Monday, March 25, 2013

A plan to solve America's debt crisis

This is an update on a debt reduction plan that I produced before Christmas. It takes into account the political developments that have occurred since that time. It achieves just under $5 billion in trend positive 10yr deficit reduction. 

I'm passionate about addressing the threat posed by America's ballooning debt. Some of my related thoughts can be found in the following links- the potential for a grand bargaindebt crisisstate finances, taxation, austerity.

The proposals that form my plan are targeted at four main objectives. 

1)Finding major savings in the Federal Budget, the pursuit of serious entitlement reform and the achievement of trend stable reductions to health care inflationary pressures.
2) Developing new sources of revenue but in ways that eliminate the tax code's current induced economic distortions and allow for rate reductions. And ultimately, for a debate about the size, nature and purpose of America's Federal Govt. in the 21st century.
3) Creating a foundation for sustained long term economic growth. 
4) The pursuit of a debt reduction plan that can get through Congress. In this sense, I've made many recommendations that are uncomfortable for me as a conservative.

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.

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 will be a disaster if allowed to continue indefinitely (please see my guardian op/ed), I support the President's ten year DoD 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. These would gut our DoD spending by $1 trillion/ten yr. However, $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 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 Reform (TOTAL - $1.585 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 15 Cents per Gallon (with a $4/gallon total gas price ceiling) -$150B
  • Please see my Guardian Op-Ed on this (please also note re-this article - my comment on Iraq concerns Iranian sponsored terrorism in Iraq and is not an anti-war statement- click the relevant 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, but neither do I believe we should subsidize poor choices. This is an effective half-way option.
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.
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 
Including the January 2013 tax increase on higher-income Americans (which CBO scores at $600 bn/10 yr), my approach would produce (forward trend stable - especially important for health care reforms!) debt reduction of $4.983 trillionConsiderably more than the $4 trillion conventional wisdom target number.

http://i.bnet.com/blogs/drowning-in-debt-shutterstock_31152727.jpg
 Photo Credit: CBS News
 

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