Put Everything on the Table for Consideration

The Center on Budget and Policy Priorities has argued for years that Washington will have to enact both spending cuts and tax increases to address the huge budget problems that lie ahead. We also have outlined various spending and tax changes to make.

Policymakers should start by adhering strictly to pay-as-you-go rules. No more cutting taxes and expanding entitlements without paying for them, as the President and Congress did with the 2001 and 2003 tax cuts and the Medicare prescription drug bill.

The biggest problem to tackle is rising health care costs. But the long-term solution must be systemwide, since increases in Medicare and Medicaid costs track increases in private-sector health care costs.

Policymakers also should adopt the cost-saving recommendations of Congress' Medicare Payment Advisory Commission. And they can consider increases in premiums for high-income beneficiaries, carefully designed so they don't undermine support for Medicare as a universal program.

In addition, we should reform Social Security by following the path set by the 1983 Greenspan Commission -- a balance of benefit and revenue adjustments, such as the reform plan developed by economists Peter Diamond and Peter Orszag. Also, we should cut farm subsidies and secure economies in the swelling defense budget.

But these changes still would leave a large budget hole. We can't stop the aging of the population. Nor will Americans want to stop advances in medical technology that save lives and improve health, though they are the main drivers of rising health care costs. Plus, we'll need to address unmet needs in areas such as basic research, infrastructure, poverty, and global disease. So we'll also need to raise revenues significantly.

As much as possible, Washington should do this by broadening the tax base. Policymakers also should let significant parts of the 2001 and 2003 tax cuts expire by 2010. And they can raise revenues as part of efforts to slow global warming, by auctioning permits under a cap-and-trade system or imposing a carbon tax. Ultimately, we may need a modest value added tax to help finance the increases in health care costs that medical advances generate.

Finally, the White House and Congress can secure savings in both spending and taxes by basing annual inflation adjustments on the "chained" Consumer Price Index, which is more accurate -- and rises more slowly -- than the conventional CPI.

In short, we can't address our budget problems fairly unless we put everything on the table for consideration.

Robert Greenstein
Executive Director, Center on Budget and Policy Priorities