With the Bush tax cuts set to expire at the end of this year, it is a good time to think about our nation's deficit. The New York Times recently challenged readers to make some difficult decisions about how to eliminate the projected budget shortfall of $1.345 trillion in 2030.
Achieving budget neutrality is, in principal, no different than balancing our own checkbooks. The New York Times worksheet presents these choices in a clear, if not over-simplified way (note: I am not an economist!): choose amongst a menu for spending cuts and/or a menu for raising taxes. For simplicity, the estimate savings for each item are rounded off to the nearest $5 billion and are expressed in 2010 dollars.
I decided to assign this task to one of my classes, part of our General Education curriculum that has majors across all disciplines. We have been discussing science, technology and ways to inform public policy. This is in no way a reliable poll or a scientific analysis. It is simply a small sample of responses from 15 students at a public state University that has a diverse student population, many of whom are the first in their family to attend college. In 2030, many of these students will be in their forties and our nation will faced with a rapidly aging population.
How did these students attempt to balance the budget? Overall, they chose more spending cuts than increasing taxes (see Table below for the percent responses amongst either spending cuts or raising taxes). They unanimously agreed to eliminate earmarks. Most students chose to reduce defense spending and to enact medical malpractice reform as well as to tighten eligibility for disability insurance.
Popular choices for raising taxes included allowing expiration of Bush tax cuts on income above $250,000, gradually raising tax on carbon emissions, a 5.4 percent surtax on income above $1 million and, surprisingly, a 5 percent national sales tax (exempting education, charity and housing).
The bottom line resulting from these choices was a budget surplus of some $65 billion. How nice to contemplate how one would spend this for social good and security!
One astute student noted that missing in The New York Times worksheet was reform of welfare and unemployment compensation.
Certainly, a challenge of this scope and magnitude cannot be solved by anyone in three hours (our class meeting time) and decisions that need to made on the House or Senate floor are far more complex and subtle. Nevertheless, these numbers give some fresh perspective to the ongoing public debate.
How would you fix the 2030 budget?
100 Eliminate earmarks
73 Cancel or delay some weapon programs, like F-35
73 Speed up withdrawal of Iraq/Afghanistan troops to a total of 30,000 remaining by 2013
67 Reduce nuclear arsenal and space-based missile defense spending
67 Reduce active military personnel by 200,000 to 1.3 million. Reduce presence in Europe and Asia
67 Enact medical malpractice reform
60 Tighten eligibility for disability insurance
47 Reduce Navy and Air Force fleets
47 Cap Medicare growth at G.D.P. growth plus 1 percentage point, starting in 2013.
47 Use alternative inflation measure, which would slow cost-of-living increases for Social Security
33 Cut foreign aid in half
33 Cut 250,000 government contractors
33 Other cuts from deficit panel, such as to national parks budget
33 Cut aid to states by 5 percent
33 Reduce noncombat military compensation and overhead
33 Increase the Medicare eligibility age to 70, from 65
27 Cut pay of civilian workers by 5 percent
27 Raise Social Security retirement age to 68
20 Reduce federal work force by 10 percent
20 Speed up withdrawal of Iraq/Afghanistan troops to a total of 60,000 remaining by 2015
20 Reduce growth rate of initial Social Security benefits for top 40 percent of lifetime earners
20 Raise Social Security retirement age to 70
13 Eliminate farm subsidies
67 Allow expiration of Bush tax cuts on income above $250,000
67 Gradually rising tax on carbon emissions (starting at $23 per ton of CO2)
60 5.4 percent surtax on income above $1 million
53 5 percent national sales tax, exempting education, charity and housing
47 Raise capital gains and dividend taxes by 5 percentage points on high-income households
47 Same as previous option, but income and corporate tax rates are cut less, raising more revenue
40 Reduce mortgage deduction and other tax breaks for high-income households
33 Exempt first $5 million of estate; 35 percent tax rate
33 Tax on banks, weighted by size and riskiness of holdings
27 Exempt first $1 million; varying tax rate (Clinton policy)
27 Have Social Security payroll tax apply to some income above $106,800 (current ceiling)
20 Exempt first $3.5 million of estate; 45 percent tax rate
20 Raise capital gains and dividend taxes on all households
7 Gradually reduce tax break for employer-provided health insurance
7 Allow expiration of Bush tax cuts on income below $250,000
7 Reduce individual and corporate tax breaks, while also cutting income and corporate tax rates
Source: The New York Times (Nov. 14, 2010) "Get a Pencil. You're Tackling the Deficit" (interactive version)