Obama's Top Three Measures to Reduce the Deficit
September 16, 2014
According to James Capretta, President Obama is relying on three main measures to cut the deficit: defense cuts, reducing payments for Medicare services and raising taxes. Taking such measures is, he writes, "a risky bet for the U.S. economy."
Relying on defense cuts to reduce the deficit is unreasonable. In just 10 years, American defense spending will be at its lowest level since right before World War II. While the United States spent 4.5 percent of GDP on defense from 1974 to 2013, it is projected to fall to 2.7 percent in 2024. But these major defense cuts are coming alongside growing threats abroad, and defense spending will be forced to rise, says Capretta.
And while the president aims to cut the deficit by making cuts to Medicare, it is highly unlikely that such cuts will actually take place. For more than 10 years, Congress has overturned reductions in Medicare physician fees.
Higher taxes, the president's third solution, is supposed to yield additional revenue. Obamacare alone, according to Congressional Budget Office estimates, should bring in $1 trillion over the course of a decade. However, the economy has performed poorly, and the federal government is unlikely to see revenue gains from the tax hikes as a result.
Even if these three measures are kept in place, they will not come close to closing the deficit. According to Capretta, what the United States really needs is economic growth -- something that the Affordable Care Act and other regulatory burdens have kept in check.
Source: James C. Capretta, "Three Shaky Pillars of Obama Fiscal Policy," Economics21, September 15, 2014.
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