Saturday, September 20th, 2014

FACTSHEET: Reducing the national debt

Erskine Bowles, left, and Alan Simpson, co-chairs of the president's fiscal commission, discuss ideas to reduce the national debt.
Erskine Bowles, left, and Alan Simpson, co-chairs of the president's fiscal commission, discuss ideas to reduce the national debt.

Editor's note: The federal government will spend $1.27 trillion more than it takes in this next year. Zero out the entire Defense budget, and you're still more than $300 billion short of balancing the budget. Eliminating waste and fraud won't do it. The two options are to cut spending a lot or to raise taxes — or some combination of the two. President Barack Obama's bipartisan deficit commission is supposed to report its findings by Dec. 1. A few days ago, the two chairmen released a draft of their own ideas — and the pushback has begun. In the meantime, a host of think tanks and private commissions have stepped into the breach to offer their own ideas. Here, we've reviewed the co-chairs' proposal and just a few of the more interesting proposals from the think tanks, highlighting some of their biggest — and most specific — budget-cutting ideas . In each case, we provide a website where you can read the proposals in more detail.

The National Commission on Fiscal Responsibility and Reform
Learn more at: FiscalCommission.gov

President Barack Obama created a bipartisan commission to study the debt; 14 of 18 members must approve a plan for Congress to consider. Last week, the two co-chairs released a draft of their ideas, presumably to spark discussion among the other members ahead of the December deadline. The co-chairs are Alan Simpson, a former Republican senator from Wyoming, and Erskine Bowles, a former White House chief of staff to President Bill Clinton. Here are some details from the co-chairs' draft.

Bottom line: Doesn't eliminate the federal deficit but reduces it by $372 billion in 2015, finding a total of $3.8 trillion in savings between 2012 to 2020.

Medicare: Preserve the current level of payments for doctors (known as the "doc fix") but tie payments to efficiency and outcomes rather than fee for service. Enact tort reform to protect doctors from liability. Require more cost-sharing from Medicare beneficiaries.

Social Security: Gradually raise the retirement age as longevity increases, aiming for age 69 in 2075, with a hardship exemption for people physically unable to work past 62. Slow the growth of future benefit increases. Currently, wages are taxed for Social Security up to $106,800; that cap would be gradually increased. Savings from Social Security should remain within the program, not go to deficit reduction.

Defense: Reduce overhead costs for the Department of Defense. Reduce overseas bases by one-third. Freeze non-combat military pay for three years. Cut defense contracts and reduce procurement costs. Make additional cost reductions in many programs. Projected savings: $100 billion in 2015.

Discretionary: Cut the federal workforce by 10 percent and freeze salaries for three years. Eliminate earmarks. Eliminate funding for commercial space flight. Reduce government contracts. Projected savings: $100 billion in 2015.

Taxes: Eliminate all tax exemptions — including the mortgage interest deduction — and create three tax brackets of 8 percent, 14 percent and 23 percent, and tax investment income as regular income. Eliminate tax exemptions for business and reduce the corporate tax rate to 26 percent. Alternatively, Congress would create comprehensive tax reform by 2012 or face an across-the-board "haircut," automatically reducing exemptions for itemized deductions, employer-provided health insurance, and business credits. To fund transportation infrastructure, gradually increase the gas tax by 15 cents a gallon. Projected savings: $160 billion in 2020.

Other: Cut farm subsidies $3 billion per year.

The Committee for a Responsible Federal Budget
Learn more at: http://crfb.org/

This bipartisan group, founded in 1981, focuses on budget issues. It's known for being a stickler for detail and calling out proposals that try to fudge the numbers. President Maya MacGuineas and Bill Galston of the Brookings Institution wrote "The Future is Now," a plan for deficit reduction that emphasizes broad-based spending cuts, economic growth and reducing income inequality. Their plan would take 10 years.

Bottom line: Reduce public debt by $6.8 trillion over 10 years. The annual deficit would not be eliminated but would fall from 5.6 percent of Gross Domestic Product (the size of the overall economy) to 0.7 percent.

Medicare: Gradually raise the eligibility age of Medicare from 65 to 67, and increase premiums for the well-off. Increase other cost-sharing and give more power to Medicare's independent board to find savings. Outside of Medicare, reduce some of the subsidies for buying insurance in the new health care reform law. Institute tort reform to reduce the cost of medical care. Projected savings: $110 billion in 2020.

Social Security: Speed up the scheduled increase in the retirement  age to 67, with exemptions for manual laborers. Gradually increase the early retirement age of 62 and peg it to longevity. Slow down future increases to Social Security payments. As safety-net measures, increase the minimum benefits for workers who have contributed for at least 35 years, and create a one-time benefit increase for those 85 and older. Projected savings: $75 billion in 2020

Defense: Require future wars to be paid with a new war surtax. Reduce the nuclear arsenal. Cancel programs such as the Expeditionary Fighting Vehicle, the V-22 Osprey, new missile defense and other projects. Retire at least one aircraft carrier. Limit future pay increases for the military. Raise enrollment fees and cost-sharing for the TRICARE health program. Tighten cost-controls for military contractors. Cut middle management positions in the U.S. Department of Defense. Projected savings: $80 billion in 2020

Discretionary: Institute a three-year spending freeze on all discretionary programs and ask agencies to propose reductions, including the Department of Homeland Defense, the State Department, Veterans Affairs and the Pell grant program. Projected savings: $60 billion in 2020.

Taxes: Institute a carbon tax, splitting  the proceeds between Social Security and deficit reduction. Reduce the home mortgage deduction limit from $1 million to $500,000. Phase out deductions for state and local taxes. Limit the exclusion on employer-provided health insurance. Eliminate unproductive corporate subsidies. Projected savings: $400 billion in 2020.

Other: Limit the growth of federal  government salaries. Phase out farm subsidies and replace them with insurance against catastrophic income loss. Projected savings: $75 billion in 2020.

The Center for American Progress
Learn more at: http://www.americanprogress.org/

This progressive think tank,  founded in 2003, is led by John Podesta, the former White House chief of staff to President Bill Clinton. Its recent report, "A Thousand Cuts," looked at what significant spending cuts might look like in 2015. It considered several scenarios and offered a range of cost-cutting options.  A future report will offer tax increases. We selected highlights from their most dramatic cost-cutting scenario — which the center does not specifically endorse. Instead, it offers the ideas as a starting point for discussion.

Bottom line: Reduce the annual deficit by  $255 billion in 2015.

Medicare: No changes. The new health care law makes substantial reductions to Medicare spending. "There appears to be little more that the federal government can do by 2015 beyond what it has already accomplished to hold down health care spending in the federal budget without significantly compromising the quality of care."

Social Security: Slow down future increases to Social Security payments. Projected savings: $12 billion in 2015.

Defense: Reduce the overall size of the military and the number of troops stationed in Europe and Asia. Cancel programs such as the Expeditionary Fighting Vehicle, the V-22 Osprey, new missile defense and other projects. Limit future pay increases for the military. Raise fees and cost-sharing for the TRICARE health program. Projected savings: $95.7 billion in 2015

Discretionary: Cut the Federal Highway Administration budget by 40 percent. Cut foreign aid in half. Additional cuts suggested for Customs and Border Protection, the Federal Aviation Administration, the Immigration and Customs Enforcement, federal prisons, the National Institutes of Health, NASA, the Bureau of Land Management, the Forest Service, the National Park Service, the Federal Emergency Management Agency (FEMA), the U.S. Fish and Wildlife Service, the Environmental Protection Agency, and 45 other agencies. Projected savings: $89.2 billion in 2015.

Taxes: Eliminate the deduction for business meals  and entertainment. Eliminate the exemption for interest on tax-exempt bonds. Change the loss rules for rental income. Eliminate other tax exemptions and deductions. Projected savings $52.6 billion in 2015. (Note: A future report will suggest new tax increases.)

Other: Eliminate agricultural subsidies. Eliminate the Universal Service Fund, which brings telecommunications to rural areas. Reduce pension increases for federal employees and the military. Reduce Pell grant funding. Reduce disability benefits for some veterans. Projected savings: $23.7 billion in 2015

The Cato Institute
Learn more at: DownsizingGovernment.org

This libertarian think tank, founded in 1977, advocates dramatically reducing the size of government. Its "Downsizing Government" project has been releasing ongoing, detailed reports on reducing government spending through privatization or returning duties to states. A comprehensive report will be released in a few weeks. Here are highlights from their ongoing work.

Bottom line: Chris Edwards, editor of Cato's DownsizingGovernment.org, said at least $380 billion in savings by 2015 is needed to reach a goal of reducing spending from 23 percent of the Gross Domestic Product to 21 percent on the way to further reductions.

Medicare: Follow the plan put forward by Rep. Paul Ryan, R-Wisc.: Gradually end traditional Medicare and give seniors a voucher to purchase private insurance. Encourage workers to create health savings accounts. Projected savings: Medicare spending in 2020 would decline from 4.2 percent of the Gross Domestic Product to 3.7 percent.

Social Security: Social Security should include private accounts. The Ryan plan creates a transition in which spending would remain constant in the short-term with projected savings beginning around 2070.

Defense: Limit foreign wars and other international interventions. Reduce the size of the U.S. Army. Cut the civilian workforce at the Pentagon. Reduce future pay increases to the military and increase required contributions for TRICARE. Close offices in the Department of Defense. Reduce the use of contractors. Projected savings: $120 billion in 2020.

Discretionary: Abolish the U.S. Department of Education and end federal loans and grants to college students. Projected savings: $107 billion in 2010. End federal funding for highways. Privatize the Air Traffic Control System. Abolish Amtrak. End other federal transportation programs. Projected savings: $85 billion in 2010. Close down the U.S. Department of Housing and Urban Development. End federal rental assistance programs. End Community Development Block Grants. Projected savings: $63 billion in 2010.

Taxes: Cato opposes tax increases. A transition to a flat tax system could reduce tax evasion, thereby increasing revenues.

Other: Abolish all agricultural subsidies and most U.S. Department of Agriculture programs. Eliminate food stamps, school lunch and breakfast programs, and the WIC program. Eliminate USDA programs for rural areas. Projected savings: $150 billion in 2020.