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NetNet Solves the Budget Deficit—Without Raising Taxes or Touching Social Security

Monday, 15 Nov 2010 | 2:21 PM ET

Following the leads of Barry Ritholtz and Felix Salmon, I decided to take a stab at David Leonhardt's challenge to readers to attempt to reduce the budget deficit by playing with this interactive New York Times graphic.

Deborah Harrison | Getty Images

It’s pretty simple to operate. You get a work sheet with various options to cut spending or increased revenue. The goal is to fill the $418 billion budget hole projected by 2015 and a $1.3 trillion hole by 2030.

I solved the shortfall without raising any taxes or touching the core of Social Security. That is to say, 100% of the fix comes from spending cuts. (You can read all the details here.) In the end, I actually overachieved.

The largest savings comes from Medicare, the government provided health care for the elderly. Capping Medicare growth at GDP plus one percent would save $29 billion by 2015 and $562 billion by 2030. By raising the age qualification to 70, I’d take on another $104 billion over 20 years. And reducing the tax breaks for employer provided health care—which would incentivize health care consumers to put pricing pressure on providers—saves another $157 billion. Tack on malpractice reform and we’ve got another $13 billion in savings.

It took an axe to military spending and space research to achieve a savings of $349 billion. I think, actually, I’d like to slash this spending even more—but there was no option for a total withdrawal from Iraq and Afghanistan in 2011. I guess the Times considers that unrealistic.

I also checked off every option to cut domestic spending. Even here I’d like to cut more. Why, for instance, can’t I cut foreign aid by more than half? Our foreign aid budget is far more bloated than just a 50% cut suggests.

I left Social Security largely in tact because most of the proposal to reform it are forms of redistributive taxation that I think aren’t a good idea. The only thing I cut here was $17 billion from the disability program, which is a relatively minor reduction that would only cut into states with the most generous programs for allowing disability benefits.

With those cuts alone, I managed to not only balance the budget—I’ve created s surplus. According to the Times, by 2030 I’d have a $30 billion surplus. I’d probably favor both raising some sort of bank tax and converting the mortgage interest deduction into a tax credit. According to the Times, this would give another $157 billion in revenue.

So, if I were willing to accept those two new taxes, my plan would do more than balance the budget. It would create a $187 billion surplus that could be used to drastically cut taxes on dividends and capital gains.

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