How Would You Tame the Debt?

Show of hands, please: Do you think you can do a better job with the federal budget than our leaders in Washington?

OK everyone, put your hands down. And put that confidence to the test by clicking over to the new Stabilize the Debt exercise from the Committee for a Responsible Federal Budget.

The exercise gives you a goal–getting the federal debt down to 60% of GDP by the end of 2018–and a lengthy menu of policy options that you can use to get there.

How tough is this? Pretty hard. The CRFB’s baseline has the debt at 66% of GDP in 2018, implying that we need $1.3 trillion in spending cuts and tax increases to hit the 60% target. But that’s assuming that all the 2001 and 2003 tax cuts expire at the end of the year and that discretionary spending will grow only at the rate of inflation over the next decade.

As a political matter, a more plausible baseline might be to assume that the tax cuts get extended except for high-income folks and that Congress enacts the President’s proposed levels of discretionary spending. In that case, the debt would be 82% of GDP in 2018. And you, the beneficent budget dictator, would have to find $4.6 trillion in spending cuts and tax increases.

Just for fun, here’s one way you might get there:

* Reduce the number of troops in Iraq and Afghanistan to 30,000 by 2013
* Make a variety of other defense spending reductions
* Raise the Social Security normal retirement age to 68
* Gradually reduce scheduled Social Security benefits through 2080
* Use an alternate (i.e., lower) measure of inflation for Social Security COLAs
* Include all new state and local workers in Social Security
* Increase Medicare cost-sharing and premiums
* Reduce spending on graduate medical education through Medicare
* Enact medical malpractice reform
* Increase the Medicare eligibility age to 67
* Reduce Medicaid spending to higher-income states
* Reduce farm subsidies
* Cut assorted other spending (is anyone not going to cut “certain outdated programs”?)
* Enact a carbon tax
* Increase the gas tax by 10 cents [I was surprised CRFB didn’t have an option to raise it more] * Raise the Social Security tax cap to cover 90% of earnings
* Index the tax code to an alternate (i.e., lower) measure of inflation
* Sell government assets
* Reduce the tax “gap”
* Replace the mortgage interest deduction with a flat credit
* Curtail the state and local tax deduction
* Replace the exclusion for employer-provided health insurance with a flat credit
* Limit itemized deductions for taxpayers with high incomes
* Eliminate subsidies for biofuels

And that doesn’t leave room for any spending increases or tax reductions that you might want.

Good luck.

About Donald Marron 294 Articles

Donald Marron is an economist in the Washington, DC area. He currently speaks, writes, and consults about economic, budget, and financial issues.

From 2002 to early 2009, he served in various senior positions in the White House and Congress including: * Member of the President’s Council of Economic Advisers (CEA) * Acting Director of the Congressional Budget Office (CBO) * Executive Director of Congress’s Joint Economic Committee (JEC)

Before his government service, Donald had a varied career as a professor, consultant, and entrepreneur. In the mid-1990s, he taught economics and finance at the University of Chicago Graduate School of Business. He then spent about a year-and-a-half managing large antitrust cases (e.g., Pepsi vs. Coke) at Charles River Associates in Washington, DC. After that, he took the plunge into the world of new ventures, serving as Chief Financial Officer of a health care software start-up in Austin, TX. After that fascinating experience, he started his career in public service.

Donald received his Ph.D. in Economics from the Massachusetts Institute of Technology and his B.A. in Mathematics a couple miles down the road at Harvard.

Visit: Donald Marron

1 Comment on How Would You Tame the Debt?

  1. My suggestion to save billions of dollars, reduce consumption of gasoline and oil, provide countless jobs, is clean electric mass-transit, for LA, and San Fran, CA, Portland, OR, Seattle, WA, Mpls, MN, KC, KS, Indianapolis, Springfield, IL, Houston, TX, Dallas, Ft Worth, Okla City, Fayetteville, AK,, Jax and Miami, FL,, all large American cities spread out over wide areas.

    This would insure that a huge percentage of working person's vehicles would remain at rest in parking areas every working day, saving gasoline, oil, repairs, cleaning ambient air of smog that now clouds so many metropolises.

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