American’s debt is not sustainable. If the nation does not reduce its debt both in real dollars, and as a per cent of GDP, our long term economic outlook is bleak. We can not sustain this level of indebtedness. That is the reason Congress and politicians have been obsessed with the debt ignoring the huge unemployment rate and the growing income disparity in the nation.
To solve this huge problem, the do-nothing Congress should just do what it does best—nothing.
According to an article by Bruce Bartlett, a financial and budgetary advisor to both Ronald Reagan and George H.W. Bush Congress has already passed laws that are sufficient to deal with this debt crisis. In an article Bartlett asserts that Congress needs to go home and let the laws they have already passed do the job. This would reduce the debt far more than the grand bargain the Congress talked about but did not pass.
One of the largest budgetary issues the nation faces is the growing cost of Medicare The cost of health care in the US, taken as a percent of GDP, is double that of other industrial countries like the UK.
Bartlett notes that Congress has passed laws that would help fix the Medicare problem if they would just leave things alone.
In 1997, Congress with support from President Clinton created a program to permanently restrain the growth of Medicare spending. The program created a formula called “the sustainable growth rate “SGR.”
The program worked well, but in 2003, lobbyists for physicians and the Bush administration persuaded Congress to change the rates of reimbursement for doctors. Congress calls this annual exercise the “Doc Fix.” It adjusts the fees Medicare pays doctors for services rendered to Medicare patients upward from what they would be under the SGR formula passed in 1997.
Bartlett says that if Congress just stopped meddling current law would cut costs to Medicare by 30%. He realizes that is not going to happen, but claims that if Congress rebased the formula to 2011 dollars then left it alone, taxpayers would save $300 billion dollars over the next 10 years plus another $50 billion in interest savings.
Bartlett did not address it, but the Health Reform Act known as “Obamacare” has provisions that will result in a savings of $500 billion dollars to Medicare over the next 10 years, and will result in an overall deficit reduction of about a trillion dollars according to the Congressional Budget Office (CBO). If they just let the law work, there would be significant debt reduction. However, Republicans want to repeal it.
Bush tax cuts and tweaking of Alternate Minimum Tax
Prior to enactment of the Bush tax cuts, the nation had a balanced budget and a surplus. The tax cuts immediately reversed that, and institutionalized deficits. The tax cuts were scheduled to expire in 2010, but they were extended until 2012. In addition, Congress meddles with the Alternate Minimum Tax law each year reducing the number of taxpayers that would be impacted by the law giving further tax cuts.
According to the CBO, if the tax cuts are allowed to expire as provided by current law and if Congress left the Alternate Minimum Tax alone, it would raise about $4 trillion dollars in revenue, and save an additional $700 billion dollars in debt service over the next 10 years.
Allowing the tax cuts for lower and middle class tax payers to expire would hurt those individuals and the economy on a short term basis due to the Recession. There is not the political support to allow them to expire. However, there is a lot of money to save by making the cuts permanent for lower income tax payers, and allowing them to expire for the wealthy.
Debt Reduction law
In August, to prevent the US from defaulting on its debt, Congress passed a law raising the debt ceiling and mandating $1.2 trillion in budget cuts over 10 years. The law provided that if Congress does not pass a law that reduces the debt by Thanksgiving, then automatic cuts will take effect in 2012. It failed, so there will be an additional $1.2 trillion in debt reduction unless Congress tinkers with that law too.
So, in summary, if Congress went home and let the laws already enacted work, the debt would be reduced by about $5.5 trillion dollars over 10 years. That is more than the paltry sums in any of the proposals kicked around by Congress. Maybe they should just do-nothing.
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