09 February 2010

Toward Lower Deficits And More Effective Government

WSJ: Toward a Different Fiscal Future
Tax increases can't plausibly address the coming entitlement crisis.

Moody's Investors Service's warning last week that the AAA credit rating of the United States is in jeopardy raises fresh concern about the nation's fiscal health. The question to ask about the president's eye-popping budget, also rolled out last week, is whether it prepares the country for its future—or shackles it to past decisions that our leaders would rather not confront.

[T]he president and the Congress need to present a credible path toward lower deficits and more effective government. Such a plan should have three elements.

First, introduce specific targets for reducing discretionary spending.

Indeed, holding growth in the nondefense discretionary spending to 2% per year, well under present levels, is achievable and would free up funds for our future priorities.

Second, slow the growth of entitlement spending on Social Security and Medicare. A good way would be to shave 1% per year from projected entitlement growth.

It is possible to do so progressively, lowering the growth in benefits for middle- and upper-income households, while strengthening support for lower-income households. Expanded saving incentives and health saving accounts can be used to help more affluent households prepare for retirement. Taken together, these changes offer the greatest chance for reducing long-term spending while holding fast to government's legitimate social insurance role.

Third, if the administration wants to maintain the spending path on which its budget blueprint places us, it must confront and propose significant, broad-based tax increases. Let's be clear what this means.

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