Obama's plan to replace the 'sequester': Does the math add up?
President Obama wants to replace the sequester with a package of spending cuts and tax revenues adding up to $1.5 trillion over 10 years. But some say that's not enough savings.
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But the broader debate over whether $1.5 trillion is enough comes down to two viewpoints: Should a new deal "stabilize" the debt or steer it on a downward track?Skip to next paragraph
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In the end, $4 trillion in deficit savings over the next decade would leave the national debt at the same place it is now: about 73 percent of gross domestic product (GDP).
Critics see a few problems with that.
One is that, by some measures, the national debt is actually higher – above 100 percent of GDP if you use a “gross debt” figure that includes the cost of obligations to fund Medicare and Social Security.
A second problem is that stabilizing the debt isn’t necessarily good enough. It doesn’t leave much room for maneuver in hard times, such as a renewed bout of recession or a war.
Third, stabilizing debt over a 10-year window isn’t the same as stabilizing it longer term. Budget forecasters see the debt continuing to rise thereafter, largely due to health-care programs and rising debt-service costs.
Ben Bernanke, the Federal Reserve chairman, urged Congress this week to put the debt on a downward path. He implied the goal should be 40 percent of GDP, the level where the debt generally hovered for decades prior to the 2008 financial crisis.
Alan Simpson (R) and Erskine Bowles (D), the chairmen of the deficit commission, similarly call for steering the debt level downward, and the Committee for a Responsible Federal Budget agrees. It says $2.4 trillion in additional deficit reduction – as opposed to Obama's $1.5 trillion – is “the minimum needed to put the debt on a clear downward path relative to the economy.”
Others say the $4 trillion total goal isn’t a bad one.
It brings deficits below 3 percent of GDP by 2015, which arguably strikes a good balance between fiscal responsibility and not hurting the economic expansion by imposing too much austerity too soon. Additional deficit reduction may be helpful if it can be done without harming economic growth, adding to poverty, or increasing overall health-care costs in the economy, says Richard Kogan of the left-leaning Center on Budget and Policy Priorities.
Obama says he’s ready to bargain in good faith, albeit from the standpoint that additional deficit reduction should include tax revenue as well as more spending cuts. Conservatives say that the president has failed to lead.
But Steve Bell, a budget analyst at the Bipartisan Policy Center who served for years as a Republican congressional staffer, says that these questions are not easy for Republicans, either. He says conservatives and liberals alike are aware of the risks of a voter backlash from tinkering with Social Security and health-care programs, which are the biggest driver of projected deficits in the long run.
"It's been this strange non-dialogue," he says.