Moral Outrage
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Balancing the US Budget Deficit in 3 Easy Steps

No one in Washington can agree on how to narrow the budget deficit. With only partial seriousness, I’m going to balance next year’s $1.1 trillion budget deficit in three easy steps.

Step one: Return real (inflation-adjusted) defense spending to average 1990s levels
Current projections show that $738 billion will go toward defense spending in 2012. That’s one-fifth of all federal spending, and more than twice as much as goes toward the Department of Education, veterans benefits, the Department of Justice, the Department of Energy, and the Department of Agriculture combined.

It wasn’t always this way. Adjusted for inflation, an average of $373 billion was spent on defense annually between 1994 and 2000. Reverting to similar levels would cut $365 billion from next year’s budget.

Step two: Return tax revenue as a percentage of GDP to average 1980s levels
Tax revenue as a percentage of GDP is now just 14.4% — a fifth below the long-term average, and the lowest level since World War II.

Returning that figure to the 18.3% average seen in the 1980s would draw in $585 billion in additional tax revenue. In fact, you don’t even need to go back to the 1980s. Just returning to 2007 levels would mean collecting more than half a trillion dollars more than we do today.

Step three: Rationalize Medicare
I’ll let former White House budget director Peter Orszag do the talking here: “Researchers have estimated that nearly 30 percent of Medicare’s costs could be saved without negatively affecting health outcomes if spending in high- and medium-cost areas could be reduced to the level in low-cost areas — and those estimates could probably be extrapolated to the health care system as a whole. With health care spending currently representing 16 percent of GDP, that estimate would suggest that nearly 5 percent of GDP — or roughly $700 billion each year — goes to health care spending that cannot be shown to improve health outcomes.”

Medicare’s 2012 outlays are projected to be $492 billion. Saving “nearly 30 percent,” as Orszag suggests could occur without affecting health outcomes, cuts $150 billion from federal spending.

And now the budget’s balanced.

[Excerpt of an article by Morgan Housel]

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