Obama 'Fiscal Responsibility' Co-Chair: Reduce Spending to 21% of GDP--1 Point Higher Than Highest Taxes Since WWII
(CNSNews.com) - Erskine Bowles, the co-chair of President Obama’s fiscal responsibility commission, says that the federal government should aim at cutting spending back to 21 percent of GDP--which is 1 point more than the highest level federal tax revenues have reached in any year since World War II.
At the National Press Club on Tuesday, CNSNews.com asked Bowles at what level of Gross Domestic Product he would balance the federal budget, given that federal spending has exceeded 24 percent of GDP over the last four years and that since World War II federal tax revenues have reached 20 percent of GDP only once--and have never been as high as 24 percent of GDP.
“I can tell you the way we thought through it, it’s not exactly 100 percent of the way everybody up here would do it. But you have roughly the right numbers--in 2020, I believe the forecasts were for spending to be around 24, 25 percent (of GDP) and revenue to be around 19 percent,” Bowles said.
“If we wanted to get the deficit down to at least 1 percent of GDP, that meant we had to get spending down to around 21 percent and we had to get revenue up to around 20 percent. That’s in fact what we were able to do in our plan,” he said.
(The Simpson-Bowles plan, which the Obama administration did not move forward with, called for reducing the deficit to 2.3% of GDP by 2015 by capping revenue at 21 percent and getting spending “below 22% and eventually to 21%.”)
On Tuesday, Bowles said, “I believe we can get spending down to 21 percent (of GDP), even with the changes in the demographics and even with health care growing out at a rate of, let’s say, GDP plus one, if we can slow it down to that kind of level. Somebody asked earlier, ‘How do you do that?’ You make really tough choices.”
As for the revenue (tax) side of the equation, Bowles said, “as the economy improves and we go through the measures of broadening the base, simplifying the code, and getting rid of some of the spending in the tax code, that we can also create additional revenue,” he said. (“Spending in the tax code” translates as tax cuts.)
As CNSNews.com previously reported, balancing the budget at current levels of spending would require record levels of taxation.
In fiscal 2009, 2010 and 2011, according to the White House Office of Management and Budget, federal spending was 25.2 percent, 24.1 percent, and 24.1 percent of GDP, respectively. In fiscal 2012, which will end on Sept. 30, the OMB estimates federal spending will be 24.3 percent of GDP.
Since 1945, taxation has gone as high as 20 percent of GDP only once, reaching 20.6 percent in 2000. The federal government collected 15.8 percent of GDP in revenue in 2011, and it is projected to take in 17.8 for fiscal year 2012.
Bowles and his National Commission on Fiscal Responsibility and Reform partner Sen. Alan Simpson (R-Wyo.) launched a new “Campaign to Fix the Debt” on Tuesday. The coalition is co-chaired by former Sen. Judd Gregg (R-N.H.) and former Democratic Governor of Pennsylvania, Ed Rendell.
At the Press Club, Bowles, who served as chief of staff to President Bill Clinton, talked about cutting government waste.
“We do $1.5 billion of annual federal scientific research at the University [of North Carolina],” he said. “Is all of that high value-added research? It’s not.”
“Nor is it at the 3,000 other colleges and universities that do scientific research,” Bowles added. “I want to invest in education, I want to invest in research, I want to invest in infrastructure, but we’ve also got to look at how we’re spending our money today and make sure we spend it more wisely.”
“That’s why we can bring spending way down and that’s why I
The Simpson-Bowles National Commission on Fiscal Responsibility and Reform, appointed by President Obama, proposed a six-part plan to “put our nation back on a path to fiscal health, promote economic growth, and protect the most vulnerable among us.”
Taken as a whole, the plan, which was released in December 2010, would:
• Achieve nearly $4 trillion in deficit reduction through 2020, more than any effort in the nation’s history.
• Reduce the deficit to 2.3% of GDP by 2015 (2.4% excluding Social Security reform), exceeding President’s goal of primary balance (about 3% of GDP).2
• Sharply reduce tax rates, abolish the AMT, and cut backdoor spending in the tax code.
• Cap revenue at 21% of GDP and get spending below 22% and eventually to 21%.
• Ensure lasting Social Security solvency, prevent the projected 22% cuts to come in 2037, reduce elderly poverty, and distribute the burden fairly.
• Stabilize debt by 2014 and reduce debt to 60% of GDP by 2023 and 40% by 2035.