1. 1
Fixing the Debt and Deficit
“Over the next few months, Congress faces a vitally important test. The question
is whether we can balance the need to reduce the deficit with the need to protect
important priorities at home and abroad. There is a narrow path to passing that test, but
we must try.” As Carl Levin, chairman of the Senate Armed Services Committee, wrote
before the start of sequestration, the path to reducing the deficit while maintaining
sufficient spending levels in key foreign and domestic areas will be a very difficult task. 1
Several attempts have been made recently to address reducing the debt and deficit such as
the Budget Control Act that raised the federal debt ceiling to prevent a default on the
debt, cut $917 billion in spending, established a supercommittee that worked to further
reduce the debt by $1.5 trillion over a 10-year period, and established a clause for failure
to achieve the necessary cuts. The clause, if triggered, initiated $1.2 trillion in automatic
spending cuts that would be derived equally from defense and domestic programs.2
The
clause was enacted March 1, 2013 as members of Congress failed to reach the required
cuts and the country is currently dealing with the consequences, which range from flight
delays to “greater risk of wildfires, fewer OSHA inspections and a risk of more
workplace deaths” among others.3
Prior to this, President Obama created the Fiscal
Responsibility Commission co-chaired by Alan Simpson and Erskin Bowles4
. The goal of
the bipartisan commission was to determine how best to reduce the deficit. The
commission recommended deep cuts to Social Security and Medicare as well as raising
taxes, they believed that while difficult to achieve, it was the best possible solution. As
expected, both Democrats and Republicans rejected the proposal as too harsh. Deficit
1
Levin,
Carl.
“How
to
Pass
the
Deficit
Reduction
Test.”
June
15,
2012.
2
Thurber,
James
A.
“The
Dynamics
and
Dysfunction
of
the
Congressional
Budget
Process:
From
Inception
to
Deadlock.”
3
Good, Chris. “57 Terrible Consequences of the Sequester.” ABC News. Feb 21, 2013
4
Ibid.

2. 2
reduction will not be an easy process and will require a great deal of negotiation, but
ultimately, reductions must occur. The Bowles-Simpson commission’s recommendation
while rejected by many, offered the best solution to reduce the deficit. The costs of
programs like Social Security and Medicare will only continue to increase as more baby
boomers retire, but cuts to these programs must be made. Moreover, taxes continue to
remain at historic lows, which cannot continue if the deficit is to be reduced. According
to the 2012 Congressional Budget Office, federal taxes in 20095
averaged 17.4 percent,
which is a historic low for the period between 1979 and 2009.6
While there is little
support for raising taxes to Clinton-era levels in either Congress or the White House, if
they were raised to Clinton-era levels they would generate $2.35 trillion more in revenues
over 10 years than what Obama proposed in 2012.7
Achieving these goals, however, will
be quite difficult and will need to be implemented gradually over time.
President Obama recently announced a new budget proposal that addresses many
of the mentioned goals. Obama’s proposal includes: $1.8 trillion in deficit reduction over
10 years, $400 billion in health care spending savings, $200 billion in savings from
reductions in farm subsidies and reforms to federal retirement benefits, $200 billion in
other savings equally from defense and domestic programs, savings of $230 billion in
savings from using a chained measure of inflation for cost-of-living expenses, and $210
billion in savings from reduced interest payments on debt.8
The proposal also reforms the
tax system by requiring households with incomes over $1 million pay at least 30% of
their income in taxes, limits tax deductions and other tax benefits for the top 2% of
families to 28%, gives a 10% tax credit to small businesses that hire new employees or
5
2008 and 2009 is the latest year for which comprehensive data is available is for household income and federal taxes.
6
“The
Distribution
of
Household
Income
and
Federal
Taxes,
2008
and
2009.”
Congressional
Budget
Office.
Aug.
10,
2012.
7
Klein,
Ezra.
“Democrats
don’t
want
to
go
back
to
Clinton-­‐era
rates.”
The
Washington
Post.
Sept.
5,
2012.
8
“Fiscal
Year
2014
Budget
Overview.”
Office
of
Management
and
Budget.
The
White
House

3. 3
increase wages, closes loopholes and provides incentives for research, manufacturing,
and clean energy.9
While this proposal is a start, it does not adequately address long-term
deficit reductions and it includes additional spending of $520 billion over 10 years.10
This
is not ideal as the intent of deficit reduction is to reduce the deficit, not cut certain areas
and increase funding in others. Many Democrats including Senator Mark Warner (D-VA)
support this proposal, but groups like the A.F.L.-C.I.O. are strongly opposed, as they
believe the cuts are too deep to Medicare and Social Security.11
Moreover, it will be
difficult to convince most Republicans to pass this budget proposal, as they are
adamantly opposed to raising taxes. Therefore, in addition to Obama’s proposal,
additional changes need to occur.
One source of further changes could come from military cuts. Several programs
like the F-35 fighter jet have not only run over budget, but have proven to be fatally
flawed in design. The program is now estimated to cost $400 billion and is expected to
cost $1 trillion over its 30-year life.12
While much of this has already been spent,
cancelling this program and delaying similar programs can save at least $20 billion in the
short-term and billions more in the long term.13
Reducing the federal workforce is a
popular idea among many Republicans and is a key piece of the Paul Ryan (R-WI)
budget plan. Ryan, the House Budget Committee Chairman, proposed reducing the size
of government to 20 percent by 2015, which would save billions. Ryan also addresses
defense, however, his proposal increases spending by $554 billion.14
There is likely to be
a middle ground between the Obama and Ryan proposals that can be reached to cut
9
“Fiscal
Year
2014
Budget
Overview.”
Office
of
Management
and
Budget.
The
White
House
10
Ibid.
11
Calmes,
Jackie.
“Obama
Budget
Opens
Rift
for
Democrats
on
Social
Benefits.”
The
New
York
Times.
Apr.
10,
2013.
12
“Weinberger,
Sharon.
“F-­‐35
Joint
Strike
Fighter
battles
for
future.”
BBC.
Apr.
11,
2013.
13
“Get a Pencil. You’re Tackling the Deficit.” The New York Times.
14
“The
Path
to
Prosperity:
A
Blueprint
for
American
Renewal.”
Fiscal
Year
2013
Budget
Resolution.
House
Budget
Committee.

4. 4
programs like the F-35 jet, while keeping programs that will strengthen our military, thus
saving billions. Bowles and Simpson recently released a new proposal that would cut
Medicare and Medicaid funding by an addition $200 billion over what the Obama
proposal calls for. This would likely be popular among Republicans as the Ryan plan
calls $885 billion in cuts.15
Moreover, the additional proposal cuts would cut the budget
by nearly $1 trillion more than Obama’s proposal. While considerably less than the $4
trillion proposed by the Ryan plan, this would show Republicans that Democrats are
willing to negotiate and at least meet the Republicans half way, which might encourage
them to discuss raising taxes.
Even with these additional cuts passing a budget with these provisions would
likely prove to be quite difficult and many barriers remain. Most Republicans support the
Ryan proposal, which passed in the House 221-207 with no Democrats voting for it.16
In
the Senate, most Democrats support Senator Patty Murry (D-WA) proposal that passed
50-49.17
Her proposal was drastically different from the Ryan budget, but somewhat
similar to the Obama proposal. Early negotiations between the two budget proposals
have not progressed well as the Republicans do not want to raise any taxes while the
Democrats believe it is necessary. Finding a compromise between the Ryan and Murry
proposals may prove impossible, however, the Obama budget proposal coupled with the
suggestions mentioned previously could prove to be the potential needed bridge that
could close the gap between the Democrats and Republicans. There is some agreement
between the two parties regarding the chained CPI proposal in the Obama proposal,
15
“The
Path
to
Prosperity:
A
Blueprint
for
American
Renewal.”
Fiscal
Year
2013
Budget
Resolution.
House
Budget
Committee.
16
H.Con.Res. 25: Establishing the budget for the United States Government for fiscal year 2014 and setting forth appropriate
budgetary levels for fiscal years 2015 through 2023.
17
Raju, Manu. “Patty Murray budget: $1 trillion in new revenue.” Politico. Mar. 12, 2013

5. 5
which could be used as a starting point in negotiations. If they added in higher cuts to
Social Security and Medicare this would further strengthen Republican support as well as
increasing other spending cuts it could reduce some of the unwillingness to compromise
on taxes. It will, however, be difficult to convince Republicans that tax increases are
necessary, particularly because the Ryan proposal manages to balance the budget in ten
years without raising taxes. Ultimately it is difficult to determine how this might be
accomplished and tax increases may not be able to be included in the final agreement.
A final option is that the 2014 elections are looming, perhaps enough Democrats
can be elected in the House to gain a majority and pass this proposal or the Murray
proposal that passed in the Senate. The barriers would be reduced, as the Murray
legislation already is popular among many Democrats and the incentives would include
finally passing a budget that significantly reduces the deficit, which will be popular
among their constituents.