Ideas for reducing the federal deficit

By Jan Teague, President/CEO, Washington Retail Association

You may have heard about a recent report released November 10th that cuts the deficit by $3.8 trillion. President Obama set up a panel of 18 lawmakers, business and other leaders to recommend how to cut the deficit and they came up with a list that noone likes.  It will be very politically difficult to make these changes, but the list is worth talking about.  It includes:

1.    Cutting $100 billion in defense spending

2.    Raising the social security age to 69

3.    Raising the gas tax by 15 cents

4.    Lowering the corporate tax rate to 26 percent

5.    Repealing the alternative minimum tax

6.    Scrapping the deductions on mortgages over $500,000

7.    Cutting the federal work force by 10 percent or 250,000 workers

8.    Cutting farm subsidies by $3 billion

The challenge faced by our national deficit is that it continues to grow just basedon interest and spending more each year than we take in.  So what these recommendations do is hold down the debt’s growth.  The current national debt is about $13.7 trillion.
The amount of money spent each year by Congress exceeds what the nation brings in by about $1.3 trillion dollars.

There is also talk about controlling federal spending on health care that would include reforming medical malpractice law.  This would be a significant feat given the political power of the legal community which is a very well funded group that participates in PAC donations and other lobbying activities.Congressional earmarks would be banned permanently saving $16 billion dollars. Other cuts include $410 billion on discretionary items.

The recommendations are a starting point for Congressional debate over the next year.  This version of the report may see further changes, but it is due December 1.  The plan’s goal is to reduce federal spending and federal revenues to 21 percent of gross domestic product.  Federal revenues currently are projected to be about 19 percent of GDP in 2015 and outlays about 23 percent.

If the plan were to be implemented fully, it would reduce the deficit to 2.2 percent of GDP by 2015.  The deficit is currently 8.9 percent of GDP.  Even with the plan fully implemented it would take until 2037 to be debt free.