James Pethokoukis

Politics and policy from inside Washington

How would U.S. react to a debt crisis?

July 20, 2011

If the U.S. doesn’t get a handle on federal debt, there will be a financial and economic crisis. By 2035, debt as a share of GDP could be 250 percent, though a panic would surely happen long before that point was reached. But if a crisis came, how would Washington react? What drastic measures would be taken? I think there would be a huge push for a massive tax increase, probably via a value-added tax. Here is some of what the Comeback America Initiative sees happening:

Social Security

• The higher retirement eligibility ages for Social Security would be increased to 70 for normal retirement and 65 for early retirement, and fully implemented by 2030 and 2020, respectively.

Most of the proposed reforms under the Preemptive (Prudent) Framework would be retained with the following significant differences:

• Repeal the Affordable Care Act of 2010.

• Repeal the Medicare Modernization Act of 2003.

Defense:

Most of the illustrative reforms under the Preemptive (Prudent) Framework would be retained with the following significant differences:

• Accelerate the planned draw down of U.S. troops from Southwest Asia from the end of 2014 to the end of 2012.

• Accelerate the reduction of U.S. overseas military and civilian presence.

Taxes and Revenues:

• Impose temporary deficit reduction revenue increases in fiscal 2013-2014 to accelerate deficit reduction and debt/GDP stabilization efforts.

• Phase-in the special income and payroll tax exclusion on employer provided and paid health care by 2018.

• Take any other actions needed to comply with annual revenue targets.

And the result:

The result is a balancing of the total budget by 2015, and reduction of debt/GDP to about 51 percent of GDP in 2021 and declining rapidly, versus about 76 percent of GDP and increasing rapidly under CBO’s current law baseline, and to about 28 percent and declining in 2035 versus about 91 percent and rising under the baseline.  … Overall spending under the framework would be reduced to 20.1 percent of GDP in 2021, from 23.9 percent under the current law baseline, and to 21.8 percent of GDP and leveling in 2035 from 28.3 percent and rising under the baseline. Nominal public debt would be less in 2023 than 2015 and essentially stable.The Reactive (Crisis Management) Framework also involves having to impose a temporary deficit reduction revenue increases to accelerate deficit reduction and debt/GDP stabilization, while maintaining an overall cap on federal revenues at 21.5 percent of GDP

 

Comments

Repealing Medicare Part D (Medicare Modernization Act 2003) is a great opening. This Republican led, Republican passed legislation did a great deal to accelerate the burden Medicare as a whole has placed on our deficit.

Increasing the age for retirement? Okay, but why not 68? or 69? Why 70?

But repealing Obamacare? That would put us back on the same path as before Obamacare, which is another national disaster of epic financial proportions…and does not solve the massive premium increases of the past decade+…key parts of Obamacare must be maintained to include how Big Insurance is allowed to use premiums, not allow them to drop sick customers, and not allow them to deny coverage or price coverage to outrageous levels for those who need coverage the most. If you want privateers in the health insurance game, you must control their anti-patient/anti-caregiver practices.

OR – How about we repeal Obamacare, but Socialize all medicine? AKA get rid of Big Insurance…or at the minimum work to emulate the Germans or Swiss? No? Well it was worth a try and it will be again soon…

Wait to increase revenue until 2013/2014? Why? The time is now…oh wait, you don’t want any credit being assigned to Obama…he’s a Democrat asking for revenue increases now. WE NEED THE REVENUES NOW!

Folks who are making massive dollars on dividends don’t need more tax shelters. The dividend income tax rate is 15%, without Social Security or Medicare taken. Tax dividend income at a higher rate…say 22%?

Surprisingly, however, you nailed it with Defense. We simply need to draw down around the globe. No one should be so naive as to not understand the downside impact this will have on the Military Industrial Complex, but the Soviet Union went bankrupt spending on defense and we have been doing the same: Two wars ($3.7 Trillion expended/no taxes to pay for them) expanded Homeland Defense, etc… Republicans were drunken sailors spending America into oblivion through the Bush years and they increased the Debt Limit seven, yes SEVEN times, and now their starve the beast plan is knocking on the doorstep…

How can anyone with any sense of reason support the Republicans, given what they have done?

Posted by NobleKin | Report as abusive
 

Re healthcare – As long as we’re in simplification mode, why not simply put the entire US population into a single risk pool? Then let insurance companies compete for customers and the providers to serve them. As it stands, each state sets its own regulations and the result is that insurers play the system by cherry picking markets, charging higher premiums in states where they can get away with it, and dictating how providers are compensated. Tear down the barriers and prices will fall.

The only thing certain about repealing Romneycare and not replacing it with another plan is that healthcare costs will soar off the charts and ever increasing numbers of people will be denied access.

Posted by Mint51HenryJ | Report as abusive
 

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