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Economy, The Budget

Reducing the Deficit: Spending and Revenue Options

The CBO has put together an epic 240 page document outlining 105 potential ways to reduce the national debt over the next decade.  No option is endorsed.  The document plainly lays out the current situation, how we got here, and the many politically dangerous ways that we can reduce our annual deficits.

If current laws remain unchanged (meaning the Bush era tax breaks are allowed to expire and the alternative minimum tax is not patched every year, among other things), we’ll add a cool $7 trillion to our national debt over the next decade.

To prevent federal debt from becoming unsupportable, lawmakers will have to restrain the growth of spending substantially, raise revenues significantly above their historical share of GDP, or pursue some combination of those two approaches.

Nothing too surprising there.  But I think what is really cool about this report is you get a straight, non-partisan analysis of potential solutions. I’m not going to argue whether the CBO leans one way or another.  I think they’re independent enough to present credible numbers that in the past have been supported and derided by both parties.

Some of the heavy hitters illustrate just how tough it is the put a dent into $7 trillion.

Mandatory Spending Option 18 – Raise the Age of Eligibility for Medicare to 67 – $125 billion in savings

Mandatory Spending Option 27 – Base Social Security Cost-of-Living Adjustments on an Alternative
Measure of Inflation (many argue that current benefits are indexed to an inflation measure that overstates true inflation) – $112 Billion

Other options put a real face on the infamous “Non-Defense Discretionary Spending”.

Discretionary Spending Option 17 – Eliminate Federal Grants for Wastewater and Drinking Water Infrastructure – $25 billion

To protect the quality of the nation’s waters and the safety
of its drinking water, the Environmental Protection Agency (EPA) administers provisions of the Clean Water Act of 1972 (CWA) and the Safe Drinking Water Act of (SDWA).

Discretionary Spending Option 20 – Limit Highway Funding to Expected Highway Revenues – $86 billion

A key rationale for this option is that federal funding for
highways should come from highway users, not general
taxpayers: first, because it is fairer if those who benefit
from government spending pay for those benefits; and
second, because resources are allocated most efficiently
when beneficiaries pay and will therefore consider those
user costs when determining their behavior.

Discretionary Spending Option 31 – Reduce Funding for the Arts and Humanities – $5 billion

And of course, there is the spending side of things.  Raise all taxes in ordinary income would cut the debt by $480.4 billion.  Increase corporate income tax rates by 1%?  $101 billion.  Increase the federal gas tax by $0.25?  Try $291 billion.

This report certainly highlights that a) there are solutions out there b) the solutions are politically tough and c) it’s going to take a LOT of cuts AND increased taxes to get this thing balanced.

Robert Samuelson’s latest article takes a look at the report and his belief that Obama has utterly failed to lead the discussion.

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Discussion

2 thoughts on “Reducing the Deficit: Spending and Revenue Options

  1. I agree with the spending cuts (especially raising the age of medicare & social security). However, raising taxes drives businesses away. The proposed revenue increases wouldn’t exist if the corporations aren’t paying them. And how do they recover the increased tax costs? You guessed it…passed on to the consumer that won’t be able to afford the product because they are paying higher taxes as well.

    Posted by The General | April 26, 2011, 10:25 AM
  2. Honestly I don’t think the deficit problem can be worked out without incorporating both spending cuts and tax increases. The math just doesn’t work with spending cuts alone. I think everything has to be on the table for the debate.

    Posted by Sean Thornton | April 27, 2011, 8:54 PM

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