How I Fixed the Budget


The New York Times has a cool online feature (very much like the Committee for a Responsible Federal Budget's cool online feature) that lets users "fix the budget" by selecting programs to cut and taxes to raise. The goal of the interactive game is to close a $418 billion shortfall by 2015 and a $1.355 trillion shortfall by 2030.

I played along at home, and here are the ideas I liked:

Discretionary Spending
Eliminate earmarks
Eliminate farm subsidies
Reduce federal workforce by 10 percent
Other cuts to federal government

Reduce nuclear arsenal and space sending
Cancel or delay some weapons programs
Reduce number of troops in Afghanistan and Iraq to 60,000 by 2015

Health care
Increase Medicare eligibility to 68
Reduce tax break for employer-provided health insurance

Social Security
Raise retirement age to 68
Reduce Social Security benefits for those with high incomes
Use alternate measure for inflation

Return the estate tax to Clinton-era levels
Allow expiration of Bush tax cuts ONLY for those making more than $250,000
Subject more income to payroll tax
Eliminate loopholes and reduce rates in tax code
Reduce mortgage-interest deduction, replace with credit
Implement a carbon tax

Some observations:

1. I tried to balance spending cuts with tax increases to see if could get half my savings from spending and half from new taxes. The list above represents a 50/50 breakdown, according to NYT.

2. My cuts to defense were fairly minor. This is not because I think defense spending is just about right, but rather because I know less about the defense budget, and preferred to make changes to programs I'm more familiar with. This resulted in my having to overcut in some areas. For example, I would prefer not to slow the growth of Social Security benefits for all recipients, but I included an alternate measure for calculating inflation to adjust SS payments.

3. My dream budget would be more wacky than the Times feature allows. For example, I would use a carbon tax to partially reduce corporate income rates and I would use a national sales tax (a value-added tax) to partially reduce payroll tax rates on employers. This would, ideally, move our tax code away from taxing income and employment toward incentivizing green energy and savings.

4. The items I selected overshoot on the medium-term budget, reducing the 2015 deficit by $574 billion -- nearly 40 percent higher than the $418 billion shortfall we're asked to plug. With the economy weak and unemployment unlikely to fall below 9 percent for many months, I wouldn't want to pull the rug out from under the teetering recovery. Ideally, expensive budget changes wouldn't take hold until 2013 or 2014. In other words, my changes would be more gradual than the NYT options allow.

5. You'll notice when you click through to the interactive that the options within health care are fairly limited. This is not because health care is unimportant. In fact, health care's growing cost is the gravest threat to our long-term deficit by far. But most of the smart and subtle efforts to "bend the curve" and control spending are just that -- efforts, rather than easily scored answers. We can accurately account for savings when Social Security payments are curbed by a certain percent. But it's harder to predict how much ideas like the new independent Medicare counsel or the innovation center will change health care spending, even we agree that they are worthy ideas.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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