The 1 Percent Solution

Abstract

This working paper lays out a general framework for how the nation can address its long-term fiscal challenges, without tax increases, to avert the coming fiscal crisis and balance the budget within the next decade. This paper does not provide a master plan identifying specific programmatic spending reductions in discretionary spending, such as defense and agriculture, nor in entitlement programs, such as Social Security, Medicare, and Medicaid. Entitlement spending on Medicare and Medicaid alone is estimated to continually increase as a share of the economy. Controlling the increase in the runaway growth of health-care expenditures will require tough choices that many politicians seem unable to make, and that the public may or may not support. However, what is clear is that spending needs to be controlled. Delaying the tough choices necessary will only require even tougher and harder choices down the road. This paper provides a framework to compare and evaluate other reform plans and, just as importantly, to stimulate discussion on how to control and reduce government spending.The United States has a spending problem. For fiscal year 2010, the federal government spent approximately $3.5 trillion, or almost 24 percent of GDP, while collecting $2.2 trillion in revenue. The result was a $1.37 trillion deficit. For fiscal year 2011, the Congressional Budget Office (CBO) estimates the deficit will increase to over $1.5 trillion, and the Office of Management and Budget (OMB) estimates that the deficit will be $1.6 trillion. While debt held by the public was approximately $9 trillion in fiscal year 2010, or 62 percent of GDP, the national gross debt, which includes bonds such as those held in the Social Security trust fund, now stands at over $14 trillion and is estimated to climb to over $15 trillion in fiscal year 2011, which would amount to almost 100 percent of GDP.