How Would You Reduce the Deficit?

Last week, the co-chairs of the President’s deficit commission released a report of possible proposals for the commission’s final report. Recommendations included cuts to discretionary, mandatory, and defense spending as well as tax increases.

The report was a good start to the debate and will gauge the readiness of lawmakers and private citizens to make the difficult decisions needed to reduce the deficit.

However, the co-chairs’ proposal does not go far enough in addressing entitlement spending and also includes burdensome tax hikes and irresponsible cuts in defense. Heritage expert Alison Fraser writes that the report takes “a 50/50 approach to eliminating the deficits and lowering the projected trajectory of the debt through tax increases and spending cuts. As revenues are projected to soon return to their historical level—even if the [2001 and 2003] tax cuts are made permanent—spending is clearly the problem.”

Some commentators claim that addressing mounting long-term deficits will require both raising taxes and cutting spending. But this week, The New York Times launched an interactive feature that allows visitors to close the federal budget gap how they see best. “You Fix the Budget” offers several options to reduce domestic spending, spending on defense, spending on health care and entitlement programs and to raise taxes. Using solely the options made available by the Times’s deficit puzzle shows that Congress could close the long-term deficit gap completely just by reducing spending.

New York Times columnist David Leonhardt writes, “Arguably, economic growth is the most important yardstick for any plan, because growth can do much to reduce the deficit.” The economy would suffer if taxes increase to pay for runaway federal spending. Using the same economic model as the White House, Heritage’s Center for Data Analysis analyzed the President’s proposal to allow the 2001 and 2003 tax cuts to expire for those who earn above $250,000 and found that even raising taxes just on high earners would result in the loss of, on average, 693,000 jobs each year.

On defense cuts, Fraser writes that the co-chairs’ recommendations “should draw from the Department of Defense Quadrennial Defense Review (QDR), established by Congress, which has been the traditional instrument for evaluating long-term defense needs. The co-chairs’ proposals would completely undermine the minimum capability of the armed forces to protect and defend the American people as outlined in the Administration’s own QDR.” Cutting defense spending, already at historical lows, would threaten national security.

Instead, reducing long-term deficits should focus on spending in Medicare, Medicaid, and Social Security. The co-chairs’ recommendations take a step in the right direction, but do not go far enough. Nor do the options in the Times’s deficit puzzle. Medicare reform should include structural changes to replace current flawed policies, like those described by Heritage health policy expert Robert Moffit. Reforming Medicaid should follow the same path. Retirement savings reform should instill solvency within Social Security but also encourage greater personal savings.

For immediate savings, Heritage budget expert Brian Riedl has compiled a list that goes beyond the immediate savings options in the Times’s deficit puzzle that would save $343 billion.

Closing the growing long-term budget gap can be done without increasing taxes, which would hurt the economy, and cutting back on defense, which would risk America’s safety. Check out “You Fix the Budget” to try it yourself.