US Government Debt Different - Finance Department - University of ...

104 The Federal Debt: Assessing the Capacity to Paythe Alternative Fiscal Scenario is far from the worst conceivable outcome,as discussed below.Restoring BalanceThe ongoing accumulation of debt implies that the size of the necessaryadjustments and the accompanying pain will be greater thelonger policymakers wait to act. But in any case, avoiding an explosiveaccumulation of debt will probably require lawmakers to enact acombination of benefit cuts and tax increases rather than relying oneither one alone. Nevertheless, a number of proposals call for closingthe gap using a unilateral approach. For example, a plan proposedby Congressman Paul Ryan would reduce the projected debt held bythe public to less than 20 percent of GDP in 2050 without raisingtaxes (see Figure 3); by contrast, the Center for American Progressrecommends narrowing the fiscal gap largely with taxes and avoidsany significant cuts in spending on social insurance programs. Theobvious advantage of a mixed approach is that it could avoid thevery deep spending cuts or large tax increases that would be necessaryusing either mechanism alone. As an indication of the sizeof adjustments needed under a unilateral approach, under the Ryanplan federal spending for Medicaid, children’s health insurance andexchange subsidies for health care would account for about 1 percentof GDP in 2050, versus over 4 percent of GDP under either of theCBO scenarios discussed above.Because the gap to be filled is so large and the majority of federalspending is for social insurance programs and defense, proposals thatcall for addressing fiscal problems solely by eliminating inefficienciesin government operations or by ending smaller discretionary programsare unrealistic. As a result, most plans to restore fiscal balanceemphasize changes to Social Security and Medicare.Social Security is an example of a large program where a combinationof relatively modest tax increases and spending cuts would putthe program on a sustainable path and maintain its basic structureand function, even though, under current law, the value of projectedbenefits greatly exceeds the value of projected future program tax