March 1, 2011 | WebMemo on Budget and Spending
This short-term problem will be followed by a tidal wave of entitlement-driven spending as baby boomers flood into Social Security, Medicare, and Medicaid. Left unchecked, these programs will drive debt to nearly 200 percent of the economy. Unless Congress changes course on spending, every income tax rate will have to more than double, according to the Congressional Budget Office. Every American, especially younger generations, would have a permanently lower standard of living.
The nation is drowning in a sea of red ink, and the voters have rightly said, “Enough.” We must tame federal spending and protect our children and grandchildren from crushing debt or taxes. The policies set forth below will achieve a stronger America, one where our families and businesses are much better off.
Establish Spending Targets
Set firm budget targets to light the path for returning to fiscal sanity by lowering spending and controlling the debt.
Fix the Budget Process
The budget process allows entitlements—Social Security, Medicare, and Medicaid, the biggest parts of the budget—to grow with no limits or long-term constraints. Other parts of the budget are likewise unconstrained, so Congress should:
Provide for a Strong Defense
Fully fund defense needs so our troops can defend America and our interests abroad. Priority should be given to modernizing and developing next-generation equipment necessary to protect the nation and our interests from rapidly changing threats. Savings from military reforms, such as performance-based logistics, should be reinvested in the defense budget to help pay for these much needed improvements.
Specifically, the base Department of Defense budget should include $560 billion in funding for 2012 and an average of $720 billion over the next five years (to be adjusted for inflation). Funding for ongoing contingency operations should be in addition to this amount.
Implement Broad Spending Reforms, Including Entitlements
Beyond discretionary cuts, major programmatic changes are needed to bring federal spending under control.
Transformational changes are needed for the major entitlement programs Social Security, Medicare, and Medicaid.
The Patient Protection and Affordable Health Care Act, or Obamacare, touted as a deficit reduction bill, is in reality a budget buster. It created new entitlements and will drive general health care costs up, not down.
Welfare spending is approaching $1 trillion annually, and the 70-plus welfare programs have encouraged a pattern of cyclical dependence among tens of millions of Americans.
The reach of the federal government is too vast. Asset sales can bring relief to the overstretched budget and bring economic benefits to society by putting resources in the hands of the more productive private sector.
Keep Taxes Low
Tax hikes are the wrong answer to the budget crisis. To keep our economy strong and growing, taxes must be kept low and competitive with other nations, and policies that distort markets should be reformed.
Alison Acosta Fraser is Director of the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
The author gratefully acknowledges the many contributions made by the authors of the following publications:
The Heritage Foundation, “Solutions for America,” at http://thf_media.s3.amazonaws.com/2010/pdf/SolutionsForAmerica.pdf.
The Heritage Foundation, “The Checklist,” at http://thf_media.s3.amazonaws.com/2010/pdf/Solutions_1-5.pdf.
Brian M. Riedl, “How to Cut $343 Billion from the Federal Budget,” Heritage Foundation Backgrounder No. 2483, October 28, 2010, at http://www.heritage.org/Research/Reports/2010/10/How-to-Cut-343-Billion-from-the-Federal-Budget?query=How+to+Cut+$343+Billion+from+the+Federal+Budget.
Brian M. Riedl and Alison Acosta Fraser, “Four Principles of Budget Process Reform,” Heritage Foundation Backgrounder No. 1746, April 8, 2004, at http://www.heritage.org/Research/Reports/2004/04/Four-Principles-of-Budget-Process-Reform.
Alison Acosta Fraser, “Obama’s Fiscal Commission: Avoiding a Standoff,” Heritage Foundation WebMemo No. 2882, April 27, 2010, at http://www.heritage.org/Research/Reports/2010/04/Obamas-Fiscal-Commission-Avoiding-a-Standoff.
Mackenzie Eaglen, “Taking a Scalpel to the Defense Budget,” Heritage Foundation WebMemo No. 3123, February 3, 2011, at http://www.heritage.org/Research/Reports/2011/02/Taking-a-Scalpel-to-the-Defense-Budget.
David C. John, “Time to Raise Social Security’s Retirement Age,” Heritage Foundation Backgrounder No. 2492, November 22, 2010, at http://www.heritage.org/Research/Reports/2010/11/Time-to-Raise-Social-Securitys-Retirement-Age.
Robert E. Moffit and James C. Capretta, “How to Fix Medicare: A New Vision for a Better Program,” Heritage Foundation Backgrounder No. 2500, at http://www.heritage.org/Research/Reports/2010/12/How-to-Fix-Medicare-A-New-Vision-for-a-Better-Program.
Nina Owcharenko, “State Medicaid Reform After Obamacare,” Heritage Foundation WebMemo No. 3062, at http://www.heritage.org/Research/Reports/2010/11/State-Medicaid-Reform-After-Obamacare.
“The Case Against Obamacare: A Health Care Policy Series for the 112th Congress,” at http://www.heritage.org/research/projects/the-case-against-obamacare .
Ernest Istook, “How to Limit the Damage from Obamacare—Pulling It Out Weed by Weed,” Heritage Foundation Backgrounder No. 2512, January 27, 2011, at http://www.heritage.org/Research/Reports/2011/01/How-to-Limit-the-Damage-from-Obamacare-Pulling-It-Out-Weed-by-Weed.
Katherine Bradley and Robert Rector, “Confronting the Unsustainable Growth of Welfare Entitlements: Principles of Reform and the Next Steps,” Heritage Foundation Backgrounder No. 2427, June 24, 2010, at http://www.heritage.org/Research/Reports/2010/06/Confronting-the-Unsustainable-Growth-of-Welfare-Entitlements-Principles-of-Reform-and-the-Next-Steps.
Stuart M. Butler, “Why Asset Sales Are Good Public Policy,” Heritage Foundation Lecture, February 15, 1988, at http://www.heritage.org/Research/Lecture/Why-Asset-Sales-Are-Good-Public-Policy.
Curtis S. Dubay, “Obama Tax Hikes: Bad for All Americans,” Heritage Foundation Backgrounder No. 2473, September 23, 2010, at http://www.heritage.org/Research/Reports/2010/09/Obama-Tax-Hikes-Bad-for-All-Americans.
Curtis S. Dubay, “Corporate Tax Reform Should Focus on Rate Reduction,” Heritage Foundation WebMemo No. 3146, February 11, 2011, at http://www.heritage.org/Research/Reports/2011/02/Corporate-Tax-Reform-Should-Focus-on-Rate-Reduction.
Stuart M. Butler, “How to Design a Tax Cap in Health Care Reform,” Heritage Foundation WebMemo No. 2517, July 1, 2009, at http://www.heritage.org/Research/Reports/2009/07/How-to-Design-a-Tax-Cap-in-Health-Care-Reform.
Peter R. Orszag, Director, Congressional Budget Office, letter to Representative Paul Ryan (R–WI), May 19, 2008, at http://www.cbo.gov/ftpdocs/92xx/doc9216/
05-19-LongtermBudget_Letter-to-Ryan.pdf (June 24, 2008).
Former Senators Warren Rudman (R-NH) and Phil Gramm (R-TX) authored legislation in the 1980s that imposed strong fiscal discipline on federal spending by imposing automatic cuts when spending exceeded targets.