Five bipartisan fixes for US debt crisis

While US lawmakers work to pass a continuing resolution to end the government shutdown, they are also looking ahead to the next fiscal standoff. If policymakers do not act to increase or suspend the debt limit, the Bipartisan Policy Center estimates that at some point between Oct. 22 and Nov. 1, the US will no longer be able to pay all of its bills in full and on time.

Whether in the coming weeks or later, the nation is going to have to grapple with its long-term debt challenge. We at the Bipartisan Policy Center suggest these five solutions – stemming from the work of prominent leaders, Republicans and Democrats – to address US debt.

1.Strengthen Social Security

President Obama speaks about the government shutdown at the Federal Emergency Management Agency in Washington Oct. 7. He urged Congress to reopen government and raise the debt limit immediately. (Kevin Lamarque/Reuters)

As the baby boomer generation ages and Americans continue to live longer, Social Security will become increasingly financially strained. Adopting a series of reforms could both improve the program’s solvency and more adequately support those individuals who are most in need. Two such changes, which could be part of a larger package, include adopting a new measure of inflation and updating the threshold for earnings that are taxed for Social Security.

The chained Consumer Price Index (CPI), a more accurate measure of inflation, could be used to calculate cost-of-living adjustments. This would slow the growth in benefit payments that is projected in the coming years; combined with an increase in the program’s minimum benefit and a benefit increase for older beneficiaries, this reform would both improve the solvency of the program and provide new protections for low-income and aged Americans.

Lawmakers should also consider raising the maximum level of income that is taxable for Social Security. In 2013, that taxable maximum was $113,700, meaning that the amount earned over that level was not subject to the payroll tax that finances Social Security benefits. Raising this threshold to cover 90 percent of all earned income – one of the goals of the Social Security reforms of the 1980s – would increase revenue to the program, thereby improving its solvency.

Shai Akabas is a senior policy analyst for the Bipartisan Policy Center’s Economic Policy Project. He staffed the center's Domenici-Rivlin Debt Reduction Task Force in 2010 and assisted visiting scholar Jerome Powell in his work on the federal debt ceiling in 2011.

Brian Collins is a policy analyst with BPC’s Economic Policy Project. He staffed BPC’s Healthcare Cost Containment Initiative in 2013.

Begin tax reform

Comprehensive tax reform – both individual and corporate – that limits tax breaks, reduces rates, and increases revenue would improve America’s economic competitiveness while reducing the deficit. Such a reform – recommended by the Bipartisan Policy Center’s Domenici-Rivlin Debt Reduction Task Force – won’t happen overnight, but smaller steps are possible.

One place to start might be to index tax brackets and other provisions in the code, such as eligibility for various tax credits, to the chained CPI, a more accurate measure of inflation. This provision would increase revenue relative to the current system by slightly raising the amount of individuals’ incomes that are subject to higher tax brackets, reducing the deficit.

Reform Medicare payments to physicians

The Bipartisan Policy Center’s Healthcare Cost Containment Initiative has issued comprehensive recommendations to improve the health-care delivery system and reduce cost growth. The recommendations envision a transition from volume-based, fee-for-service payment systems toward more organized, coordinated systems of care. For instance, rather than trying to accommodate most patients with a 15-minute office visit, a reformed payment system would encourage the use of email and phone calls when appropriate, and longer visits when needed.

One way that policymakers could advance the goal of changing the system in the near-term is by addressing that issue within Medicare, which provides health insurance for seniors and certain people with disabilities. Annual increases to Medicare’s physician payments could be made conditional on greater accountability for quality and value.

Reform military retiree health care

In many cases, working-age military retirees (aged 38 to 64) use the federally-funded Tricare system even if their employers provide health insurance. The Tricare system could be reformed to provide financial incentives to younger retirees to use private health insurance to which they have access, thereby reducing spending on the federal program.

Encourage use of low-cost generic drugs

Medicare Part D prescription drug coverage provides generous help to low-income beneficiaries, but generic drug use is lower in this population than it is for higher-income beneficiaries. Stronger incentives for beneficiaries to choose low-cost generics and for insurance plans to offer them would generate substantial savings for both taxpayers and patients.

Shai Akabas is a senior policy analyst for the Bipartisan Policy Center’s Economic Policy Project. He staffed the center's Domenici-Rivlin Debt Reduction Task Force in 2010 and assisted visiting scholar Jerome Powell in his work on the federal debt ceiling in 2011.

Brian Collins is a policy analyst with BPC’s Economic Policy Project. He staffed BPC’s Healthcare Cost Containment Initiative in 2013.

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