To Actually Balance the Federal Budget

This week the co-chairs of the President's Fiscal Commission on the National Debt released their joint recommendations to restore the federal government to long-term fiscal solvency. You can see the entire document here. Democrat Erskine Bowles, Chief of Staff for President Bill Clinton, and Republican Alan Simpson, a former Senator from Wyoming, came forward with their own report because they considered it unlikely they will get the required agreement from 14 of the 18-member bipartisan commission to submit an official set of recommendations from the full group. While that is pursued, the co-chairs wanted to have something for the nation and its leaders to think about.

They propose about $200 billion a year in cuts and $100 billion a year in additional tax revenues to reduce the debt by $4 trillion by 2020 and as a percentage of GDP from 60% to 40% between 2024 and 2037. They call for a long period of discipline to slowly bring expenditures into line with taxes, starting slowly over the next couple of years due to the current weak economy.

The bottom line is that there will have to be shared sacrifice: of the $200 billion in cuts half would be domestic, including reductions in farm supports, freezing federal wages for three years, eventually reducing the federal work force by 10%, restraining medicare growth and raising the social security retirement age in stages to 69, and half would be in defense, including closing 1/3 of our overseas bases and stretching out procurements.

The additional taxes would include a modest fifteen-cent a gallon increase in the gasoline tax, lowering many tax rates but eliminating deductions, getting rid of the home mortgage interest deduction for second homes, equity loans and for mortgage amounts over $500,000. In total, about two-thirds of their projected savings would come from cost cutting and one-third from tax increases. It's interesting that no return to the tax rates before the Bush cuts was even considered; that alone would go farther toward balancing the budget than all the cuts they recommend.

Although I have said repeatedly in this space that slashing spending in a down economy is foolish, eventually when things turn around the borrowing will need to stop. We will be spending $1 trillion a year on interest by 2020 otherwise. Someone will have to tell the American people the truth: there will need to be higher taxes and budget cuts; we cannot provide services unless people are willing to pay for them. This blueprint is at least a reasonable place to start facing the facts.