Committee for a Responsible Federal Budget

Different Approaches to the Simulator

May 2, 2012

David Lawder of Reuters has featured our recently updated budget simulator in an excellent piece about the challenges of cutting the debt. The simulator offers a menu of tax and spending options with the ultimate goal of reducing debt below 60 percent of GDP. As many of our users are finding out, debt reduction is possible but not without considering some difficult options.

Lawder tries his hand at the simulator, using four hypothetical approaches. A conservative attempt that keeps the entire Bush tax cuts and leaves alone defense spending but cuts entitlement and other domestic programs leaves debt at 73 percent of GDP. Adding defense cuts in the second attempt is an improvement but still stabilizes debt above 60 percent of GDP. On the other hand, a liberal effort succeeds in lowering debt to a level below 60 percent of GDP, but goes very heavy on tax increases that would hurt the economy in the short-term. Finally, Lawder considers a balanced approach:

No hard-core gamer would tolerate this, but let's do the bipartisan thing and mix some revenue increases with spending cuts. We'll start with Obama's plan to raise taxes on those earning over $250,000 and impose a millionaire’s surtax. We cut troop levels and shrink the Navy but the F-35 lives.

Americans must be slightly older before qualifying for Medicare and Social Security and some benefits are shrunk. There are further savings from repealing portions of Obama's healthcare reforms, which the Supreme Court may do anyway. We phase out the mortgage interest deduction while keeping the research and development funding increase.

Result: The pain is spread all around by picking and choosing from a menu of liberal and conservative options: raising taxes, giving up the moon base, cutting school breakfasts and arts funding. But we still are $750 billion short. "Nice try. You reduced the debt to 60 percent of GDP, but not until 2023. Hopefully, you will have done enough to avert a fiscal crisis."

Reducing the federal debt is difficult and only when policymakers are willing to put all options on the table will there be an effective solution. CRFB President Maya MacGuineas is quoted in the article arguing that Congress should look at the numbers and seriously consider what is best for the country rather than partisan interests:

The best thing we can do is ask every politician to run through the simulator themselves. Put them into a quiet, dark room with the shades drawn so they can figure out what it really takes.