How we would cut America’s debt

When we surveyed the causes of the debt, we identified four key drivers: rising health-care costs, the Bush-era tax cuts, wars of occupation in Iraq and Afghanistan, and financial-sector instability. What stood out about problems in the financial sector was that the Congressional Budget Office didn’t care. Stock market crashes that wipe out trillions in savings and jobs? Not scoreable by the CBO. Unprecedented bailouts costing hundreds of billions of dollars? Not scoreable. Although you won’t see financial-sector reform in the agendas of most budget hawks — Paul Ryan’s budget even rolls back the Dodd-Frank reforms — we know that we can’t claim a responsible federal budget until we stop promising to bail out the big banks.

To the challenge of big banks being too powerful to be effectively regulated, we suggest making “too big to fail” unprofitable. Roosevelt proposes a 25 percent financial activities tax on financial institutions whose assets exceed $200 billion. This tax would affect the top 12 largest financial institutions in the United States, forcing them to split up their activities into new companies. These new companies would pose significantly less risk to the global financial system.

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BIPARTISAN POLICY CENTER

Everything must be on the table. On their own, economic growth, tax increases or spending cuts are not enough. Only a balanced approach to our looming fiscal catastrophe, looking at every aspect of federal fiscal policy, will stabilize our debt.

The policy center’s 19-member task force recommended fundamental changes in spending and revenue, as well as entitlement reform. We would rein in federal health-care spending by capping and phasing out the tax exclusion for employer-provided health insurance, transitioning Medicare to a premium support system while maintaining traditional Medicare as an option, and empowering the Independent Payment Advisory Board to recommend changes to traditional Medicare’s benefit structure. In Medicaid, separating and delineating federal and state responsibilities would incentivize cost control.

To ensure that Social Security can pay benefits for the next 75 years, our recommendations include adjusting the benefit formula for longer life expectancy without raising the retirement age, raising the level of income that is subject to the payroll tax, and increasing the minimum benefit to help keep low-wage workers out of poverty in their later years.

We found savings in other entitlement programs, reformed pension programs, and recommended a freeze on both defense and non-defense discretionary spending. On the revenue side, we would raise additional revenue by simplifying the income tax and lowering rates while adding a broad-based consumption tax.

To enforce all of these savings, we recommend strict budget rules, including a save-as-you-go budget enforcement mechanism. Save-go requires Congress to set in statute the year-by-year amount of budgetary savings that are necessary to reach a specified debt-reduction goal (e.g., a 60 percent debt-to-GDP ratio within a decade). Annual dollar amounts of savings would be required in each of three areas: annually appropriated domestic and defense spending, health care, and other entitlement spending and revenue. If Congress failed to comply in any year, across-the-board spending cuts and/or revenue increases would achieve the mandated savings in that category.

CENTER FOR AMERICAN PROGRESS

Americans face a monumental challenge: How can we restore fiscal sanity while respecting American values? Our answer is to balance the budget and invest in our middle class, which is key to a vibrant economy and American competitiveness in the 21st century.

Our plan is fair and focused, effective and efficient. We achieve primary balance by 2015 and a fully balanced budget by 2030. To get there, we focus on reducing health-care costs for everyone, not just those in Medicare and Medicaid. Costs are contained through the extension of best practices in health management and health provision, making the system more efficient while improving care. We also include a fail-safe to guarantee that savings in health spending are achieved.

We rebuild our middle class by investing in education, science, energy, infrastructure and essential public services while cutting unnecessary spending and outdated tax entitlements. We strengthen Social Security while ensuring its solvency, without raising the retirement age. We address the realities of our modern national security challenges by creating a unified security budget that includes the Pentagon, homeland security and diplomacy, and then capping national security spending at peak Cold War levels. We overhaul the tax code — getting rid of dozens of special interest subsidies such as those to the oil and gas industry — to make it simpler, fairer and more efficient, and we do so without handing the bill to the middle class.

The center’s plan restores fiscal discipline, cutting our debt burden by nearly half, while building a prosperous American economy so that we will remain the most innovative and imaginative country on Earth.