Mission, Issues & SolutionsThe Challenge -- America faces a growing crisis. Our federal government has accumulated a $13.6 trillion debt over the last few decades, and this debt is expected to grow significantly in coming years. This burden is a drag on our economy. Borrowing more and more would seriously threaten the livelihoods of Americans and our standing in the world. But if we act now, we can set our nation on a new course. America has solved other great challenges in its history. By rising above partisanship and working together, we can make a plan to live within our means and preserve the American tradition of increasing prosperity for future generations.Official government projections show our $13.6 trillion in federal debt doubling by the 2020's, tripling by the 2030s and even quadrupling by the 2040's. That means that unless we change our course, $13.6 trillion could grow to more than $65 trillion. By making changes now, we can set America on a new course. By rising above partisanship and working together, we can make a plan to live within our means and preserve the American tradition of increasing prosperity for future generations. In order to put our federal government on a new path, we will need to look at all areas of the federal budget. Here's an overview of the major elements of our federal budget that shows the wide range of potential solutions that exist. By examining these areas, we can support elected leaders from both political parties who want to do the right thing, and design a plan that helps us live within our means. There are many solutions that would help address America's fiscal challenges. Some of the most frequently proposed changes to current policy are present below for each of the major issues areas. The solutions presented illustrate the types of approaches that that have been presented to elected officials for their consideration. While each of us individually could put together a long-term budget plan that would satisfy our own priorities, it will take compromise, collaboration and trade-offs to reach a workable plan that wins national support.Peter G. Peterson FoundationPGPFPeter G. Peterson Founder and Chairman -- Pete Peterson is founder and chairman of the Peter G. Peterson Foundation, a nonpartisan organization dedicated to raising awareness of America’s long-term fiscal challenges and promoting solutions to ensure a better economic future. The Foundation works with leading thinkers, policy experts, elected officials, and the public to build support for efforts to put America on a fiscally sustainable path.Michael A. Peterson President and Chief Operating Officer -- As President and Chief Operating Officer, Michael combines his extensive private sector experience with his dedication to public service and the common good. He oversees the strategic direction of the Foundation, guiding policy and shaping strategy for its major initiatives, key partnerships and long-term objectives.Joan Ganz CooneyMember of the Board of DirectorsPeter G. Peterson Foundation AdvisorsDiana AvivPresident and CEO, Independent Sector Craig BarrettFormer Chairman, Intel Corporation Richard BeattieChairman, Simpson Thacher & Bartlett LLP Sen. William BradleyManaging Director, Allen & Company LLC; Former United States SenatorGov. Mario CuomoOf Counsel, Willkie Farr & Gallagher LLP; Former Governor of New York Barry DillerChairman, IAC/InterActiveCorpRoger Ferguson, Jr.President and CEO, TIAA-CrefHarvey FinebergPresident, Institute of Medicine Leslie GelbPresident Emeritus, Council on Foreign RelationsThomas MackellChairman, United Benefits and Pension Services, Inc.William NovelliProfessor, Georgetown University; Former CEO of AARPRichard PleplerCo-President, Home Box Office Sec. Robert RubinCo-Chairman, Council on Foreign Relations; Former United States Secretary of the Treasury Richard SalomonManaging Partner, East End Advisors Sheryl SandbergChief Operating Officer, FacebookSec. Donna ShalalaPresident, University of Miami; Former United States Secretary of Health and Human ServicesSec. George ShultzThomas W & Susan B Ford Distinguished Fellow, Hoover Institute – Stanford University; Former United States Secretary of State David Beaumont SmithExecutive Director, National Conference on CitizenshipPaul VolckerChairman, Economic Recovery Advisory Board; Former Chairman of the Federal ReserveDavid M. WalkerPresident and CEO, Comeback America InitiativePeter G. Peterson Foundation StaffSusan Tanaka Vice PresidentLoretta Ucelli Vice PresidentChris Papagianis DeputyDoug Hamilton Director, ResearchMyra Sung Director, Communications & P.A. Rik Treiber Director, GrantsRuss LevsenDirector, Policy CommunicationsStephen Capadona Director, DigitalKim Canfield Grants AssociateKristin Francoz Research AssociateGregory Johnsen Research AssistantMeredith Pickett Research AssociateRebecca Sameroff Research AssociateCosta Tsiokos Web ProducerAmy WashburnManager, Outreach & EventsKevin Wu Research AssistantAmericans [join] together to find and implement sensible, long-term solutions that transcend age, party lines and ideological divides in order to achieve real results.To increase public awareness of the nature and urgency of key fiscal challenges threatening America's future and to accelerate action on them. REVENUES & TAXESMatch the level of government revenues with the level of spending.1WHERE THE MONEY COMES FROM: REVENUES & TAXES -- In order to balance our budget and reduce the amount of debt the government takes on each year, we must match the level of government revenues with the level of spending. Currently, the government spends approximately $3.5 trillion a year, which is far more than the approximately $2.1 trillion it collects in taxes. This imbalance between spending and tax revenues is expected to continue, and even grow, over the next several decades. By 2040, revenues will only cover half of total spending. We can reduce our spending, increase our revenues, or a combination of the two. The more we reduce our spending by making the kinds of changes described earlier, the less we will need to raise taxes. On the other hand, the more we raise taxes, the less we would need to cut spending. The government generates revenues mostly through taxes placed on the income of individuals and corporations. In addition, the code allows for many forms of “deductions” and “tax credits,” often called “tax expenditures” because they give a benefit and are therefore similar to spending. Tax expenditures cause the government to give up about $1 trillion per year in revenue. These and other special provisions also add complexity to the process of filing taxes. Additionally, our high corporate tax rate puts U.S. companies at a disadvantage in the global marketplace, but raises less corporate tax revenue than most economically developed nations. Taxpayers also use the conflicting rules on capital gains taxes to their advantage, further lowering government revenue. Our tax system is complicated and does not raise sufficient revenues to finance the nation’s spending. There are many ways to increase revenue. There are also changes that we can make to improve how our overall tax system works.Bush Tax CutsAllow the Bush tax cuts to expire for some or all individual taxpayers.1.1The Economic Growth and Tax Relief Reconciliation Act of 2001 and the Job Growth and Tax Relief Reconciliation Act of 2003 (commonly known as the Bush tax cuts) were enacted during a time when the government had a budget surplus, and the surpluses were projected to continue for the foreseeable future. The Bush tax cuts are scheduled to expire at the end of 2010.Extending all of the tax cuts will be very costly; the lost revenue would add $3.7 trillion to the deficit over the next 10 years, according to the Tax Policy Center. Policy makers must decide on a course of action on the Bush tax cuts. They could allow the tax cuts to expire for all taxpayers; allow the tax cuts to expire just for high-income taxpayers (individuals earning more than $200,000 and households earning more than $250,000); or extend the tax cuts for everyone. They could also extend some or all of the tax cuts for a limited time period instead of making the cuts permanent.Tax ExpendituresEliminate or scale back tax expenditures.1.2Our tax code does more than raise revenues. It also reflects efforts to influence private economic decisions through favorable tax provisions. As a result, it contains hundreds of “tax expenditures ” in the form of deductions, credits, exemptions, and exclusions. These expenditures make the process of filing taxes more difficult, amount to $1 trillion in lost revenues for the government each year, and provide the greatest share of their benefits to higher income taxpayers. Some economists argue that the expenditures have obsolete or undesirable social effects. Eliminating selected deductions and exclusions, or “broadening the tax base,” would allow the government to raise more revenue. The five largest tax expenditures alone amount to an estimated $573 billion of lost revenue annually, which is more than the government spends on Medicare each year. Changes to these and other tax provisions, including two of the most widely used and most costly—adjusting the tax treatment of employer-sponsored health insurance, and capping or converting the home mortgage interest deduction—would help raise the amount of federal revenues collected.New RevenueFind new sources of revenue.1.3AmericansSome policy experts have proposed looking for new sources of revenue other than income taxes. Many policy experts believe that taxes on spending, or consumption, are preferable to taxes on income. This is because taxes on income might discourage people from working, while taxes on spending encourage people to save more because a tax on spending would make consumer products more expensive. Increased saving would in turn reduce our reliance on foreign lenders because American would have more funds to lend to the Treasury. Two common suggestions for new taxes include a consumption tax and a carbon or other form of energy tax.Tax SimplificationSimplify the tax system.1.4TaxpayersAdministering the tax system would be easier if the system itself was simpler. By harmonizing the tax rules regarding retirement savings, capital gains, and family and education credits, the government could reduce the amount of complexity taxpayers face while also helping to avoid errors, improve compliance, and raise revenues.Tax GapEncourage better compliance with the tax laws.1.5TaxpayersThe IRS estimates that the "tax gap"—the difference between taxes owed and what the government actually collects—was about 16 to 20 percent of revenues in recent years according to the Tax Policy Center. The government could do more to encourage voluntary compliance by making the tax system simpler and fairer (so people feel that everyone is paying their fair share), and increasing enforcement. The government should also consider providing the IRS with more resources for enforcement and monitoring.Corporate TaxesReform the corporate tax system.1.6U.S. CorporationsRelative to other countries, the U.S. has a high corporate tax rate. The high tax rate makes our corporations less competitive because it raises their operating costs. Although we have the second highest statutory corporate income tax rate among other Organization for Economic Co-operation and Development (OECD) countries, whose economies are comparable to our own, U.S. revenue for corporate taxes is the fourth lowest in the OECD as a share of the economy (gross domestic product—GDP). This is partly due to the fact that many U.S. corporations move their operations overseas to avoid our relatively high corporate tax rate. Other corporations create special non-corporate businesses (such as S-corporations) that allow them to avoid taxation on some of their income. The corporate tax system also includes many special deductions and credits that benefit specific business activities. For example, corporations are allowed a special deduction for income produced domestically, and receive special tax treatment for employee stock ownership plans. Some tax economists argue that many of these provisions distort economic activity, and increase complexity and the cost of accounting. These provisions also reduce the effective tax rate that most corporations pay. Reforms to reduce marginal tax rates for corporations and broaden the corporate tax base could result in more efficiently raised revenues, easier administration, and reductions in the cost of compliance.BUDGET PROCESS [Institute a] strong annual budget process for the government.2LawmakersPolicymakersFIXING THE BUDGET PROCESS -- Once we have a plan in place that reduces spending and increases revenues, a strong annual budget process for the government would help us stay on track. During the 1990s, tough budget controls combined with a growing economy to help improve the budget’s bottom line. In 1990, when the first controls went in place, the federal deficit was $269 billion, or almost 4 percent of the economy. By 2000, our country was experiencing a surplus of $236 billion, or more than 2 percent of the economy. These controls expired, however, in 2002 while the economy was recovering from a recession and the country was engaged in a new fight against terrorism, all of which made many lawmakers reluctant to re-impose the budget controls. The budget situation in Washington has been out of balance ever since. The current budget process is an annual process—and the attention of policy makers is focused on the next year even though many of their decisions will affect budgets for years to come. As a result, lawmakers are not required to consider the impact of their current budget decisions on future generations. Although budget process changes cannot, by themselves, solve our long-term fiscal challenges, a better process could encourage policy makers to adopt a longer perspective and “lock-in” whatever multi-year savings decisions they make. Lawmakers would always be able to vote to change the budget process and relax any discipline it imposes, but a stronger process would create a high enough hurdle to make budget enforcement measures worthwhile. There are various policy tools that would help reinforce fiscal discipline and maintain budget balance. These so called “budget controls” have been effective in the past. For example, adopting “pay-as-you-go” rules would require that any entitlement spending increases or tax cuts must be “paid for” before they are adopted. In addition, setting “caps” would limit annually appropriated spending, and adopting long-term budget goals would limit future deficit or debt levels. Budget process reforms would be one part of what would be a multi-pronged plan to reduce the budget’s long-term, structural imbalances. Policymakers could reinstate the budget controls that were effective in the past, set and adhere to longer-term budget goals, and establish a ceiling for the total amount of the national debt. These types of budget controls, when used in concert with other broad packages of fiscal restraint, could effectively help elected officials stay on the path toward fiscal health.Spending CapsRe-impose statutory caps on discretionary spending.2.1Spending caps would put a limit on spending, and are most often associated with discretionary (as opposed to mandatory) spending. Policy makers set discretionary spending levels each year during the appropriations process to fund many of the most visible activities and programs of the federal government, including national parks, transportation programs, the Congress and the White House. Discretionary spending caps were effectively used in the 1990s under both Presidents George H.W. Bush and Bill Clinton. Many budget experts argue in favor of new statutory caps on discretionary spending to help to ensure that spending levels are limited. If discretionary spending were to exceed the cap, then an across-the-board cut (or sequestration) would be made in that spending category. Discretionary spending takes up about one-third of the federal budget, so an enforceable cap would be an effective tool in stemming growth in spending. Lawmakers could vote to change the caps should new priorities emerge, emergencies arise, or national conditions change.PAYGO[Impose] tougher pay-as-you-go budget rules.2.2CongressThe PresidentA pay-as-you-go (often referred to as PAYGO) rule would apply to entitlements and other mandatory programs. PAYGO would require that the spending resulting from new or expanded mandatory spending be paid for either with new revenue increases or new mandatory spending cuts. Similarly, changes to existing laws to cut taxes would need to be offset with revenue increases or mandatory spending cuts. PAYGO rules generally apply for as many years as the new spending increase or revenue reduction would last—up to the full 10-year period used by Congress for projections. A temporary, or one-year tax cut, for example, would have to be offset for that one year only, while a permanent expansion of eligibility for an entitlement program or tax cut would have to be offset over the next 10 years. If all of the changes enacted during the year to mandatory spending or revenues were not sufficiently offset, an across-the board reduction would be applied to mandatory spending programs to correct the shortfall. PAYGO would not apply to changes in spending or revenues that result from unanticipated economic or other factors. For example, PAYGO would not apply if rising unemployment led to more benefit claims, but it would apply if the Congress and President enacted a law to raise the benefit levels or make them available for a longer period of time. The Congress and the President recently enacted a form of PAYGO. This new law, however, exempted many costly policy changes, including extension of the 2001 and 2003 tax cuts for all but higher-income taxpayers and upward adjustments to Medicare payments to physicians. Many budget experts propose a strict PAYGO rule that would apply to all changes to current law affecting entitlement and mandatory programs and revenues. Others argue in favor of PAYGO that would apply only to proposed spending changes. However, exempting tax changes from PAGYO might encourage lawmakers to rely more on tax expenditures to extend benefits, and a broader PAYGO would be more likely to promote fiscal restraint than one that exempts only certain types of changes, either to revenue or spending laws.Budget TriggersDesign and apply budget “triggers” as a method of enforcement.2.3The PresidentCongressBudget “triggers” are another option that has been proposed by some budget experts to constrain the growth of mandatory spending, which currently makes up nearly two-thirds of our budget. The vast majority of mandatory spending goes to three of the government’s largest programs: Social Security, Medicare, and Medicaid. These programs are particularly vulnerable to growth as a result of increased longevity, population shifts, and the rapid rise in health care costs. Since mandatory spending, unlike discretionary spending, does not require annual review or depend on new funding each year, a trigger would encourage lawmakers to take notice when mandatory programs are projected to cost more than anticipated by Congress and the President in their most recent budget decisions. Whether the trigger prompted a “hard” action (legislation that would reduce spending automatically unless Congress and the President step in to stop it), or a “soft” action (the publication of a report warning that the budget limit is expected to be breached), it would require lawmakers to review and reconsider the status of mandatory spending programs. A few experts argue that revenue triggers would also be possible. Revenue triggers would be designed to encourage reconsideration of tax changes, but because it is more difficult to gather information about how much revenue was lost as a result of a tax cut, they would be much harder to design.Debt TargetsSet sustainable debt targets.2.4CongressThe PresidentAs its name suggests, a debt target would be an explicit ceiling of the nation’s publicly held debt. Debt targets are generally expressed as a percent of the country’s gross domestic product, or GDP. Currently, Congress and the President have some control over the national debt: they must pass legislation periodically to increase the nation’s debt ceiling. While it does demand regular attention to our debt levels, this method restricts that consideration to very short-term demands. Many fiscal experts have proposed debt targets. Whatever the debt limit, the aim is to choose a target that can accommodate a sustainable fiscal plan. The European Monetary Union has set the goal of 60 percent of GDP as part of the admission requirements for its member countries. That level reflected a view that the 60 percent ceiling would be feasible to achieve and that carrying debts above that level would increases risk to a country’s economy. However, by itself, a debt limit would be ineffective. It would depend on a comprehensive and detailed fiscal plan in order to be effective.NATIONAL DEFENSE Develop a defense budget that protects our nation against our most important threats in an affordable way.3NATIONAL DEFENSE -- Providing for the national defense is a key responsibility of the federal government. America’s military is the strongest fighting force in the world. And it should be, since the United States spends more on defense than the next 14 countries combined. We can develop a defense budget that protects our nation against our most important threats in an affordable way. The defense share of the federal budget has averaged 21 percent over the past two decades. In the past ten years the defense budget grew from about $400 billion to $700 billion, after accounting for inflation. Much of this increase in spending has been driven by commitments in Iraq and Afghanistan. Possible changes to our defense budget include: eliminating costly weapons systems, reducing troop deployments overseas, lowering the number of nuclear weapons, and reforming military pay and benefits.Costly WeaponsEliminate costly weapons systems.3.1Many of the new weapons systems currently under development represent very costly additions to the sizeable, existing U.S. conventional war capabilities. Some defense observers reason that our military capabilities already surpass—by wide margins—the military forces of our likely threats and that a number of the new, advanced systems are behind schedule, over budget, and proving to be less reliable and capable than originally promised. Instead of continuing to develop many new weapons systems, the U.S. government could modernize and replace existing weapons system, pare down its budget and still provide for a strong defense.Troop DeploymentsReduce troop deployments overseas.3.2TroopsThe U.S. has over 1.4 million people serving the armed forces, with almost 300,000 serving in foreign countries. Supporting a uniformed force of this size, especially those deployed abroad, is expensive. Some experts believe that once we withdraw from Iraq and Afghanistan, closing bases abroad and reducing troop strength would be possible, as the smaller U.S. presence would reflect a politically stable Europe, relaxed tensions with China, and a relative balance between North and South Korean conventional forces. A leaner military would maintain our important role globally while providing national security at a lower cost.Nuclear WeaponsScale back the number of nuclear weapons.3.3The U.S. nuclear weapons program provided a powerful deterrent when the Soviet Union posed a significant threat during the Cold War. Many defense analysts argue that now that the Soviet Union has disintegrated, the U.S. needs far fewer warheads to maintain our security and deter potential enemies, and that we should reduce the size of the arsenal and limit funding for nuclear research.Military Pay & BenefitsReform military pay and benefits.3.4Enlisted PersonnelSenior Enlisted Personnel Military OfficersThe PentagonThe U.S. relies on volunteer armed forces. Recruiting and retaining skilled military personnel is expensive, especially during wartime. According to the Congressional Budget Office, between 2000 and 2008, basic military pay rose faster than inflation and faster than average pay for private employees. The enlisted personnel saw their basic pay rise 13 percent, with senior enlisted personnel and officers seeing their basic pay rising 16 percent and 9 percent, respectively, after inflation. The annual across-the-board pay increases ignore overstaffing in some occupations and shortages in others. There are options available to reform military pay and benefits that would help the Pentagon to attract and retain the personnel it needs, especially once forces are withdrawn from Iraq and Afghanistan, while also reducing costs.HEALTH CARE 4Mayo ClinicAmericansBaby Boom GenerationIMPROVING HEALTH CARE -- The rapid growth in health care costs is the largest and fastest growing fiscal challenge. More than one out of every four federal program dollars goes to health care. By 2040, 44 percent of projected federal spending will be used for the largest programs—Medicare, Medicaid, and new subsidies to help people buy insurance. The federal government provides health insurance to nearly 100 million people, over 30 percent of the U.S. population, through Medicare, Medicaid and other smaller programs. Enrollees in federal programs tend to be the most costly—they are older, have greater health care needs, have low incomes, and have less access to primary and preventive care. As the baby boom generation ages, the Medicare population will grow by 70 percent by 2030. Many baby boomers will turn to Medicaid for financial help with long-term care expenses. As a result, the federal budget will be placed under increasing pressure as the number of beneficiaries increases and health care costs grow rapidly, as projected. There is clear evidence that our health care system needs improvement. The U.S. spends twice as much per person on health care than most other countries, but our results are no better. Within the United States, some regions spend twice as much per person than other regions, without a clear difference in results. Approximately 30 percent of Medicare spending takes place within the last year or life, and over 75 percent of health care spending goes toward patients with chronic diseases. Some of the most expensive chronic diseases are heart disease, diabetes, and hypertension—all three of which are tied to obesity, a common problem in the U.S. For many years, health care has consistently grown faster than our economy. The rapid growth in health care costs has placed a huge burden on families, businesses and the federal government. If we don’t implement some budgetary restraint on the health care system, health care costs will lead to more and more borrowing and leave fewer resources for our economy and our daily lives. In order to address this important component of our fiscal challenge, we need to lower projected health care spending and slow the growth in these costs. However, we all want to maintain high quality of care for Americans and avoid making changes that would result in poorer health. Therefore, we need to get more “value for our money” in healthcare -- spending less, while achieving better health outcomes. Organizations like the Mayo Clinic have shown that a well-coordinated medical system can deliver high quality health care in the U.S. for a relatively low price. It may be difficult to duplicate the success of the Mayo Clinic across the nation, but it offers a preview of what is possible. Options to improve our healthcare system include: developing best practices, promoting wellness, focusing on patient outcomes rather than just tests, reforming medical malpractice laws, and using technology to improve efficiency.Electronic Health RecordsAdopt electronic health record systems to reduce medical errors, paperwork and administrative costs.4.1Better use of information technology would help improve patient care while reducing administrative costs. Paper medical records are difficult to keep track of and are hard to transfer between medical professionals. Important patient information gets lost or overlooked, contributing to possible complications such as unwanted drug interactions. Adopting electronic health records (EHR) would consolidate patient medical information in one place that is accessible to health care providers and would also reduce the amount of time providers spend on purely administrative tasks. Ultimately, health policy experts believe that EHR has the potential to reduce medical errors stemming from inaccurate patient records and make hospitals and clinician practices more efficient.Best PracticesDevelop and communicate the proven “best practices”.4.2PhysiciansMany health policy reformers argue that establishing and encouraging the “best practices” would assure that the patient receives the most effective treatments, while avoiding the use of unnecessary, ineffective and potentially harmful care. Physicians use different approaches to heal patients. They tend to follow the medical practices of their peers in their geographic region rather than the treatments shown to be the most effective in published medical research. As a result, the practice and cost of medicine varies widely throughout the U.S. and often bares little relationship to better results. Documented “best practices” have been established through medical research for some medical conditions. Communicating these approaches more widely could help encourage physicians to follow them. Once best practices are known, encouraging providers to follow them would improve patient care and reduce wasteful health care.Medical MalpracticeReform the medical malpractice system.4.3DoctorsPhysiciansMedical malpractice suits are intended to protect patients from incompetent and unqualified physicians. Most instances of medical malpractice are likely to go unreported and unpunished, however, because patients either do not know that it occurred or do not want to go through an expensive court process. One of the biggest problems with the malpractice system may be that it encourages what is called “defensive medicine.” Academic research shows a link between higher malpractice awards and higher Medicare spending. Thus, the medical malpractice system is responsible for a lot of inefficiency in the healthcare system. Doctors may perform unnecessary medical services for their patients largely to defend themselves against potential lawsuits. Even if an additional test or procedure does not make sense in the doctor’s judgment, it is hard to know whether denying the patient that test will result in a medical malpractice suit later on. The potential for a multi-million-dollar lawsuit prompts most doctors to get malpractice insurance. Options to reform the malpractice system could help improve physician accountability, reduce the incidence of unnecessary medical care, and lower insurance and legal fees. Organization & PaymentAdopt better ways to organize and pay for health care.4.4DoctorsHealth ProfessionalsThe delivery of health care in the U.S. largely takes place through small, independent physician-led practices. Doctors’ pay largely reflects the number of medical services they provide to patients, not the number of people whose health they improve. This “fee-for-service” system rewards doctors and other providers when they perform medical services for their patients, regardless of the impact on patient health. Within this system, there is little coordination of care as each health care professional treats a specific condition or illness. Options to reform the way medical care is organized and paid for could improve focus on the “whole patient” through better coordination and integration of patient care. Such delivery system reforms could improve overall health while reducing duplicative, unnecessary, and potentially harmful services. Some alternatives to fee-for-service health care include: accountable care organizations (ACOs), integrated clinics, and bundled payment systems. Many of these systems have demonstrated that they can achieve greater value in health care. They give health professionals greater incentives to perform those medical services that are the most effective and necessary to improve overall patient health. By identifying the barriers to the creation of these types of care systems and encouraging the development of more of them, we could improve the value we get from health care.Wellness & PreventionPromote wellness and prevent disease.4.5ChildrenA large share—more than 75 percent—of U.S. spending for health care is related to people with one or more chronic diseases, even though fewer than 50 percent of Americans have a chronic condition. These conditions are expensive to manage and difficult to correct. Of particular concern is the current epidemic of childhood obesity, which is projected to increase the number of people who suffer from diabetes and other obesity-related chronic diseases. A recent Congressional Budget Office report estimated that if we could reduce obesity levels to where they were 20 years ago, we could reduce health care spending by 4 percent. By investing more in health education and wellness and disease prevention, we could improve people’s lives and reduce their need for health care.Insurance Database & MarketCreate a national database and insurance market.4.6ConsumersImproved consumer information will lead to better provider performance. Currently, it is hard for consumers to be knowledgeable because they have limited access to information that would allow them to compare the quality and cost of health care professionals. If performance and prices were recorded in a national database, policy experts believe that it would help us understand more about what is driving health care costs upwards. Creating a national insurance market would increase competition between insurance companies and give consumers more options, and a universal claim form would simplify the process of filing insurance claims.Federal Program ReformReform federal health care programs to make them more sustainable.4.7If current policies do not change, the cost of the federal government’s major health care programs—Medicare, Medicaid, Children’s Health Insurance Program (CHIP) insurance subsidies—are projected to double in 25 years. That growth will likely come at the expense of other important federal activities such as education, research and development, and even national security. Reforms to the overall health care system would help reduce federal spending for health care programs, but there are also a number of proposals that would directly reduce the federal government’s costs. Some options include changing eligibility requirements and limiting the amount of assistance provided, particularly to those who can afford to share a greater portion of the costs.SOCIAL SECURITYEnsure that Social Security is available for future generations.5MAKING SOCIAL SECURITY SUSTAINABLE -- Social Security is an important program that is part of the fabric of America. We must ensure that Social Security is available for future generations. Without reform, Social Security’s shortfall will grow larger and larger until the program may simply be unable to pay full benefits to future retirees. Reforms can also be implemented in ways that protect the most vulnerable. As the largest single program in the federal government, Social Security currently provides retirement, disability, and survivors benefits to approximately 53 million Americans. Social Security was established in 1935 and collects money from today’s workers, and uses it to pay benefits to current retirees. The program’s expenditures in 2009 totaled $686 billion. A recent report estimates that in 2008, the Social Security program kept almost 20 million Americans from living in poverty. However, the program now faces challenges because people are living much longer (receiving more benefits over more years) and the elderly population is increasing due to the aging of the “baby boom” generation. In 1950, there were more than 16 workers paying taxes to support 1 retired person; by 2040, there will only be 2 workers for each retired person. This creates a big shortfall of money in the system. Since certain reforms enacted in 1983, the Social Security system has generated more revenue (from the payroll tax and the taxation of benefits) each year than it has paid out in benefits. This money was spent on other programs, and, in return, the Social Security Trust Fund received special notes from the Treasury. According to the Social Security Trustees, the Trust Fund currently holds $2.5 trillion in these notes. In 2015, Social Security will begin to operate with a permanent cash flow deficit. This means that the cost of providing benefits will exceed the amount of revenue flowing into the system. The Social Security program will begin redeeming the notes held in the Trust Fund. The Trust Fund will be exhausted in 2037, according to the Social Security Actuary. After that point, unless reforms are made, Social Security will only be able to pay about 78 percent of currently scheduled benefits. Future solvency of Social Security can be achieved through a change in the benefits of the program, a change in its revenues, or a combination of the two. By acting sooner rather than later, needed reforms can be phased in more gradually, giving people time to plan for their retirement years. Retirement AgeGradually raise the full retirement age.5.1RetireesUnder current law, the earliest age at which a person can claim Social Security retirement benefits is 62. If a worker begins collecting benefits at this age, his or her monthly benefit is reduced so each individual can expect to receive the same amount of benefits as he or she would at the full retirement age. (The full retirement age is the age at which a person can claim the full Social Security retirement benefit.) The current full retirement age is 66 and will gradually rise to 67 for people born after 1959. One option to extend solvency of the Social Security system would involve raising the full retirement age beyond 67. There are a number of available options to do this, including raising the full retirement age to 68 or 70, or indexing the full retirement age to increases in life expectancy.RevenueIncrease the amount of revenue raised from workers.5.2WorkersSocial Security is primarily financed through a payroll tax of 12.4 percent. Employees pay half of the tax, and employers pay the other half. (The self-employed pay the entire 12.4 percent.) Under current law, the payroll tax only applies to a portion of earnings up to a “taxable maximum.” In 2010, the first $106,800 of earnings is subject to the payroll tax. This results in higher-income earners facing a smaller payroll tax burden because all of their earnings above the taxable maximum are exempt from the tax. There are many approaches to increasing the total amount of revenue collected for the Social Security program. Some options include: raising the payroll tax from its current 12.4 percent (for example, increasing the payroll tax rate by 1 percentage point in 2012, 2 percentage points over the next 20 years, or 3 percentage points over the next 60 years), or increasing the taxable maximum beyond its current level.OTHER FEDERAL SPENDINGSave money in other federal programs.6THE OTHER 20% OF FEDERAL SPENDING -- Making changes to defense, health care and Social Security will help us reduce our debt, and also leave money to fund other critical responsibilities and invest in our future. But even though other spending programs (including agriculture, transportation, homeland security, education, unemployment benefits, national parks, international relations, and the operations of government) are occupying smaller and smaller portions of the federal budget, there are still opportunities to save money. All of these spending areas need to be reviewed so that we can find savings and reduce wasteful, outdated, and ineffective activities. Solving our fiscal challenges in a real way will require making some tough decisions on 100 percent of the budget, and setting priorities so that we can live within our means. At the same time, despite what some advocates claim, eliminating foreign aid, earmarks, and “waste, fraud, and abuse” from the budget will not save enough to solve our overall fiscal challenges.“Easy” AnswersiImprove discipline to the federal budget process [and] curb “waste, fraud, and abuse.”6.1“Easy” Answers -- Common recommendations to help fix the budget such as eliminating earmarks (or “pork barrel spending”), reducing foreign aid, and curbing waste, fraud and abuse sound great but would not produce very significant savings. While earmark reform would serve to improve discipline to the federal budget process, earmarks alone represent less than 1 percent of the budget. Foreign aid also represents a small portion of the budget--less than 2 percent. Another popular proposal is to curb “waste, fraud, and abuse.” Though we would all like to eliminate waste, it is not easy to define exactly what it is and what should be cut.New PrioritiesIdentify programs that have outlived their usefulness or are low priorities, and find opportunities to make programs more effective and efficient.6.2Set new priorities -- There are many programs in the federal budget that began decades ago when conditions were different and the population had different needs. Once programs begin, however, they gain supporters, and they tend to remain in the budget. By taking a hard look at current activities, it may be possible to identify programs that have outlived their usefulness or are low priorities, and find opportunities to make programs more effective and efficient.Discretionary SpendingFreeze discretionary spending.6.3Freeze discretionary spending -- Policy makers have enacted spending “freezes” in the past to limit the amount of money spent each year through appropriations bills. A freeze provides the same level of funds from one year to the next with no increase. Budget savings result from forcing federal agencies to find ways to absorb rising costs instead of increasing their funding levels. The President’s FY 2011 budget submission called for a three-year freeze in non-security discretionary spending. It exempted the Departments of Defense, Homeland Security, Veterans Administration, as well as the nuclear weapons programs run by the Department of Energy and foreign aid. Other proposals would apply a freeze on all discretionary programs, or would freeze the number of federal workers in order to keep spending from growing.2013-07-03http://pgpf.org/aboutOwenAmburOwen.Ambur@verizon.net