Fiscal Policy Recommendations

We believe that our single highest priority must be to establish control over our fiscal policy. Without this, our financial future is endangered and we will not have the resources available to address any of the pressing issues we face, such as climate change, infrastructure, healthcare, and poverty.

While not easy, the options for achieving a balanced budget are not complicated. We say this because, as we have shown above, only mandatory spending is driving the growth of the federal budget. To examine this further, we have inserted a more detailed CBO projection here for reference.

Important Caveat: Given the recency of the $2 trillion CARES Act, the data used in this research have not yet been updated.

In examination of the CBO projection, it is clear that while discretionary spending can be reduced (and should be, as we argue in our Defense Position), neither of these categories can be managed to significantly change the trajectory of federal spending. Clearly, only a new approach to mandatory spending can be meaningful.

Within the mandatory category, Social Security is self-funding through 2034. While we believe that Social Security should ultimately be subject to a means test (see Social Welfare Position), we do not propose any cuts to Social Security in the short run. Therefore, we are left with the simple reality that only by addressing Medicare and Medicaid will we be able to control spending.

The good news is that, as we discuss in our Healthcare Position, by adopting an American version of the best practices of countries like Germany, France, and Japan, we can dramatically lower healthcare costs while expanding coverage to every American. Recall that the US spends approximately 80% more on healthcare than comparable countries. While we should aspire to manage healthcare as well as they do, the reality is that even if we can only manage to hold healthcare prices flat through healthcare reform, we can stop the growth of the federal government and balance the budget, without tax increases, in five to seven years.

If we add to this better control over our discretionary spending, fiscal balance can be achieved even faster. In the private sector, companies are often required to reduce expenses when they encounter difficult economic times or markets. In a perfect world, they would set different individual targets for each department based on their priorities. More frequently, however, CEOs set a single across-the-board target that each department has to meet. The reason for this is a practical one: CEOs know that if they attempt to set individual targets, they will be embroiled in endless arguments by department heads about the relative importance of their departments and why they can’t do what they are asked. We believe that this logic should be applied to the federal government and that a single target of expense reduction should be applied to all discretionary spending. Thereafter, spending in those departments should be frozen until economic growth and the related growth in tax revenue results in a balanced budget.

We recommend reducing non-defense spending from the 2019 level by 5% and freezing it at this level. This results in an annual saving of $32 billion per year. While any cuts will cause a chorus of critics and cries that the world is ending, we would remind our readers that cutting non-defense discretionary spending by this amount would only reset such spending to the 2018 level. This does not seem to us to be much of a hardship.   

As discussed in our Defense Position, we recommend reducing defense spending by 20%. This results in an additional saving of $120 billion per year.

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