Getting Past Nowhere On Budget

Hundreds of federal programs, either harmless or marginally beneficial, are hardly essential for a government now bleeding red ink. In this year's budget, President Bush identified 100 such programs whose elimination would save $7 billion a year. Is there an American alive who doubts there are 200 more that would bring that total to $20 billion?

Add it all up, and I figure it comes to a reduction in discretionary spending of $175 billion a year.

Now let's move on to raising an additional $150 billion a year, not by raising tax rates but simply by closing loopholes that are either tilted toward the rich or are nothing more than corporate welfare.

All of these ideas come from the congressional tax committees or the semiannual "budget options" book published by the Congressional Budget Office. They include: stricter loan limits on the home mortgage deduction; limits on the deductibility of employer-paid health insurance, group life insurance, parking and transit fees; taxing income that builds up inside life insurance and annuities; elimination of the last-in, first-out inventory accounting method; elimination of tax breaks for oil and gas exploration and development; elimination of tax breaks for domestic manufacturing; closing loopholes used by corporations and individuals to shield overseas income from taxes; taxing carried interest of investment fund managers as ordinary income; and, in addition to a greatly reduced inheritance tax, taxing estates for unrealized capital gains.

Finally, entitlements and Social Security, where we have proposals from many blue-ribbon panels. My favorites: raise the payroll tax limit to $250,000, raise the retirement age one month every two years and use a more progressive formula for indexing cost of living. And, voila, we can save a beloved program without cutting benefit levels for the poor and middle class. Now that wasn't so bad, was it?

Medicare and Medicaid present the most difficult budget challenge, both because of size and complexity. What we can say about these programs, like the rest of the U.S. health care system, is that we spend way more than other industrialized countries to get health outcomes that, by most measures, aren't as good. So why not agree to limit the percentage of growth in spending for these programs each year to the growth in national income -- and leave it to a panel of independent health experts to make the best use of that fixed -- but still generous -- budget.

As it happens, there is such an panel, MedPac, which has made just such proposals, running the gamut from reducing payments to providers to reducing unnecessary treatments to increasing premiums and co-payments. Relying on MedPac would free these programs from the political influence of the special interests -- providers, drugmakers, insurers, advocates for the poor and the elderly -- who have fought off all attempts to rein in runaway entitlement spending.

I can't say whether this modest proposal would solve the federal budget crisis once and for all. What I can say is that they'd get us a heck of lot closer than where we are now -- which, as far as I can tell, is nowhere.

Steven Pearlstein will host a Web discussion today at 11 a.m. athttp://washingtonpost.com. He can be reached atpearlsteins@washpost.com.