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Factsheet #94

November 16, 2011

THE SUPER COMMITTEE: Deficit-Reduction Solutions

America’s Spending and Debt Crisis

  • It’s the Spending: Washington has a spending problem. While tax revenue is projected to climb above its historical average level of 18.4% of gross domestic product (GDP) by 2021, government spending is projected to increase to 26.4% in the same period. Driven by the three largest entitlement programs—Social Security, Medicare, and Medicaid— total federal spending will explode from 24% of GDP in 2011 to nearly 35% by 2035.
  • Government Debt Growing at Unsustainable Levels: Publicly held debt more than doubled from $5 trillion at the end of fiscal year (FY) 2007 to a staggering $10.1 trillion in FY 2011. Today it’s nearly 70% of GDP and is on track to hit 185% of GDP by 2035.
  • Our National Defense Is at Risk: Defense spending, excluding war costs, is only 3.7% of GDP—under the 60-year average—and will be cut further under the Budget Control Act, exacerbating our readiness crisis.

Revenue and Spending Projections

Solutions for the Super Committee

  • Set Priorities and Make Bold Decisions: Whether it reaches its $1.5 trillion target or goes beyond it, the super committee should be bold. At the same time, it should avoid flawed policies that will do more harm than good. Federal spending and revenue should be balanced at the level of tax revenues to avoid deficits adding to national debt.
  • Fully Fund National Defense: Providing for America’s national defense is the primary duty of the federal government. The super committee should ensure full funding for America’s armed forces rather than making additional cuts.
  • Transform Entitlements: Social Security, Medicare, and Medicaid are the largest drivers of medium- and long-term deficits and debt. These programs should be structurally reformed to make them financially sustainable while also assuring economic security for the nation’s seniors and younger generations.
  • Do Not Raise Taxes: Tax hikes should be a nonstarter to any deficit reduction plan. They harm the economy and keep government spending high. Merely discussing the prospect of tax hikes makes America’s businesses less willing to take risks, buy new equipment, expand, and hire new employees.

How to Rein in Long-Term Spending

  • Repeal Obamacare: The health care law’s Medicaid expansion and costly new health care entitlement are partially offset by unwise cuts to Medicare provider reimbursement rates and new taxes, but it will nevertheless add to deficit spending. These flawed policies will exacerbate existing concerns in health care entitlement programs.
  • Reform Medicare: Medicare should be transformed from an unsustainable, open-ended, defined-benefit program to a premium-support program that allows retirees to select health plans that best suit their needs in a competitive market. This will spur better care at lower cost.
  • Reform Medicaid: Medicaid should be converted to provide direct support to low-income families to purchase their own private health insurance, and states should be given greater latitude to administer the program to better serve the most vulnerable members of society: the elderly and disabled.
  • Reform Social Security: Social Security benefits should be preserved for today’s seniors, and the program should be transformed to real insurance by moving away from a stream of benefits for every single American to a flat benefit above poverty targeting those who need it the most.

For more information, please visit http://SavingTheDream.org.

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