A report released today by the Pew Fiscal Analysis Initiative outlines the pitfalls of relying on any one policy to reduce the federal debt, projected by Pew to reach 95 percent of annual GDP in the next 15 years.
As the rhetoric surrounding federal deficits and debt has grown more polarized in the run-up to the midterm elections, Pew cautions that any serious effort to mitigate the debt will require a multifaceted approach that involves hiking taxes and cutting spending simultaneously.
The report, "No Silver Bullet," models several ways to reach a debt-to-GDP ratio of 60 percent by 2025, with changes being introduced in 2015 to allow the economy to return to pre-recession levels.
To reach that target solely through raising income taxes, Pew theorizes, the government would have to impose a 32 percent tax hike. If looking to fiscal surgery alone, spending on entitlements would need to undergo a 22 percent decrease, and it would take a 43 percent cut in discretionary spending -- a feat Pew likens to "eliminating the Department of Defense" -- to achieve the same goal.
For those who protest that the United States can grow its way out of debt and thus forgo both tax increases and spending cuts, the report issues this sobering statistic: Inflation-adjusted GDP would have to grow by an average of 4.1 percent annually over the next 15 years, rather than the 2.1 percent projected by the Congressional Budget Office. In other words, the country would have to double its productivity growth.
"The more things you put on the table, the less burdensome it is to get the debt under control," said Pew Fiscal Analysis Initiative Director Ingrid Schroeder. While the paper outlines the benefits of taking a mixed approach to the debt -- exploring a joint 7.5 percent across-the-board spending cut and tax hike as the best option -- Schroeder said that her group does not endorse any one policy.
"We're trying to inform the public debate," she said. "We're trying to just make it clear that this is an issue."
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