Key Points
- The current trajectory of explosive growth in federal debt and entitlement spending is fiscally untenable and will unduly burden future generations.
- This plan focuses on tax reform proposals that raise necessary revenues with the least possible impact on saving and economic growth and on entitlement spending reform proposals that make those programs better targeted and more efficient.
- These proposals would improve fiscal stability and economic growth and hold the national debt to 62.7 percent of annual gross domestic product in 2040 by narrowing the fiscal imbalance, limiting the size of government, and adopting a more growth-friendly tax code.
Read the full Peterson Foundation Solutions Initiative III report.
Recognizing the unsustainable fiscal outlook facing the United States, the authors present a plan to constrain the growth of federal spending and reform the tax system to promote economic growth. The plan replaces the income tax system with a progressive consumption tax, eliminating the bias against savings and investment. The plan revamps Social Security to provide a flat, universal benefit that would virtually eliminate poverty in old age, making the program more effective in protecting low earners, more conducive to saving and longer work lives, and better aligned with the work and retirement conditions that will prevail in the coming decades. Additionally, the plan adopts health reforms that are intended to slow the growth of spending while maintaining access to high-quality health services, by shifting away from the defined-benefit approach that characterizes Medicare and Medicaid today to a defined-contribution philosophy. The plan also brings federal spending and revenue into closer alignment, sparing future generations from the explosive growth of federal debt.
Absent major policy changes, growth in entitlement spending over the next 25 years is projected to push the federal debt as a share of GDP to more than 100 percent, an untenable fiscal prospect and one that will force undue burdens onto future generations. The objective of this plan is to achieve long-term fiscal stability and promote economic growth. We cannot simply tax our way to fiscal stability without suffering the consequences of a slower economy and reduced prosperity. Yet we also cannot address the imbalance simply by cutting spending without regard for the risks of eliminating essential services for an aging population, undercutting our infrastructure on which economic growth builds, and reducing our ability to defend the country against its enemies.
The tax proposals presented in this plan raise necessary revenues with the least possible impact on saving and economic growth. Our spending proposals make entitlement programs better targeted and more efficient.
Our proposals would hold the national debt to 62.7 percent of annual gross domestic product (GDP) in 2040. Ambitious cuts in federal spending are required to achieve that goal while minimizing tax burdens on the American people and the drag that high marginal tax rates impose on long-run economic growth. The plan emphasizes reductions in the growth of the major entitlement programs—Social Security, Medicare, Medicaid, and health insurance subsidies established by the Patient Protection and Affordable Care Act (ACA).
Many of these policies will be politically unpopular, but some version of our proposal is necessary. None of the authors of this plan fully agrees with every policy advanced here, but we have been able to reach the kind of compromise that is needed to address the long-run fiscal imbalance. Our plan addresses three key areas.
Taxes. The federal government raises much of its revenue from individual and corporate income taxes, which penalize saving and investment. Our proposed tax reform eliminates these penalties by replacing the income tax system and the estate and gift tax with a progressive consumption tax. To address environmental concerns in a more market-friendly manner, the proposal replaces an array of energy subsidies, tax credits, and regulations with a modest carbon tax.
Social Security. The Social Security reforms we outline are designed to make the program more effective in protecting low earners, simpler for individuals at all earnings levels to understand and plan around, more conducive to saving and longer work lives, and better aligned with the work and retirement conditions that will prevail in the coming decades. The Social Security program will provide a flat, universal benefit that would virtually eliminate poverty in old age. This flat payment would increase benefits for the roughly one-third of retirees whose current Social Security benefit is less than the poverty threshold. But middle- and upper-income individuals will have to save more on their own for retirement, and this proposal facilitates that saving. Delayed retirement also would improve retirement income security, and this proposal provides clear incentives for individuals to extend their work lives. These changes will make Social Security solvent and sustainable in the long term while reducing program outlays to better accommodate rising costs for other priorities, including health care.
Health Care. Our proposed health reforms are intended to slow the growth of spending—both federal and system-wide—while maintaining access to high-quality health services. The reforms establish a clear understanding that binding resource constraints exist without imposing unnecessary restrictions on consumer choice. Incentives, rather than controls, promote greater efficiency and allow patients and their health care providers to make the best individual decisions within a responsible budget framework. That requires shifting away from the defined-benefit approach that characterizes Medicare and Medicaid today toward a defined-contribution philosophy that limits federal spending while recognizing the changing needs of the population.
To develop an effective plan, it is necessary to repeal major sections of the ACA and replace them with a new set of policies based on market principles and budget realities. Nonetheless, the major objectives of that legislation (such as creating an organized marketplace for insurance, better information for consumers, and expanded federal insurance subsidies for those most in need) are reflected in new policies better able to achieve those goals.
Our proposal brings federal spending and revenue into closer alignment, sparing future generations from the explosive growth of federal debt. At the same time, it promotes economic growth by emphasizing spending cuts rather than tax increases and by using an economically efficient consumption tax to raise the revenue needed. Real federal spending would continue to increase under the proposal, but at a significantly slower pace than under current law.
This plan was developed as part of the Solutions Initiative III project and funded by the Peter G. Peterson Foundation. The Peterson Foundation convened researchers from organizations with a variety of perspectives to develop plans addressing our nation’s fiscal and economic challenges. The American Action Forum, American Enterprise Institute, Bipartisan Policy Center, Center for American Progress, and the Economic Policy Institute each received grants. All participants had discretion and independence to develop their own goals and propose comprehensive solutions. The Peterson Foundation’s involvement with this project does not represent endorsement of any plan.
from AEI » Latest Content http://ift.tt/1JXnVp6
0 التعليقات:
Post a Comment