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Cutting the Deficit: Easy Math, Dicey Politics

Reported by Steve Liesman, written by Michelle Lodge
Tuesday, 13 Apr 2010 | 10:53 AM ET

The government’s surging deficit can be cut, easily. Getting it done? Almost impossible.

US Debt Clock
Source: usdebtclock.org
US Debt Clock

Economic recovery and the end of stimulus spending will do the heavy lifting in this not-so-secret plan to slash the deficit that the Treasury department has put forth.

The plan is to bring the deficit down to 3 percent of GDP from 10.6 percent, through a combination of tax increases and spending cuts. Treasury believes 3 percent is sustainable.

If economic growth (GDP) is at 3 percent and debt growth is at 3 percent, they would cancel each other out, leading to a revenue-neutral situation.

Sixty percent of the deficit reduction will be accomplished through higher tax revenues; 40 percent through reduced spending.

Without a plan to arrest the growing deficit, it will continue to skyrocket and, as a result, a huge portion of what the public will be paying is interest on the debt.

The Secret Plan to Reduce the Deficit
CNBC's Steve Liesman has the details about the secret plan to reduce the deficit.

Here's the math: $105 billion from a spending freeze talked about by President Barack Obama, $252 billion from the expiration of tax cuts for couples earning more than $250,000 annually, $331 billion from bank fees, and $250 billion from reduced spending on the Afghanistan and Iraq wars.

And now for the hard part: how it gets done. First, you appoint a bipartisan committee to make recommendations, while also figuring out the wild card of whether the health care law is a positive or negative for the deficit and whether imposing a value-added tax will yield a trillion dollars. Finally, you factor in how entitlement cuts will improve the picture.

Easy math? Yes. Getting the politics right? Not so fast.

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