BACKGROUND: “The Committee on the Fiscal Future of the United States was established under the auspices of the National Academy of Sciences and the National Academy of Public Administration, supported by the John D. and Catherine T. MacArthur Foundation, to carry out a comprehensive study leading to a set of plausible scenarios for the federal budget, to put it on a path toward a stable fiscal future.”

KEY LINKS: “Choosing The Nation’s Fiscal Future,” National Academy Of Sciences, January, 2010 (downloadable summary – pdf file). Full text, and podcast. Community discussion site: ourfiscalfuture.org.

KEY FINDINGS:

FISCAL IMBALANCE – MEDICARE, MEDICAID, SOCIAL SECURITY: “The federal government is currently spending far more than it collects in revenues, and if current policies are continued, will do so for the foreseeable future. Over the long term, three major programs””Medicare, Medicaid, and Social Security””account for the projected faster growth in federal spending relative to revenues. No reasonably foreseeable rate of economic growth would overcome this structural deficit. Thus, any efforts to rein in future deficits must entail either large increases in taxes to support these programs or major restraints on their growth””or some combination of the two.”

FEDERAL DEBT A TICKING TIME BOMB. “…forceful, even painful, action must be taken soon to alter the nation’s fiscal course….If remedial action is postponed for even a few years, a large and increasing federal debt will inevitably limit the nation’s future wealth by reducing the growth of capital stock and of the economy. It will also increase the nation’s liabilities to investors abroad, who currently hold about one-half of the federal government’s debt. If policies do not change, a large and increasing debt will expand the portion of the budget required to pay interest on the debt, especially if interest rates rise, and thereby reduce the resources available for all other government activities. Increasing debt also may contribute to a loss of international and domestic investor confidence in the nation’s economy, which would, in turn, lead to even higher interest rates, lower domestic investment, and a falling dollar….”

LIMIT DEBT TO 60 % OF GDP: “In the next year or two, large deficits and more borrowing are unavoidable given the severity of the economic downturn. However…. fiscal 2012 (which begins October 1, 2011) is a reasonable time to start””to first slow the rapid increase of the federal debt relative to the economy and then, over several years, reduce it to a more desirable level….The debt, which was about 40 percent of GDP just 2 years ago, is now above 50 percent and rising rapidly….The committee judged that a debt of 60 percent of GDP reflects an appropriate balance and is an achievable target within a decade…it will surely be seen by some as too high and by others as too low. But the committee believes it is the lowest ratio that is practical given the fiscal outlook…..”

ASK THE RIGHT BUDGET QUESTIONS. “Our framework of six tests can be used to hold leaders accountable for their proposed budgets:

1. Does the proposed budget..start to reduce the deficit in the near future in order to reduce short-term borrowing and long-term interest costs?

2. Does the proposed budget put the government on a path to reduce the federal debt within a decade to 60 percent (of GDP)?

3. Does the proposed budget align revenues and spending closely over the long term?

4. Does the proposed budget restrain health care cost growth and introduce changes now in the major entitlement programs and in other spending and tax policies that will have cumulative beneficial fiscal effects over time?

5. Does the budget include spending and revenue policies that are cost-effective and promote more efficient use of resources in both the public and private sectors?

6. Does the federal budget reflect a realistic assessment of the fiscal problems facing state and local governments?”