Fiscal Solutions: A Balanced Plan for Fiscal Stability and Economic Growth

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Introduction

Our country faces a serious fiscal crisis. According to President Obama's National Commission on Fiscal Responsibility and Reform, the nation is on an unsustainable fiscal path, with spending well above tax revenue. The Congressional Budget Office projects that, under current policies, federal debt will soar from 62 percent of annual GDP in 2010 to 87 percent in 2020 and 185 percent in 2035.2 The plan presented here represents the collaboration of its four authors and does not reflect the position of the American Enterprise Institute or any other organization. The individual authors do not fully agree with every provision of the plan, but we join in presenting it as a way to address the fiscal imbalance while promoting economic growth.
Our plan re-establishes a balance between federal spending and revenue that achieves long-term fiscal stability and promotes economic growth. We cannot simply tax our way to a balanced budget without suffering the consequences of a sluggish economy and reduced prosperity. We also cannot simply cut spending without risking the loss of 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.
Our plan limits the national debt to 60 percent of annual GDP in 2035. 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. We are under no illusion about the difficulty of this task. These policies will require real sacrifices of many families and will be politically unpopular, but some version of our plan is necessary.

The major entitlement programs--Medicare, Medicaid, and Social Security--will account for most of the unsustainable growth in long-term federal spending. The Affordable Care Act (ACA) introduces a new subsidy for health insurance in 2014 that will add to the fiscal pressure and contribute to the inflationary pressures that make health care increasingly unaffordable. Spending also must be reduced in other federal programs, but fiscal stability cannot be achieved without reforming our health and retirement programs.
The growth of federal health spending is widely agreed to be our largest fiscal challenge. The technical challenge is to identify policies that can successfully harness Medicare's spending growth with the least impact on access to services and quality of care. The political challenge is to muster the will and bipartisanship necessary to take difficult policy actions in a program that will serve a rapidly growing number of voters.

Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at AEI. Andrew G. Biggs is a resident scholar at AEI. Alex Brill is a research fellow at AEI. Alan D. Viard is a resident scholar at AEI.

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About the Author

 

Joseph
Antos

 

Alan D.
Viard

 

Alex
Brill

 

Andrew G.
Biggs

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