Compromise for Country: How I would resolve our debt crisis

UPDATE For 2013 update - Click here.
 
As the President and the Congress attempt to fix the brakes before we go off 'the cliff', here is my template for how we could resolve our debt crisis. I have done a couple of basic posts in the past, but below represents my advanced plan. It's tough, but painful fiscal surgery is necessary.

Calculation Sources: The Committee for a Responsible Federal Budget (CFRB), Budget Hero (BR) and my personal research. Where the available calculation values diverge I've taken an average between them/used my own research.

Key:

= Added Cost = Added Savings
Figures are 10 year numbers

Discretionary Spending (TOTAL - $960 Billion)
 

Cut Regular Discretionary Spending by 15%  -$960B

• I believe that the Federal Government has become too large and that it currently absorbs too great a % of GDP. It must be reduced in size. States must have greater responsibility and greater power.

Defense, Diplomacy & Security (TOTAL -$450 Billion)

Support President Obama's 10 year defense spending plan - $450B

• Though I believe that the Sequester defense cuts would be a disaster (please see my guardian op/ed), I support the President's ten year proposals in their provision of a tough but practical approach towards balancing our national security/deficit reduction needs. Let me be clear, I do not accept combined sequester-Obama cuts that would gut our DoD spending by $1 trillion/ten yr. $450 billion is doable.

Social Security (TOTAL -$533 Billion)

Raise the Normal Retirement Age to 68 -$160B

•  Americans are living longer. If my generation is to access Social Security, the program's eligibility age must rise.

Reduce Benefits for Wealthy Seniors-$80B

• Social Security should exist for the poorest Americans. Welfare for the wealthy makes little sense.  

Chain inflation measure to CPI -$120B

• The consumer price index reflects a more appropriate mechanism for determining Social Security benefit payments. After all, Social Security's objective is to assist seniors in their basic necessity purchases.

Reduce Spousal Benefits from 50% to 30% -$23B 

• This would reduce a problematic Social Security flaw.

Increase 'Years Worked' Benefit Calculation -$50B

• To tie in with a higher eligibility age, a longer work life calculation is needed. (I am using CFRB's 35-40 age calculation).

Include all New State and Local Workers in Social Security -$100B

• Again, everyone must pay in.

Healthcare (TOTAL -$720 Billion)

I like the Ryan-Wyden Medicare plan, but in the interests of finding reforms that can get through Congress, these are some other proposals that I support. I have noted health care related tax reform under the revenue section. For more on my health care thoughts - go here.

Introduce Cost-Sharing Uniformity for Medicare -$100B

• This will help increase efficiency and reduce wasteful costs.

Raise Medicare Premiums to 30% of Costs -$120B

•  This is a tough one, but if we are going to restrain health care costs we must force people to take more personal responsibility.

Enact Medical Malpractice Reform -$80B

•  Ambulance chasers won't like it, but this is necessary. Frivolous law suits are out of control and we all pay more because of them. They also encourage unnecessary medical tests.
  

Increase the Medicare Retirement Age to 67 -$120B

• As with Social Security, we are living longer and working longer. If it's going to exist into the future, Medicare must reflect our changing demographics.

 Increase Drug Payment Costs for Higher Income Seniors-$280B

• Specific calculations according to BR. Seniors earning over $85,000 would pay higher drug payment costs.

Modify Federal Medicaid Funding to States by Reducing Match-Payment Baseline-$300B

•  The states must take greater responsibility for the health of their residents. The Federal Government must support these efforts, but by requiring greater state responsibility we can lower costs, increase efficiency and improve outcomes over the long term.

Adopt the Bowles-Simpson suggestion for Medicare SGR payments to Doctors +1% 2014 cut (Doc Fix)-$250B

• An effective 'Doc-Fix' ensuring that Doctors are willing to treat Seniors into the future requires money. This proposal will balance the imperative of finding lower trend costs with the maintenance of the Medicare moral guarantee.

Other Spending (TOTAL -$185 Billion)

Freeze Federal Civilian Pay for Four Years -$120B

•  Federal workers are well compensated. There must be shared sacrifice.

Reform TRICARE Payments as Proposed by former Defense Secretary Gates -$50B

• This would effect a small increase in TRICARE payments. TRICARE is on the path to bankruptcy if it doesn't receive reform.

Reduce Farm Subsidies -$80B

• Pork. It needs to go.

Cut All Earmarks -$30B (Accounting for some Earmarks Inevitably Remaining)

• The Federal Government should exist to provide for the basic welfare of all Americans. Congressional service should not be a conduit to the construction of a power-patronage network.

Increase NASA funding and reconstitute Mars mission- $95B

• Amidst all the cuts, it's important that we are able to inspire and to pursue the opportunities of science. Going to Mars would help make Maths and Science 'cool'. We would encourage greater academic success and a corollary gain in our national competitive economic strength. And... of course, we'd be advancing the frontiers of science! $95 billion seems a lot, but for what we would gain, it's a small price to pay.

Revenue/Subsidy Reduction (TOTAL - $1.835 trillion)

Increase Federal User Fees -$40B

• I believe that it makes greater sense to tax consumption rather than income.

Sell Certain Government Assets -$80B

• We have too many under-utilized facilities that are expensive to operate.

Gradually Increase Gas Tax by 20 Cents per Gallon (with a $4/gallon total gas price ceiling) -$200B

• Please see my Guardian Op-Ed on this (please also note re-this article - my comment on Iraq is about Iranian terrorism in Iraq- click the hyperlink).

Introduce a soft drink 'sugar tax' of 1 cent per ounce  -$125B

•  As with cigarette taxes, it's important that people make a contribution to the corollary costs they impose on society in the health care arena. I don't support the NYC ban, I just believe people should take responsibility.

Simplify and Reduce Corporate Tax Rate to 23% - Neutral but long term savings/economic growth.

• If the corporate tax code is reformed so that all companies pay a baseline % without being able to 'loophole' jump their way into avoidance, the rate can be reduced and economic growth greatly stimulated.

 Improve Tax Collection -$20B

• By hiring more IRS investigators we can clamp down on those who think others should pay their taxes for them. Contrary to the attitude of some anti-tax folks, 'free riding' is not a conservative value.

Tax Fringe Benefits as Regular Income -$70B

• Value assessable gains which are received in the course of employment should be taxable. It's only fair.

Limit Mortgage Interest and Other Deductions -$250B

• Protecting lowest income earners, this would help gain the revenue needed to justify reduced tax rates.

Eliminate State and Local Tax Deduction -$550B

• Federal tax payments should be rooted in equalized income bracket/source considerations. A citizen in New York should not have his or her local/federal services subsidized by a citizen in Florida. If you want to live in a high tax state, then that's your prerogative and your financial responsibility.

Eliminate Subsidies for Bio-fuels -$100B

• These subsidies are neither economically nor environmentally logical. They exist as a form of deluded pork.

Replace Employer Health Care Exclusion with a Flat Credit (In Place of Excise Tax) -$400B

• Reducing health care costs by encouraging personal responsibility. Improving the fairness of the tax code by creating a level playing field for those who don't receive health care from their employer. 

Reform Tax Code and Reduce Rates - Neutral

• Using the proposals above, Congress should work to reduce tax rates.

Conclusion 

In achieving a ten year, (forward trend stable - especially important for health care reforms!) debt reduction of $4.683 trillion, the proposals I have outlined above are targeted at four main objectives. 

1) Finding savings in the Federal Budget and trend reductions to health care inflationary pressures.

2) Finding new sources of revenue but in ways that eliminate the tax code's current induced economic distortions and allow for rate reductions.

3) Creating a foundation for sustained long term economic growth. 

4) The pursuit of a debt reduction plan that can get through Congress. 

 Photo Credit: CBS News