by Dr. Hamid Zangeneh, Professor of Economics at Widener University
The unprecedented accumulation of federal government debt has people concerned with the financial future of the country more than ever. The causes of this unprecedented debt are many: deficit spending to finance tax cuts under Presidents Bush and Obama, the cost of two wars, the seemingly unbridled upward spiral in Medicare costs, the shortfall in federal government revenues, President Obama's federal stimulus plan, and President Bush's Troubled Asset Relief Program to save the financial sector from complete collapse are some of the more noteworthy.
The call for restraint in government budget deficits to slow the rate of expansion of the national debt became louder during the 2008 general election and 2010 mid-term election. Since the two political parties could not compromise on a set of remedies, President Obama, early in 2010, appointed former Republican Senator Alan Simpson of Wyoming and former White House Chief of Staff Erskine Bowles as co-chairs of the National Commission on Fiscal Responsibility and Reform to come up with a plan that would be acceptable to both sides of the aisle.
After months of deliberation, the commission developed a plan to balance the budget over time by increasing revenues and making significant cuts in expenditures—mostly cuts in social safety net programs such as Medicare/Medicaid and Social Security. The plan proposed a combination of cuts and increased revenue adding up to $4 trillion, and barring unforeseen events, it would have eliminated the deficit by 2035.
The $3 trillion of cuts would have included $1.661 trillion in discretionary spending cuts; $341 billion by reforming the Sustainable Growth Rate for Medicare; $215 billion in other mandatory savings by moving to the chained Consumer Price Index (CPI) for all inflation-indexed programs; $238 billion in Social Security reforms such as increasing retirement age and indexing it to longevity; and $673 billion to lower projected spending interest payments resulting from lower deficits.
The plan would have also raised $995 billion in additional revenue including $785 billion by lowering income and corporate tax rates and eliminating tax expenditures, and $210 billion in revenue by switching to the chained CPI and increasing the federal gasoline tax.
The commission's plan, however, could not get the 14 votes needed for endorsement by the commission and an up-and-down vote by the congress. Only 11 members supported it, and without the necessary support, it withered on the vine.
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