Deficit Commissions Recommend Changes that Carry Risks, Opportunities for States

Federal fiscal years (FYs) 2009 and 2010 were characterized by expanded federal aid to states that was part of the economic stimulus bill, which in turn led to a marked increase in the federal budget deficit. The next several years are likely to see a reversal of this pattern, with yawning federal budget deficits leading to calls for reduced federal spending targeted toward states.

To address the problems of deficits and debt, several reports have been issued of late that contain options for reducing the federal deficit and long-term debt to more sustainable levels. Two reports are most prominent. One, The Moment of Truth, was issued by The National Commission of Fiscal Responsibility and Reform (known as the Bowles-Simpson commission, after its co-chairs). The other, Restoring America’s Future, was issued by The Debt Reduction Task Force of the Bipartisan Policy Center (known as Domenici-Rivlin, after its co-chairs).

Both reports call for dramatic changes in federal spending and taxation, many of which have important implications for states. Neither is likely to be adopted in anything resembling its entirety, as many of their components are probably too controversial to win a majority vote in Congress. But both are likely to inform budget debates in the coming weeks, months, and years. Table 1 summarizes major provisions of the two reports.