President Obama’s deficit reduction panel issued a tough set of recommendations that just may change the debate over the nation’s fiscal policy. Rather than continuing to repeat their dogmas without changing so much as a comma, the liberals and conservatives on the commission edged a bit closer toward a set of policies that will increase federal income and lower federal spending.
The most important recommendation proposed to increase revenue was to lower or eliminate some of the tax breaks given to individuals and businesses which, all together, reduce income by a trillion dollars over 10 years. Two of the most significant of these are the deductions given to families for each dependent child and the deduction allowed for mortgage interest.
If those sacred cows become targets, reduction rather than elimination is the most likely outcome. The amount of interest that could be deducted, for example, could be limited to X number of dollars annually, preserving the benefit for lower income families while allowing the rich to pay more. The deduction allowed for dependents could be scaled back for more wealthy families, but still produce very substantial additional revenue.
A similarly rational approach could be taken to trimming back the cost of health care and Social Security.
A majority of the commission favored increasing the age at which full benefits could be received to 69 over the next 65 years. It also favored raising the cap on the amount of wages subject to the Social Security tax each year and limiting the payment of pensions to those with high incomes from other sources. Reducing benefits by increasing the retirement age ever-so-slowly would recognize the changing nature of work and fact that we continue to live longer, healthier lives.
Ever-increasing health care costs will also have to be corralled by payment limitations. Health care cost controls are essential to federal budget reduction. As the U.S. population grows and gets older, the percentage of the budgets of the 50 states and the federal government devoted to health care will keep pace unless effective controls are imposed.
The alternative to government controls is allowing the health care industry to decide how much it will take from the economy. At present, it is consuming about 17 percent of the gross national product. To express that share a little differently, one dollar of every $5.89 generated by the U.S. economy is spent on health care. Of the world’s rich nations, Canada comes nearest to us in health care spending. It devotes about 11 percent of its GNP to health care, or $1 of every $9 produced. Most of the other rich nations — all of which provide health care for all of their people, as does Canada — spend between 7 and 9 percent of their GDPs on health — and all of them have lower GDPs per resident than does the United States.
Getting health care spending under control may be our nation’s greatest fiscal challenge.
THE MOST ENCOURAGING aspect of last week’s commission report was that none of the 18 members tried to deny the urgent need to reduce the deficit. None professed a belief that a reviving economy would eliminate the deficit. And only a few die-hards clung to the hope that the budget could be hauled back into balance by spending cuts alone.
The next act in this drama will be written by President Obama. His State of the Union address must be devoted to the economy and the fiscal challenge the nation faces. He must ask for a realistic program to generate job-producing growth; he must also lay out a hard-nosed plan to cut spending and increase federal income to put the nation on course to a balanced budget.
Reconciling these irreconcilables will be a supreme test of his skills as an orator and, more important, his vision as leader of a nation at risk.
— Emerson Lynn, jr.
