A few months ago, we announced the formation and mandate of the Esquire Commission to Balance the Federal Budget. The plan was simple: A group of former legislators from across the political spectrum would convene, make the hard choices that our current leaders refuse to make, and erase the annual budget deficit by 2020. Below, the results of their efforts in all their statistical detail (also available in the November 2010 issue). You can also read the authors' introduction here and the story of how it all happened here.

A Few Words on the Objectives:

Primary Objective: To balance the federal budget by 2020 by instituting spending cuts and/or revenue increases, most of which would not begin until 2013.

Secondary Objective: To adjust annual government spending and annual government revenue so that both equal 20 percent of the gross domestic product by 2020.

Tertiary Objective: To stabilize national debt at less than 60 percent of GDP by 2020.

Other Objectives That We Hadn't Intended to Meet but Did Anyway:

• Guarantee the solvency of Social Security over the next seventy-five years.

• Restructure the military to better meet the challenges of the twenty-first century.

• Keep individual tax rates at or near their current levels for all Americans.

Note: All projected savings and revenue for fiscal year 2020 only, and all amounts in 2020 dollars.

The Spending Proposals:

1. Gradually raise the retirement age to seventy.

Currently, the retirement age is sixty-six, and starting in 2021, it is scheduled to gradually increase to sixty-seven at a rate of two months a year. As Americans today are living and working longer than in previous generations, the commission proposes to instead begin gradually increasing the retirement age to seventy before 2021, but at a rate of one month per year.

Furthermore, in consideration of those Americans who work or have worked manual-labor-intensive jobs and would therefore find working past sixty-seven an undue burden, the commission proposes that eligibility requirements for disability be narrowly liberalized beginning at age sixty-seven.

Projected Savings: $49 billion

2. Use an alternate measure of inflation to calculate cost-of-living adjustments for Social Security recipients.

Every year, Social Security recipients receive a cost-of-living adjustment (COLA) so benefits keep pace with inflation, and many analysts believe that the current index used to calculate COLAs, the Consumer Price Index for Urban Wage Earners and Clerical Workers, the CPI-W, overstates inflation because it does not fully account for changes in patterns of spending. The commission proposes to calculate COLAs using an alternative price index, the Chained Consumer Price Index for All Urban Consumers (CPI-U). It is generally viewed as doing a better job at measuring inflation for retired people than the CPI-W because the CPI-U is calculated using a broader base of consumers — not just urban wage earners and clerical workers but all urban consumers (including retired people) — and more closely reflects changes in cost of living. As the CPI-W is expected to overstate inflation in the years ahead, switching to the CPI-U will save money.

Projected Savings: $23 billion

3. Increase years used to calculate benefits.

Currently, Social Security recipients' benefits are calculated based upon their thirty-five highest years of earnings. The commission proposes to increase the number of years to thirty-eight to reflect the longer amounts of time that most people are working today.

Projected Savings: $14 billion

Total Projected Savings in Social Security: $86 billion

Addendum: These adjustments not only decrease the annual deficit by $86 billion in fiscal year 2020; along with a proposal to include all new state and local government workers in the Social Security program (see page 161 for details), they also ensure the solvency of Social Security for at least the next seventy-five years. At current spending levels, Social Security is projected to become insolvent by 2037, at which point it would be able to pay recipients only 78 percent of their expected benefits. The commission's proposals would guarantee recipients 100 percent of their expected benefits through at least 2085.

1. Enact the administration's proposed weapons-systems cuts.

The commission endorses the weapons-system cuts the president proposes in his 2011 budget. The C-17 Transport Aircraft; Joint Strike Fighter Al-ternate Engine; Navy's Next Generation Cruiser; EP-X Manned Airborne Intelligence, Surveillance, and Reconnaissance Aircraft; Net Enabled Command Capability; and Third Generation Infrared Surveillance programs would all be canceled.

Projected Savings: $4 billion

2. Reverse the "Grow the Army" initiative.

The commission proposes to reverse the Army's "Grow the Army" initiative, which plans to add 65,000 active personnel (increasing from 482,400 to 547,400) and 9,200 reservists (increasing from 555,000 to 564,200) to the Army's ranks by 2011.

Projected Savings: $10 billion

3. Restructure the military along strategic lines.

The commission believes that the U. S. defense establishment must be fundamentally reorganized to meet the challenges of the twenty-first century. The number of nation-state wars for which our military is configured is going down while the number of irregular and unconventional wars is going up, and yet the military is still procuring and paying for a cold-war-based defense system. To better meet these new challenges requires a shift in how the military allocates its resources, and the commission estimates that this shift will result in a decrease in overall defense spending. This restructured military budget would equal 2.2 percent of GDP in 2020 (as compared with the current budget projection, which has it at 3.6 percent of GDP in 2020).

Projected Savings: $169 billion

4. Assume cost of engagement in Afghanistan and Iraq will decline.

The commission assumes that the cost of U. S. engagement in Afghanistan and Iraq will decrease significantly by 2020. The below figure is based on a projected estimate of thirty thousand combined troops in both countries.

Projected Savings: $126 billion

Total Projected Savings in Defense: $309 billion

1. Institute medical-malpractice reform through the establishment of medical courts.

This proposal would establish medical courts — similar to bankruptcy courts — in which verdicts are made by judges trained to evaluate scientific evidence. As an alternative to the current trial-by-jury system for medical-malpractice lawsuits, this proposal would decrease the number of frivolous lawsuits that reach trial, increase the speed with which meritorious lawsuits reach trial, and reduce administrative costs for the federal judiciary. It would also discourage the practice of defensive medicine, whereby health-care providers, under the constant threat of litigation, often order unnecessary (and costly) tests and procedures to hedge against potential lawsuits.

Projected Savings: $10 billion

Total Projected Savings in Health Care: $10 billion

Addendum: The commission believes it unlikely that Congress and the president will substantially modify the recently enacted health-care legislation. The commission also strongly advocates a transition from our current fee-for-service system — in which health-care providers stand to profit from each test, procedure, and office visit — to a pay-for-performance system, in which health-care providers are compensated for the medical outcomes for dollars spent, thereby improving the quality and efficiency of the care provided. The commission believes such a transition would fundamentally alter the dynamics of our health-care system and save consumers, health-care providers, and the federal government billions of dollars a year.

1. Enact the president's proposed spending-program terminations.

The commission endorses the president's proposed termination of lower-priority spending programs as detailed in his 2011 budget. (View the list here).

Projected Savings: $4 billion

2. Cut the federal workforce by 5 percent.

The commission advocates streamlining the federal workforce by 5 percent over the next decade by increasing public-sector productivity to bring it in line with ongoing increases in private-sector productivity.

Projected Savings: $26 billion

3. Delay NASA missions to the moon and Mars.

The commission believes that instead of replacing the space shuttle, the U. S. should delay plans for further exploration of space.

Projected Savings: $4 billion

4. Reform farm subsidies.

The commission proposes to prohibit new enrollments in the Conservation Stewardship Program, prohibit reenrollments in the Conservation Reserve Program, reduce crop-insurance subsidies paid to crop-insurance providers, and implement means-testing for individuals whose incomes exceed $250,000 (for nonfarmers) or $500,000 (for farmers).

Projected Savings: $13 billion

5. Eliminate all earmarks.

Read our full story about the commission's meeting for more details.

Projected Savings: $18 billion

6. Use an alternate measure of inflation for COLAs for federal and military pensions and veterans' retirement benefits.

As with Social Security, retired federal employees and certain veterans receive a cost-of-living adjustment based on CPI-W so their annual retirement benefits keep pace with inflation. The commission proposes to calculate the COLA using an alternative price index, the Chained Consumer Price Index for All Urban Consumers (CPI-U). (See item number 2 under Social Security for definitions and details.)

Projected Savings: $6 billion

Total Projected Savings in Other Spending: $71 billion

Total Projected Savings on Government Spending in 2020: $476 billion

Total Debt Service Projected Savings in 2020: $142 billion

Note about debt service: Every year the government must spend billions of dollars to pay the interest on the money it borrows, and the less money we borrow in any given year, the more we will save on the interest costs associated with that borrowed money. By cutting spending by a net amount of $476 billion in 2020, and more importantly $3.182 trillion over ten years, and by instituting our revenue proposals, we are also cutting the amount required to service our total debts in 2020 by $142 billion and by $479 billion over ten years.

Total Projected Savings: $618 billion

The Revenue Proposals:

1. Repeal employer health-care tax exclusion and offer a refundable health-care tax credit.

Under current law, employer-provided health benefits are not counted as taxable income for the employees who receive the benefits, although an excise tax on high-cost (i.e., "Cadillac") plans is scheduled to begin in 2018. In place of this excise tax, the commission proposes to repeal the employer-provided health-insurance exclusion altogether while instituting a refundable tax credit to help people pay for their health insurance. Under this system, a person's employer-provided health benefits would be taxed as personal income; however, the government would also offer a refundable tax credit that employees can put toward paying for their health insurance.

Projected Revenue: $63 billion

Addendum: The final figure for projected revenue includes lost potential revenue from the excise tax scheduled to go into effect in 2018.

2. Increase gasoline tax by $1 per gallon.

The current federal gas tax is 18.4 cents per gallon, but the commission proposes to increase the federal gas tax, gradually and beginning in 2013, so that in 2020, it would be $1.18 cents per gallon. This would not only generate significant revenue but also reduce consumption of gas, reduce carbon emissions, and provide an incentive to automakers to increase the fuel efficiency of their vehicles.

Projected Revenue: $130 billion

Addendum: If this proposal were instituted along with a federally mandated increase in CAFE (corporate average fuel economy) standards, any increase in the cost of gasoline at the pump could be offset by better fuel efficiency.

3. Limit itemized deductions for high earners.

The commission proposes to limit the tax rate at which itemized deductions reduce tax liability to 28 percent, thereby limiting itemized deductions for upper-income taxpayers (individuals making more than $200,000 and families making more than $250,000). The commission also proposes to phase out personal exemptions for upper-income taxpayers.

Projected Revenue: $57 billion

4. Keep tax rates low for the next decade.

The current tax rates are scheduled to expire at the end of 2010, meaning statutory tax rates would return to their 2000 levels. The commission proposes that the government use the $3.2 trillion that it will generate through cutting spending and limiting the value of tax expenditures to keep rates at or near their current levels through 2020. The commission believes that reductions in additional tax expenditures (see below) should go to middle-income tax relief and that the government should reinstate the increased alternative-minimum-tax exemptions that expired in 2009.

Projected Revenue: -$273 billion

5. Curtail state and local sales-tax deduction.

Currently, taxpayers may deduct their state and local sales-tax payments from their federal income tax. The commission proposes to reduce the total amount allowed under this deduction to about 20 percent of current levels.

Projected Revenue: $12 billion

6. Eliminate subsidies for biofuels.

The commission proposes eliminating subsidies for producing biofuels, including ethanol.

Projected Revenue: $16 billion

7. Include all new state and local government workers in Social Security.

Under current law, some state and local government employees are not required to pay into the Social Security program. The commission proposes that all new state and local workers contribute to the Social Security program. This would raise additional revenue because many of these workers eventually receive benefits because of their spouses, and therefore the amount of benefits they gain by joining the system is less than the amount they pay in. This would apply only to employees hired in 2010 and beyond, not to current state and local government workers.

Projected Revenue: $21 billion

Total Projected Revenue Increase: $26 billion

The Final Numbers:

Total Projected Revenues in 2020: $4.693 trillion (20.8% of GDP)

Total Projected Spending in 2020: $4.681 trillion (20.8% of GDP)

Total Projected Surplus in 2020: $12 billion

Projected Debt-to-GDP Ratio in 2020: 52%

THOSE RESPONSIBLE: With thanks to the Committee for a Responsible Federal Budget and its president, Maya MacGuineas, for their invaluable assistance in providing the commission with accurate data and budget options; to Barry Anderson, a former deputy director of the Congressional Budget Office and a private budget consultant who ran the numbers and answered every question promptly and precisely; and to John Cunningham, a recent graduate of Bowdoin College who assisted Anderson in this massive endeavor. A note to potential employers: Hire this guy.

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