The Price of Civilization_ Reawakening American Virtue and Prosperity - Jeffrey D. Sachs [93]
This leaves one more part of the budget: the military. Here the prospects for budget savings are even brighter. The Iraq and Afghanistan occupations currently bloat the military budget by around 1 percent of GDP. Another 1.5 percent of GDP could certainly be cut back on procurement of unneeded nuclear weapons and other weapons, and a scaling back of international military bases. The military budget could be trimmed to around 2.5 percent of GDP by 2015, which is 1.5 percent of GDP less than in the baseline that I just outlined.
In total, cutting military outlays to 2.5 percent of GDP would reduce the baseline deficit to 4.5 percent of GDP in 2015. Another 0.5 percent of GDP could be saved in areas identified by the deficit commission and another 1 percent on true health care reform. In total, we might trim around 3 percent of GDP from the baseline deficit in these categories, leaving a 2015 deficit of some 3 percent of GDP.
Yet that is not the end of the story. We have not yet factored in the need to augment certain spending programs even as we cut others. According to the discussion in the preceding chapter, we need to increase outlays on certain public goods. The list from the preceding chapter is as follows, together with my rough estimate of the additional spending that is needed as a percentage of GDP:
Job training, job matching, and other active labor market policies, 0.5 percent
Primary and secondary schools, 0.3 percent
Higher education, 0.4 percent
Child care and early childhood development, 0.5 percent
Modernization of infrastructure, 1 percent
Research and development, 0.3 percent
Diplomacy and foreign assistance, 0.5 percent
This suggests that the current spending needs to be augmented by around 3.5 percent of GDP in order to meet the vital challenges of jobs, schooling, early childhood development, infrastructure, and international affairs. Let’s be conservative and round down to 3 percent of GDP in the added outlays needed to address the country’s structural challenges in education, infrastructure, science, and other areas.
The upshot is the following: We start with a baseline structural budget deficit of 6 percent of GDP. We can identify justified savings of perhaps 3 percent of GDP from that in spending, mainly by cuts in the military and reductions in health care costs. But we must add back another 3 percent of GDP in spending to increase the supply of public goods. The chronic financing gap for mid-decade (2015) is therefore on the order of 6 percent of GDP, taking into account the plausible cuts in existing programs plus the plausible need to expand other programs.
In this scenario, total federal spending would settle at around 24 percent of GDP in 2015, compared with revenues of around 18 percent. No doubt those are rough numbers in need of refinement. Still, they point us to the essential conclusion: that the United States will need substantially more revenues to close the budget deficit, especially recognizing the need to increase federal spending in certain critical areas.
I have been relatively conservative in the added spending that is needed. These projections do not make room for any significant transfer of income to relieve poverty, offer new housing assistance, or cover a jump in interest rates on the public debt. They assume that defense outlays as a share of GDP can be reduced by half of the current level, from 5 percent to 2.5 percent, an approach that will certainly be resisted by the Pentagon and many key interest groups. If these assumptions are too optimistic, the budget deficit in 2015 is likely to be much larger than estimated, with the need for even more stringent measures to raise revenues or cut spending.
Let