Find a Path: Four Ways to Control the National DebtOct 29, 2010
Everyone approaches the problem of the national debt from a different perspective, because fundamentally this becomes an argument over what you want the government to do – or not do. The debate gets tangled up in the very different (and legitimate) political views that people have. While this argument goes on, the federal government continues to borrow more and more money.
The Committee on the Fiscal Future concluded that there’s no single way to solve the problem: you can come at this from any number of approaches. So in the report, the committee suggests four paths, each coming at the problem from a different set of priorities. When it comes to the goal of stabilizing the national debt, any one of them could work – and all of them come with costs and tradeoffs. There’s a small government approach, a big government approach, and two “intermediate paths,” each with very distinct priorities.
Small government, low spending and low taxes: This is the path for people who worry about taxes going up. On this path, payroll and income tax rates stay roughly where they are today, but there would have to be sharp reductions in the projected growth of Medicare, Medicaid and Social Security. Basically that means holding increases in health care spending to match the growth of the overall economy – and in recent years, Medicare and Medicaid costs have outpaced economic growth by nearly 3 percent.
In addition, defense and domestic spending would have to be cut by 20 percent; and there’d be no funds for any new programs without additional spending cuts.
Bigger government, high spending and taxes. This path would require substantially higher taxes to avoid cuts in spending. For example, this would maintain the projected growth in Social Security benefits for all future retirees and would allow spending on all other federal programs to be higher than the level implied by current policies. Even in this path, however, there would have to be some reduction in how fast health care programs expand (but less than in the other alternatives, in fact, most of the health care changes envisioned here don’t kick in until 2030). To do this, taxes would have to rise to take up about a third of the total economy.
Intermediate path: Make public investments a priority: This is the path for people who believe it’s important to make some selected new public investments to build for the future, such as for the environment and to promote economic growth. Under this approach, income and payroll tax rates would increase modestly (modest in this case meaning allowing taxes to take up about 25 percent of the total economy, as opposed to about 18 percent now). Spending on Medicare and Social Security would increase somewhat (but less than it would under current projections).
Aside from those selected new investments, there would have to be defense and domestic program cuts of 8 percent. (In the report, the Fiscal Future committee called this “intermediate path 1″).
Intermediate path: Make programs for older Americans a priority: This is the path for those who believe that programs like Social Security and Medicare should be a higher priority than other kinds of government spending. This path would raise income and payroll taxes somewhat higher than the previous path. Spending growth for health and retirement programs would still be slowed, but less than under the other intermediate path; and spending for all other federal responsibilities would be reduced. (The Fiscal Future committee called this “intermediate path 2″).
You can find out more about all these paths in the Fiscal Future report, including what they could mean for taxes, defense spending, Social Security, and Medicare and Medicaid.
We’d leave you with three key points about these paths:
- There’s no “status quo” option here, because the status quo isn’t an option. The idea that we can keep taxes where they are and not make any spending cuts at all just isn’t going to work.
- All these paths – all of them – envision controlling health care costs. Rising health costs and demographics are the two biggest factors in the problems facing the federal budget. There’s not much we can do about an aging population, but we can do something about health care costs, and nearly all the experts say we have to if we’re going to stay solvent. There’s a solution to the budget problem no matter what your political opinions might be. You can be a liberal and solve this problem, you can be a conservative and solve this problem, or anything in between.
- These aren’t the only ways to attack the problem, certainly. The committee isn’t recommending any of them specifically, and says they’re intended to illustrate the options. “Many policy choices are available, if action is taken soon,” the report says. “However, none of them is easy.”
Any plan the country uses to attack the national debt is going to involve making choices and setting priorities. Looking at those choices is essential if we’re going to start grappling with this problem – and we hope a network of committed citizens can start wrestling with them. Get started today by becoming a fan on Facebook, following us @FiscalFuture on Twitter, and by registering at OurFiscalFuture.org.