National Deficit Reduction

(a presentation to the Wilton Lunch Bunch, a leading edge Connecticut discussion group on Jan 20, 2011)

I was attracted to an article about the US National Deficit and how to reduce it published in the Sunday NY Times in November 2010.  http://graphics8.nytimes.com/packages/pdf/weekinreview/20101114-deficit-graphic.pdf

It offered modules of cost or revenue that could be moved up or down to accomplish the reduction. It also gave a target of 1.345 trillion that needed to be cut by 2020. My colleagues in the group were sufficiently impressed to invite me to present it to the group in January 2011 along with my analysis of what to do.

My remarks.

We are looking at a 1.345 trillion per year deficit.
It must be dealt with or it will get worse.   Think Greece!

I submit that congress does not do this well, so we have to be able to do better. After all, congress lacks the political courage, its solutions always create unintended consequences and it always seems entangled with special interests.

There was a presidential commission appointed by President Obama that created a starting point. Then the NY Times created  a work sheet from their numbers.

The worksheet is being used today for the presentation, obviously with caveats:
--it must be an incomplete list
--some of the savings claims may not be correct
--there are lead times to start up or close down any initiative

Yet it is good enough to start our work.

I will explain what I did and why, then you can make comments and ask questions.

The approach I took:
1.    Look for items with real, net savings
2.    Look for big items
3.    Try and eliminate unproductive costs such as tax deductions and subsidies
4.    Avoid increasing taxes except to right a wrong

Well, I actually reached 1.47 trillion, more that was said to be required.
--no farm subsidies saved 15bn
--10% less federal emps saved 15bn
--canceling or delaying weapons programs saved 20bn
--less nuclear weapons saved 40bn
--speeding up troop withdrawals from the middle east down to 60000 by 2015 saved 150bn
--medical malpractice reform saved 15bn
--having Medicare start at age 70 saved 105 bn
--cap Medicare growth at GDP growth + 1% by restructuring saved 560bn
--tighten the eligibility for social security disability saved 15bn
--slow the growth of initial Social Security payment for top earners saves 55bn
--slow annual Social Security increases with a new inflation calculation based on wages saves 80bn
--having full social security benefits start at 70 saves 245bn
--reducing the tax deduction for (employer) health insurance saves 155bn

My conclusions:
--it wasn't so hard
--it must be done carefully.  We do need a military and a safety net
--taxes on business per employee should be avoided.  They increased the cost of employees and the cost of doing business
--little things alone will not make it

Of course there were concerns raised.  Family farmers?  I think most farm subsidies go to corporate farming.  Kill corporate health insurance?  I think they hide issues in that they pull out of the population and cover mostly healthy people leaving sick people on their own.

For the record, the list of cuts I chose from was prepared by a bipartisan commission to reduce the deficit The sides agreed in advance that significant military cuts and repeal of  Obama Health Care would be off the table.

The following spending cuts were identified. Figures in billions per year.
--15 eliminate farm subsidies*
--15 cut foreign aid in half
--15 eliminate earmarks
--15 reduce federal workforce by 10%*
--15 cut 250,000 government contractors
--15 cut civilian worker pay by 5%
--20 cancel or delay some weapons programs*
--25 reduce navy and air force fleets
--40 reduce nuclear arsenal and space-based missile spening*
--50 reduce active military personnel by 200,000 to 1.3 million
--50 reduce non-combat military compensation and overhead
--150 speed up withdrawal of troops from Iraq and Afghanistan*
--15 medical malpractice reform*
--105 increase Medicare starting age from 65 to 70*
--560 cap Medicare growth at gdp  +1%*
--15 tighten eligibility for social security disability*
--55 reduce growth rate of social security benefits for high income earners*
--80 use alternate inflation measure to slow annual social security increases*
--245 raise social security retirement age to 70 from 67*
--20 to 105 exempt only first 5 million (or 3.5 million or 1 million) of estate from taxation
--25 or 45 raise capital gains and dividends tax on high income (or all) households
--95 make surtax on income above 1 million
--100 raise wage ceiling on social security tax base
--155 reduce tax deduction  on employer health insurance*
--115 to 250 let Bush tax cuts expire for above 250,000 income (or all)
--55 reduce home mortgage tax deduction
--175 to 315 reduce individual and corporate tax breaks
--70 gradually increasing carbon tax
--105 risk tax on banks
--280 5% national sales tax

Others have made deficit reduction proposals that are beyond the scope of this discussion.