Bi-partisan Plan to Eliminate the Deficit

Recognizing the new political realities of divided government, the Brookings Institute has issued a bipartisan plan to reduce the deficit. Collaborating on the plan are former Congressmen Charlie Stenholm (D-TX) and Bill Frenzel (R-MN), as well as Brookings scholars Isabel Sawhill and William Hoagland. They outline their proposal in an Op-Ed piece in the NYT:

On spending, we would put a hard cap on all appropriations that freezes spending at fiscal 2008 levels. This would allow one federal program’s financing to increase only if another program’s budget were cut. We also propose accelerating the increase in the retirement age to 67 from 66, improving the way Social Security benefits are indexed for inflation and making other modest adjustments in the major entitlement programs. These cuts to spending, however, would save only about half of the money needed to balance the budget in 2013. Further spending reductions are unlikely to garner much Congressional support and could even compromise national security. To make up the balance we propose to increase revenues — not by raising income tax rates but by dealing with some of the flaws in the current tax system.

The major reform would be to broaden and simplify the tax base by turning almost all itemized deductions into 15 percent credits against taxes. We would also place a cap on how much of employer-paid health insurance premiums could be excluded from taxes.