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Federal budget mess: Six ways to fix it

Surprise! It turns out America's problem with runaway budget deficits is solvable, after all. That, at least, is the opinion of some prominent think thanks that have been offering ready-made blueprints.

- Staff writer

Republicans such as Rep. Paul Ryan (R) of Wisconsin, pictured here in a Kenosha, Wis., town hall on April 26, have received blowback from voters for their plans to change Medicare. (Jeffrey Phelps/AP/File)

2. American Enterprise Institute

This conservative think tank emphasizes what it calls a balanced approach to federal deficits. Raise taxes too much, and economic growth will suffer, the AEI scholars warn. But cut spending too much and you'll eat away at vital services for the elderly or investments for the economy.

Taxes. Overall federal tax revenue would rise to 19.9 percent of gross domestic product (GDP) by 2035. That's up from levels in the recent past of about 18 percent of GDP, but below a baseline Congressional Budget Office (CBO) forecast, which sees tax revenues of 23.3 percent of GDP in 2035.

• Replaces income tax with a progressive consumption tax.
• Eliminates most "tax expenditures" such as deductions and credits that reduce federal tax revenue.
• Imposes a carbon tax.

Spending. Federal spending would total 22.8 percent of GDP in 2035. That's a bit below current levels, and a big cut from the 28.3 percent seen in the CBO's baseline forecast.

• Holds defense spending to 4 percent of GDP. (CBO baseline anticipates 3.3 percent.)

Entitlements. Spending on health and Social Security programs would fall sharply to 12 percent of GDP in 2035 from the CBO's baseline forecast of 16 percent of GDP for that year.

• Offers a flat Social Security benefit of $850 per month, indexed to wage growth.
• Eliminates payroll taxes on workers over age 62.
• Repeals Obama health-care reforms.
Converts Medicare to a program that provides income-adjusted support to pay health insurance premiums.
• Converts Medicaid into block grant to states.

Deficit or surplus. The federal deficit would fall to 2.9 percent of GDP in 2035, versus a 5 percent deficit in the CBO baseline forecast.

Debt. The plan brings public debt down to an amount equaling about 60 percent of one year's GDP by 2035. Although that's still high, it's considered below the danger zone for a debt crisis. And it's below current levels that are expected to reach about 75 percent of GDP next year.


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