantly, the savings outlined under the BCA do not address our long-term structural deficits. The basic test of any long-term fiscal plan is whether or not it stabilizes the level of debt relative to the economy over the long term. Most economists believe that debt-to-GDP should not exceed 60%, and that a ratio of more than 90% can be dangerous for the economy. Today our foundation released projections which show that $1.2 trillion in deficit reduction from the sequestration in the BCA or from another agreement that similarly does not address the fundamental drivers of long-term deficits will not stabilize the ratio of debt-to-GDP over the long term. Under CBO’s current policy baseline, the debt-to-GDP ratio in 2035 is projected to reach 187%. Our analysis indicates that the impact of the savings outlined in the BCA would only reduce the projected debt-to-GDP ratio to 164% in 2035. And by 2038, just three years later, we would reach nearly the same 187% of GDP. This simply does not meet the test of achieving sustainability. (See chart 1.)
The good news is that solutions – even bipartisan solutions – are possible. Organizations from left to right have put forward worthy ideas to rein in long-term deficits. Earlier this year, the Peterson Foundation launched the Solutions Initiative, which asked six organizations from across the ideological and generational spectrum to develop plans for long-term fiscal sustainability. Researchers from the American Enterprise Institute, Bipartisan Policy Center, Center for American Progress, Economic Policy Institute, the Heritage Foundation, and the Roosevelt Institute Campus Network (representing younger Americans) all put forward long-term fiscal plans. The important result from this effort shows that many solutions indeed exist: each one of these organizations was able to put forth a plan that stabilizes debt-to-GDP. (See chart 2.)
While we do not support all of the ideas advanced through the Solutions Initiative, we believe that all of the plans are worthy of consideration, and we recognize that a truly comprehensive plan will include compromises that make it less than perfect in the eyes of any particular individual or party. The full plans are available on our website.
In sum, fiscal sustainability is essential to the long-term health and competitiveness of our economy. On our current course, we are headed toward an unthinkable situation in which the federal government spends more than four times as much on interest as it spends on education, R&D, and infrastructure, combined. This effectively would mean spending much more on our past than we do on our future, undermining competitiveness and robbing future generations of the opportunities we have enjoyed.
The strength of the U.S. economy today and for decades to come will be heavily influenced by the success of the Joint Committee. You have a historic opportunity to accelerate action on one of our nation’s most enduring problems by finding common ground on solutions that improve America’s long-term budget outlook and build a foundation for a robust and competitive economy.
Peter G. PetersonChairman
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