Our national debt is very large and growing rapidly. In addition, $5 trillion in pandemic stimulus payments over the past two years has also tripped off a new round of inflation. The Federal Reserve fights inflation by raising short-term interest rates. This will make our debt problem even more urgent by dramatically increasing interest payments on the debt.
As I have been saying repeatedly on this blog, we badly need the fiscal restraint ( which only Congress and the President can provide. Recently I outlined several spending and revenue measures, from the Congressional Budget Office, which will help put us back on the right track. In short, it will require $7 trillion in budget savings over the next decade to stabilize our debt at the current (very) high level!
Today I summarize a plan, from the American Enterprise Institute, for implementing the needed changes in fiscal and social policy to get the job done. Consider:
- The fiscal crisis we face today is entirely of its own making. The good news is that we do not have to sacrifice the mission of our essential social programs to solve it. We can still have retirement and health security for all Americans, a vibrant safety net that helps people rise, and an economy that grows and increases the living standards of all citizens.
- The tax code for individuals would remain progressive with four tax rates, 10%, 20%, 30%, and 33%. For businesses, the tax burden on new investment would be eliminated. A border adjustment tax on carbon would be implemented to help decarbonize the global economy.
- The duplicative, contradictory, and confusing programs making up our social safety net desperately need repair. The key to avoiding personal stagnation is a safety net focused on promoting work, family, and education while at the same time slowing the growth of safety net spending. The purpose is to shift the emphasis from accommodating poverty to supporting the principles that will lead to family prosperity.
- Spending on the major healthcare programs such as Medicare, Medicaid, and the Affordable Care Act, along with Social Security, are Projected by the CBO to consume 15.2% of GDP by 2052. By the same year, interest payments on the national debt are projected to total 7.2% of GDP. But the average costs of the entire federal government from m1972 to 2021 totaled 20.8% of GDP. In other words, at the present rate of growth, the cost of just entitlement programs plus interest payments on the debt will eat up the entire federal budget in just 30 years! Clearly, something must change!
- Looking at just Medicare alone (for now), the solution is to build on the popular Medicare Advantage Program with a premium support system that works like the Federal Employees Health Benefits Program. A means-testing feature would be included, whereby the wealthy will share more of the premium burden than low- and middle-income seniors do.
Conclusion. “In this enormous economic challenge lies an opportunity of renewal. If we stabilize our debt, revitalize our economy, and restore the promise of upward mobility, we will be the authors of a great new chapter in the remarkable American story.”
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