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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

Raising taxes on tobacco sales could help balance the budget, the Center for American Progress says. (Brandy Baker/The Detroit News/AP/File)

3. Center for American Progress

This group offers a left-leaning mirror to the American Enterprise Institute on the right. Both groups call for a balance between promoting economic growth, curbing deficits, and not damaging the nation with too-big cuts to defense or domestic programs. The CAP approach is more liberal, but achieves a budget surplus.

Taxes. Overall federal tax revenue would rise to 23.8 percent of GDP by 2035, similar to the CBO baseline.

• Adds a carbon tax, raises the gas tax.
• Creates or boosts levies on Internet gambling, alcohol, and tobacco.
• Simplifies tax code: Fewer deductions, with a flat income tax rate of 15 percent for households with income below $100,000.
• Imposes a temporary millionaire surcharge.

Spending. Federal spending would fall to 23.2 percent of GDP in 2035 from the 28.3 percent CBO forecast.

• Cuts defense spending to 3.2 percent of GDP.
• Boosts spending in some areas (education, energy), while cutting in many others.

Entitlements. Spending on health and Social Security programs would be restrained to 13.7 percent of GDP in 2035, compared with 16 percent in the CBO forecast.

• Adds Medicare payment reforms to bring down costs within Obama health-care law.
• Expands power of the Independent Payment Advisory Board (IPAB) to impose cost-control strategies in Medicare and perhaps beyond.
• For Social Security, eliminates cap on payroll tax, so that all earnings are taxed.
• Reduces Social Security benefits for the wealthy, while boosting them for the very old and poor.

Deficit or surplus. Surplus of 0.6 percent of GDP in 2035, versus a 5 percent deficit in CBO baseline.

Debt. The plan brings public debt down to about 42 percent of GDP by 2035. Like the Bipartisan Policy Center, that's a steep reduction toward the all-clear zone.


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