A "modest" proposal to balance the federal budget

Abstract

The total debt of the United States (US) federal government now exceeds annual Gross Domestic Product (GDP). This level has historically proved problematic in other countries. The primary driver of the debt is a federal budget deficit that now exceeds $1 trillion per year. Despite forecasts of dire consequences, the deficit and debt have not been controlled, as efforts to make meaningful reductions-including plans developed by the bipartisan Bowles-Simpson and Domenici-Rivlin groups-have so far fallen prey to infighting in the political process. This paper examines one approach to eliminate the annual deficit, balance the federal budget, and reduce the federal debt. This approach increases tax revenues with a flat income tax applied to a broader tax base plus a consumption tax. Health and welfare spending is reformed using the Boortz-Linder Prebate and the Bismarck social-insurance health care plan to provide a more comprehensive safety net. Defense spending is reduced by making greater use of reserve forces following the model of Sweden, Switzerland, and Israel, by reducing overseas deployments, and by reforming procurement. Many unnecessary or counterproductive activities are cancelled, transferred to the states, or privatized. Social security is placed on a sound footing for the future. These proposals are based in large part upon programs and procedures that have produced positive results in other countries. This approach is offered not as the only or best solution, but rather to indicate that solution is possible and to lead to further discussion.