Committee for a Responsible Federal Budget

How Low Could Debt Go?

We talked last week about several policies making their first appearance in the President's budget. What we didn't mention is that in addition to introducing new policies, the President has dropped a few old ones. Among the policies the President had previously proposed but did not include in this year's budget are:

  • Adoption of the chained CPI government-wide.
  • Increases in federal employee retirement contributions for workers hired before 2013.
  • Two Medicaid reforms to keep states from gaming the system and simplify matching rates.
  • Greater expansion in Medicare means-tested premiums.
  • Elimination of the "check the box" rule for foreign entities.
  • A more aggressive tax on financial institutions.

This list excludes policies that were overridden by legislative agreements, such as increasing tax rates for people making between $250,000 and $450,000 and taxing dividends as ordinary income.

Interestingly, if the President were to embrace these policies and add them back into his budget, they would generate by our estimate about $575 billion of additional deficit reduction through 2024 -- or slightly above 2 percent of GDP. That might not seem like a lot, but under OMB projections it would result in debt levels falling by 1.1 percentage point between 2023 and 2024 (adjusting for timing shifts) to 67 percent of GDP, rather than by 0.7 points to 69 percent. 

And under our rough simulation of a CBO re-estimate, these policies would be the difference between a stable and upward debt path. Our simulation showed debt levels rising from 71.5 percent of GDP in 2018 to 73 percent in 2024 under the President's budget. With these additional policies, debt would remain stable at about 71 percent through the entire budget window. In fact, after accounting for the economic impact of immigration reform, debt would be on a modest downward path and fall to 69 percent of GDP by 2024.