The federal budget is on an unsustainable path as a result of projected federal debt levels that will continue to grow relative to the size of the economy. Under baseline assumptions, deficit levels are expected to fall towards the middle part of the decade, as the economy recovers, before rising again by the end of the decade. Beyond this decade, however, the federal government's fiscal outlook becomes bleaker as spending on mandatory programs, such as Social Security, Medicare, and Medicaid, and net interest consume an increasing portion of the total federal budget resulting in very large increases in federal debt. Various views and opinions exist about how to change the long-term fiscal outlook, specifically concerned with which programs should be prioritized or sacrificed. At the extreme, if no action is taken, the United States will likely face a significant economic crisis. Finally, this report briefly discusses the proposals of selected groups that have published detailed recommendations on how to return the federal budget to a sustainable course. Recent Developments

Budget policy debates thus far in the 112 th Congress have centered on how to achieve meaningful deficit reduction and implementation of a plan to stabilize the federal debt. To achieve fiscal sustainability, cuts or reductions to favored programs and increases in taxes will likely be required. Spending and tax law changes made in the near-term can reduce the probability of a future crisis and help ensure an improved standard of living for future generations. Budgetary choices, particularly centered around the magnitude of changes that would be required to return to fiscal sustainability, have important economic, social, and generational impacts in the present and the future. A number of groups have published reports detailing possible ways that the federal government can put itself on a more sustainable fiscal path. Though the fiscal reform plans discussed here differ, they all have several things in common. They propose that implementation of their recommendations beginning around FY2012, with the goal of stabilizing the debt at 60% of GDP near the end of the decade. Over the longer term, they all propose to reduce this ratio further. Some of the reports focus on specific policy options that are available, while others focus on issues of accountability and transparency in the budget process, featuring recommendations for new budget procedures. Some plans also recommend implementing additional, immediate, short-term stimulus that would increase the deficit before beginning deficit reduction once the economy fully recovers. National Commission on Fiscal Responsibility and Reform

As a policy initiative included in his FY2011 budget proposal, President Obama committed to create a bipartisan fiscal commission to be tasked with putting the nation on a sustainable fiscal path. The commission had two main goals: balance the budget excluding net interest payments by FY2015 (also known as primary balance) and examine ways to achieve fiscal sustainability over the long run. The Fiscal Commission's final report, The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform , contained recommendations that would 1) reduce the deficit by a combined $4 trillion between FY2012 and FY2020; 2) lower the budget deficit to 2.3% of GDP by FY2015; 3) reduce tax rates and tax expenditures to collect more revenue on net; 4) cap revenue at 21% of GDP; 5) ensure the solvency of Social Security; and 6) reduce the federal debt to 60% of GDP by FY2023 and 40% by FY2035. In order to achieve these savings, the proposal included cuts to both security and non-security discretionary programs, health care cost containment, additional mandatory savings through cuts to agriculture subsidies and the civil service retirement system, Social Security reforms, comprehensive tax reform, and budget process changes.
The federal budget is on an unsustainable path. Though deficit levels are currently elevated, they are expected to fall towards the middle part of the decade as the economic recovery continues. Looking beyond this decade, however, the country's fiscal outlook becomes more bleak as spending on programs like Social Security, Medicare, and Medicaid, and net interest are projected to consume a larger portion of the total federal budget.
Budget policy debates thus far in the 112th Congress have centered on how to achieve meaningful deficit reduction and implementation of a plan to stabilize the federal debt. Various views and opinions exist about how to improve the long-term fiscal outlook, specifically centered around which programs should be prioritized or sacrificed. Delays in taking corrective action will exacerbate the size of the changes that need to be made. At the extreme, if no actions are taken, the United States risks a significant economic crisis and the government may be limited in its ability to address these challenges.
Any choices that are made to address the budgetary imbalances have important economic, social, and generational impacts in the present and the future. In order to undertake any substantive changes to the federal policies and programs, sacrifices to favored programs and increases in taxes will likely be required. The sacrifices made today are essential to minimizing the size of potential programmatic cuts or tax increases, reducing the probability of a future crisis, and ensuring an improved standard of living for future generations.
A number of groups have published reports detailing possible ways that the country can put itself on a more sustainable fiscal path. Though the fiscal reform plans differ, they all have several things in common. They recommend that implementation of their plans largely begin in FY2012, with the goal of stabilizing the debt at 60% of GDP near the end of the decade. Over the longer-term, they all provide plans to reduce this ratio further. Some of the reports focus on specific policy options that are available, while others focus on issues of accountability and transparency in the budget process. Some plans also recommend implementing additional, immediate short-term stimulus that would increase the deficit before calling for deficit reduction. In addition, other groups, including the Senate "Gang of Six" and a new group comprised of Members of Congress and led by Vice President Biden, are formulating additional bipartisan deficit reduction proposals.
President Obama created a bipartisan fiscal commission tasked with putting the nation on a sustainable fiscal path. The commission had two main goals: balancing the budget excluding net interest payments by FY2015 and examining ways to achieve fiscal sustainability over the long run. The Fiscal Commission's final report contained recommendations that would 1) reduce the deficit by a combined $4 trillion by FY2020; 2) lower the budget deficit to 2.3% of GDP by FY2015; 3) reduce tax rates and tax expenditures; 4) cap revenue collection at 21% of GDP; 5) ensure the solvency of Social Security; and 6) reduce the federal debt to 60% of GDP by FY2023 and 40% by FY2035. In order to achieve these savings, the plan includes cuts to both security and non-security discretionary programs, health care cost containment, additional mandatory savings through cutting agriculture subsidies and the civil service retirement system, Social Security reforms, comprehensive tax reform, and budget process changes.
This report discusses why the federal government's fiscal path is unsustainable and provides an overview of proposals of selected groups that have published detailed recommendations on how to return the federal budget to a sustainable course.