–Two Think Tank Experts Say ‘Wide Ranging Spending Cuts’ Needed
–Analysts Also Call For ‘Substantial Revenue’ Hikes and Carbon Tax
–Galston and MacGuineas Say Soc Sec, Medicare Reforms Required

By John Shaw

WASHINGTON (MNI) – With several budget commissions debating how to
tackle the U.S.’s increasingly serious fiscal problems, two budget
experts have released a plan that would require about $1 trillion in
budget savings over the next decade.

Their plan would stabilize debt levels at 60% of gross domestic
product by 2020 and then gradually bring that down.

The plan developed by Maya MacGuineas, president of the Committee
for a Responsible Federal Budget, and William Galston of the Brookings
Institution, requires steps that policymakers have avoided for more than
a decade — “wide ranging spending cuts” from all areas of the federal
budget, reforms to Social Security and Medicare, substantial savings
from defense, instituting a carbon tax, and overhauling tax expenditures
which now cost the federal government more than $1 trillion a year in
lost revenue.

Acknowledging these ideas have generated consistent resistance from
policymakers for years, MacGuineas and Galston argue that the U.S.’s day
of reckoning is soon approaching. If significant spending and revenue
reforms are delayed now, they warned, far more draconian ones will be
foisted on the nation in the not-too distant future.

“While the economy struggles to recover from the recent recession,
it would be premature to start implementing aggressive deficit reduction
measures. However, policymakers should commit as quickly as possible to
a plan — phased in as soon as the economy permits — to stabilize the
debt at a healthier and more sustainable level by the end of the decade
and to set it on the kind of downward course we enjoyed for much of the
post-World war II period,” they write.

“While it is important to be aggressive enough in earlier years to
make the plan credible and build momentum for deficit reduction, the
plan should be back-loaded to synchronize with the economic recovery and
allow people sufficient time to adjust,” they added.

MacGuineas’ and Ralston’s plan calls for $80 billion in defense
savings over the decade, achieved by overhauling contracting practices,
cutting some weapons systems, reforming military compensation and
instituting a surtax to cover any war costs beyond 2015.

They recommend securing about $60 billion in domestic discretionary
savings by instituting a three year freeze and then limiting future
growth to inflation for the rest of the decade.

The plan envisions about $75 billion in savings from Social
Security by gradually increasing the retirement age, switching to the
Chained CPI for calculating benefits, and using progressive indexation
for indexing the benefits of wealthier earners.

MacGuineas and Galston envision $110 billion in health care savings
by instituting tort reform, increasing Medicare premiums, and increasing
the eligibility age for Medicare.

The largest savings in their plan would come from overhauling tax
expenditures which are targeted deductions, exemptions, and exclusions
in the tax code that now amount to more than $1 trillion a year. They
suggest bringing all tax expenditures into a budget, cutting it by 10%
and capping its future growth. This would save $300 billion over a
decade.

They also call for fundamental tax reform and instituting a carbon
tax, with the revenues divided between deficit reduction as well as
reductions in the payroll tax.

“Because we waited so long to address our fiscal problem, changes
that would have been relatively small and easy a decade ago are now
larger and harder — and far more urgent,” they write.

“Not only does everything have to be on the table, nearly
everything has to be part of the solution,” they add.

They argue that if their plan is adopted, spending in 2020 would be
22% of GDP, down from CBO’s estimate of 25.2% of GDP for President
Obama’s budget. Revenues would be 21.4% of GDP, up from 19.6%. The
budget deficit would fall from 5.6% of GDP to 0.7%.

** Market News International Washington Bureau: (202) 371-2121 **

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