The budget cites cuts to entitlements, revenue increases, and adoption of the chained Consumer Price Index (CPI) as the catalyst to getting the national debt on a downward trend for the coming decade. Although such compromises are a step in the right direction, law makers must go further to put America back on the path toward economic prosperity and address the clear areas where spending can be reduced. While the proposal did tackle some areas of concern, as a whole it does not achieve much in the realm of reducing the overall debt. A majority of the spending is frontloaded, giving the impression that the debt is on a downward path, but if we look closer we see that through this budget proposal, the country’s debt will likely not change significantly across the next decade.
Entitlement reform, including Medicare/Medicaid cuts, is on the table in the President’s budget, to the chagrin of many Democrats. However, a serious effort to streamline the system would reap much greater savings than currently being proposed. Increasing means-testing of Medicare premiums for example is vital in ensuring that those who can afford not to be funded by the government are not. The more crucial aspect to entitlement reform is ensuring the complete funding for these programs for the next generation. Additionally, Social Security cannot continue the gimmick of being funded by government bonds and growing its unfunded liabilities, which will ultimately rest on our children’s shoulders.
Regarding revenue, the primary source of revenue in the budget comes from changes to the tax code. Changes to the corporate tax code coupled with increased taxes on the country’s highest earners according to the proposal, will generate revenue of roughly $600 billion in the next ten years. While closing loopholes in an otherwise outdated tax code is the right strategy, increasing corporate tax rates and taxing job providers does not make for increased economic output in the long run, rather the opposite. In addition, the tax increases, which are designed to fund the repeal of the Sequester, limit companies’ abilities to hire workers, and hinder growth. This begs the question: is this the correct path toward financial prosperity?
Our aim here is not to take sides, but to provide perspective on the status of the budget discussions. It is after all critical to solve our debt default cycle to ensure prosperity. We are no where near resolution, but the principle players have at least been forced to stake out positions. It is progress.
For a detailed breakdown of the three budgets, view the infographic below.