NCPA - National Center for Policy Analysis


December 15, 2009

A commission led by former lawmakers, congressional budget staffers and economists outlined a plan to do what current Washington policymakers have been unable to do: bring the rising federal debt under control.

After meeting for the past year, the Peterson-Pew Commission on Budget Reform laid out a six-step plan designed to prevent a sudden debt-driven crisis that would likely spur higher interest rates and lower standards of living.

The goal is to "change our fiscal policy from one of inebriation to one of sobriety," says Bill Frenzel, a former ranking Republican member of the House Budget Committee and one of three co-chairs for the 34-member commission: 

  • The group's members call for an immediate public commitment by Congress and the White House to stabilize the public debt at 60 percent of gross domestic product (GDP) by 2018, followed by the development of a debt-stabilization plan next year.
  • They recommend waiting until 2012 to implement policy changes to avoid harming the economic recovery.
  • The rest of the plan includes an enforcement mechanism to stay on track (featuring automatic triggers to raise taxes and cut spending if targets aren't met), then actually stabilizing the debt in 2018, followed by continued debt reductions toward the nation's 50-year average of below 40 percent.
  • The nation's public debt is now 53 percent of U.S. GDP -- up from 41 percent a year ago -- and on track to become 85 percent of GDP by 2018, 100 percent by 2022 and 200 percent by 2038, under the commission's projections.

The group says before those levels are reached, the United States would likely face a debt-driven crisis in which interest rates spiral higher and squeeze out other priorities.

"The tipping point is impossible to predict, but the United States is already hearing concerns about its fiscal management from some of its largest creditors, and the country is uncomfortably vulnerable to shifts in confidence around the world," the report states.

Source: Sudeep Reddy, "Commission Outlines Plan to Reduce Debt," Wall Street Journal, December 14, 2009.

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