CRFB President Details Options to Stabilize the Debt

In her testimony before the President’s Fiscal Commission last week, CRFB President Maya MacGuineas presented the following plan as an option to stabilize the federal debt at the popularly considered maximum, 60 percent of GDP, in response to the request for specific policies to deal with the debt. Her plan (shown in the below table) is meant to achieve the 60 percent goal in a balanced manner, while protecting the most vulnerable and promoting economic growth. What follows is only one option for stabilizing the debt—but regardless of the plan we ultimately choose, it’s time to get specific in determining exactly how we are going to fix this grave problem.

 A PLAN TO STABILIZE DEBT AT 60% OF GDP



Proposal

Savings in 2018 (Billions)

Defense

$70

  • Reduce weapons systems, reduce troop levels, reform procurement policies, reform Tricare

 

Discretionary

$140

  • Eliminate outdated programs
  • Reduce domestic discretionary spending by 5%, short-term freeze, cap growth

 

Social Security

$60

  • Speed up/increase retirement age to 68 and index for longevity 
  • Slow growth of benefits for middle and upper earners          
  • Switch to superlative CPI
  • Update/reduce spousal benefits                                                       

 

Heath Care

$120

  • Reduce new insurance subsidies
  • Increase cost sharing/premiums for Medicare                                    
  • Increase retirement age for Medicare
  • Reform malpractice policies
  • Reduce Medicaid funding to the states
  • Introduce a voucher option
  • Institute a cap on federal health spending to restrict growth to GDP + population + 1% starting next decade

 

Other

$60

  • Eliminate agriculture subsidies                                           
  • Reduce other mandatory spending
  • Freeze government salaries for two years, reduce workforce by 5%, reform contracting process

 

Revenues

$300

  • Tax expenditure reform: Gradually eliminate the health care exclusions; phase down the home mortgage deduction from $1 million to $500k; eliminate state and local tax deduction; reduce corporate subsidies and other consolidations/eliminations; cap total amount of tax breaks as a share of income
  • Implement a carbon tax
  • Only extend the expiring 2001/2003 tax cuts temporarily (2 years at most) with the commitment to only extend permanently once a debt reduction package has been put in place

 

Sweeteners

- $100
  • Corporate income tax rate cut
  • Bump up in spending on some of the most productive public investments (education, R&D, infrastructure)

 

Total Savings

$650 

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