How would you cut the deficit?

The Wall Street Journal has devised an interactive tool where you can apply certain tax increases, cuts to spending, and cuts to benefits and entitlements.  The tool can be found HERE.

I was able to come up with an estimated $6 billion surplus from the currently projected $1.1 trillion deficit.

Some steps I took:

  • Extend certain tax cuts originally enacted in 2001, 2003, and 2009 for taxpayers with income below $250,000 for households and $200,000 for individuals; extend estate and gift tax provisions enacted in 2010; and index the AMT for inflation
  • Increase the share of Social Security and Railroad Retirement benefits subject to taxes
  • Increase the gasoline tax to 43.4 cents a gallon from 18.4 cents, and the diesel tax to 49.4 cents from 24.4 cents
  • Tax “inside buildup” – the interest, dividends, and other investment income earned through certain annuities and life insurance
  • Increase the amount of money coming in to the Social Security system by requiring state and local government employees to join and pay the payroll taxes
  • Reduce by 0.5 percentage point the pay raise for civilian government workers, whose pay has been frozen since 2011
  • Reduce by 0.5 percentage points the pay raise for federal government employees, whose pay has been frozen since 2011
  • Increase the share of rent that low-income tenants pay in federally-subsidized housing
  • Reduce federal funding for developing new energy technology
  • Repeal the expansion of health insurance coverage under the new health-care overhaul laws going into effect
  • Give states a set amount of money to fund long-term care under Medicaid, the state and federal health-care program for poor people
  • Repeal the requirement that everyone carry health insurance
  • Raise the eligibility age for Medicare to 67, up from 65
  • Gradually raise the earliest eligibility age for Social Security to 64, up from 62
  • Reverse the order of the two-step process to calculate Social Security benefits, which would encourage some people to work longer
  • Make Social Security benefits tied to a worker’s average earnings over 38 years instead of 35 years, which generally would include more years of lower pay
  • Tie interest rates on federal student loans to market conditions, causing rates on student loans to rise with interest rates
  • Make it harder to qualify for food stamps and reduce the maximum benefits available

Here’s some things I did not do:

  • Limit to 15% of the value of a tax deduction, down from a maximum 35% currently for the highest earning taxpayers
  • Phase out the mortgage-interest deduction over a decade beginning in 2014
  • Tax employer-paid premiums on certain benefits, like for disability and workers compensation
  • Require businesses to take smaller deductions each year for big-ticket investments by extending the period for depreciating equipment to a maximum 39 years from a current maximum of 20 years
  • Repeal a deduction used by oil companies, filmmakers and manufacturers for producing domestically instead of overseas
  • Impose a 5% value-added tax – a type of consumption tax – on a wide array of goods and services including home purchases
  • Tax greenhouse-gas emissions by setting up a program to force polluters to buy a permit for each ton of carbon dioxide emitted into the atmosphere
  • Prevent military retirees and their families from signing up for the cheapest version of Tricare, the military health-care program
  • Increase what Tricare recipients pay for prescription drugs
  • Lower pay raises for members of the military
  • Reduce funding for the National Institutes of Health
  • Eliminate 11 grant programs for elementary and secondary education
  • Increase the premiums for Medicare Part B, which covers costs like doctor’s visits, to 35% of spending per person, up from 25%
  • Add a government-run health-care plan to the new insurance marketplaces
  • Require prescription drug makers to pay a rebate to the government on drugs purchased by some people in federal health programs
  • Increase out-of-pocket costs in Tricare for Life, a health-care supplement to Medicare for military retirees and their families
  • Reduce initial disability insurance benefits by 15 percent
  • Extend the waiting period for disability insurance to 12 months, from five months

I would say I was pretty even-handed with my plan.  I did my best to not make cuts to military personnel and their families or the elderly.

How do you think my plan would fare against yours?  What should I have done differently, and why?


  1. I went through pretty quickly and dropped to a $184 billion dollar deficit. I’d like to see some more DOD options in terms of reducing/eliminating some of our long term overseas military commitments and possibly reducing/eliminating some hadware expendatures. I’d also like to see NASA on the list. I could see good arguments for cutting or eliminating NASA or expanding it. Also, I’d like to see the option of reducing/eliminating DOE, HHS, PBS as well as some others. For all the crap surrounding the fiscal cliff, it seems like it really shouldn’t be that hard for someone, who doesn’t have a stake in keeping programs, to come up with some relatively simple things to rein in spending while allowing for increased revenues at the same time. The problem is that P-BO campaigned on a “balanced” approach and is barganing for an unbalanced approach.

    • Craig

      I would have liked to have the Department of Energy, Education, NASA, Health and Human Services, and some others on there. But if I’m understanding this right, these are the issues currently being considered, and not necessarily all possible options that could be on the table.

      Do you have the link to your deficit reduction? Every time you click an option it changes the URL, so you can post the link when you’re done.

  2. No, I couldn’t get all the way through so I bailed. I’ll probably try it again when I have some more time.

  3. If you American humans want to reduce your enormous deficit and public debts, you’re going to have to cut expenditure and raise taxes. I wouldn’t recommend doing either right now while your economy is only just staggering back into the ring, but you’re going to have to do it soon.
    I’m quite surprised that VAT has been so overlooked – you may have noticed it’s the second biggest item on that list – and that at only 5%. As taxes go, VAT is as fair, neutral and non-distortive as they come. It’s also very easy to administer and collect, and damn near impossible to avoid.
    Think about it.

    • I would be ok wit ha VAT if I knew it wouldnt be raised whenever the govt decides they need more money. Our American politicians have a high tendency to prefer tax hikes over spending cuts. However, it has shown, multiple times that when tax rates on investment income are lowered, the government takes in more revenue.

      Our country is over spent, not under-taxed, imo.

  4. Econo,
    You’ll get no argument from me. We have a president who thinks a balanced approach is to raise taxes and increase spending, with some spending “cut’s” down the road.

  5. I got a $198 billion surplus with $870 in increased taxes, $145 is cuts to scheduled spending and $285 in cuts to entitlement programs because I’m mostly economically illiterate. I let the tax cuts expire.

    But I just realized that increasing taxes by that much to allow for less spending cuts is probably a bad idea so I’ll have another go at it later.

Any Thoughts?

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