Chairman Tester, Senator Vitter, Members of the Subcommittee, thank you for inviting me here today to discuss the economic problems presented by our budget deficit.
I am Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget and the director of the Fiscal Policy Program at the New America Foundation. I am also a member of the Peterson-Pew Commission on Budget Reform, which recently released two reports—Red Ink Rising and Getting Back in the Black, which focus on the need to adopt multi-year debt targets and automatic triggers to help improve the budget process.
Our debt as a share of the economy is now higher than it has ever been in the post-war period, and we are on track to continue adding to it indefinitely. In all likelihood, the debt is already a drag on economic growth, and without changes, it will at some point result in a fiscal crisis.
At the same time, we face serious economic challenges: a slowing economic recovery, unemployment at unacceptably high rates, and a number of persistent problems from a skills shortage, underinvestment in a number of critical areas, and an abysmal, inefficient, and anti-competitive tax code, all of which stand in the way of longer-term growth. So we have our work cut out for us.
The debt owed to the public grew from $9.0 trillion, or 62 percent of GDP, at the end of fiscal year 2010 to $10.1 trillion, or 67 percent of GDP, at the end of fiscal year 2011. Under the Congressional Budget Office’s current law baseline, debt is projected to grow to $14.5 trillion by 2021. Interest payments alone would be over $660 billion in 2021.
Yet, these assumptions are likely wildly optimistic. The Committee for a Responsible Federal Budget recently updated its “Realistic Baseline”, which includes more realistic assumptions about future tax and spending policies than the current law assumptions CBO is directed to follow. Our baseline shows deficits at nearly $1.1 trillion, or 4.5 percent of GDP, by the end of the ten-year window; public debt growing to $19.4 trillion, or 81 percent of GDP; and interest payments reaching $815 billion in 2021.
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