American Sauce: 2011, Meet the National Debt
January 3rd, 2011
12:01 PM ET
3 years ago

American Sauce: 2011, Meet the National Debt

Washington (CNN) – New Congress, meet the National Debt. Many in the 112th Congress resolve to tackle America's $14 trillion mountain of IOUs. But do they understand and are they ready for what that means?

In this week's American Sauce, we lay out exactly what decisions lawmakers face if they are serious about cutting down the debt.

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Or read on.

If anyone in Congress is genuine about a New Year's resolution to deal with the National Debt, here just a few of the real, tough decisions they face.

1. CUT SPENDING: The problem is massive. In 2010, nearly a third of federal spending was borrowed. The Federal government spent about $3.5 trillion total. Of that, $1.3 trillion was deficit spending or borrowed money. (Source: CBO)

Tough Decisions

- How much do you cut?
* The Simpson-Bowles debt commission recommended cuts of $800 billion by the year 2020.
* House Republicans propose cutting back to 2008 funding levels, a 20 percent cut in non-security spending.
* Some, like the Center on Budget and Policy Priorities say those kinds of cuts go too far, are unrealistic and would cost the economy too much.

- When do you cut?
* Many economists argue that large government cuts now would snuff out any economic recovery underway.
* Others say the debt problem must be tackled immediately.

- How do you cut?
* Go agency by agency, slashing ineffective programs or impose across-the-board cuts?
* Many praise the idea of finding programs that don't work, but subjective cuts would be time-consuming and could be politically radioactive.

- How do you deal with the federal workforce?
* 2 million Americans work for the federal government now.
* Simpson-Bowles proposed cutting the federal workforce 10 percent, through attrition.
* President Obama has already frozen non-combat federal salaries.

2. RAISE TAXES: Tax revenues in 2010 represented just 15 percent of GDP (spending was 24 percent). That tax figure is the lowest, relative to GDP in 60 years. It is expected to increase, but not by enough to put a dent in the debt. Some experts say the question isn't if you raise taxes but which ones to raise. (Source: CBO)

Tough Decisions

- Do you overhaul the entire tax system?
* Two commissions (Simpson-Bowles and Rivlin-Domenici) and a slate of economists urge Congress to overhaul the tax code, saying it is full of loopholes, shelters and confusion that cost money for taxpayers and government.
* Many recommend lowering all tax rates and ending most tax shelters and deductions, including mortgage deductions.
* A debate over the entire tax code could be difficult for a Congress that barely was able to agree on a two-year extension of the Bush Tax Cuts.

- What taxes and fees should go up?
* National sales tax? The Rivlin-Domenici commission proposes a 6.5 percent national sales tax.
* Soda tax? Rivlin, Domenici and commission also want a tax on sugary beverages at 1 cent per ounce.
* Gas tax? The Simpson-Bowles commission pushed for a 15 cents-a-gallon increase in gasoline taxes.
* Airline fees? Rivlin-Domenici eyeballed an increase in the Aviation Security Fee to $5 per trip.

3. TACKLE MEDICARE AND SOCIAL SECURITY: Currently the Medicare Trust Fund is projected to run out of funds in 2029 and the Social Security Trust Fund in 2037. Keeping those funds solvent is one issue. Another is keeping Medicare in particular from eating a larger and larger chunk out of the federal budget.

Tough Decisions

- Raise the retirement age?
* Currently Social Security is set to raise the full retirement age to 67 for people born after 1959.
* Some propose likewise increasing it to 68 in a few decades and then to 69, affecting (in order) those who are in their 20s and in preschool today.

- Cut benefits? Raise deductibles?
* Without action, Social Security would need to cut benefits an estimated 22 percent to survive once its trust fund is depleted.
* Some propose saving money on Medicare by cutting benefits. There are a wide-range of options but fiery opposition from powerful seniors groups and others.
* Others suggest raising deductibles and co-pays for Medicare, an idea on the table but with similarly passionate opposition.

- Means test? Charge more for the wealthy?
* Several proposals would increase fees and taxes that go to Medicare and Social Security from the wealthy.
* This also has many variations but all would raise a similar debate to the fight over the Bush Tax Cuts.


Filed under: American Sauce • Debt
soundoff (17 Responses)
  1. Don George

    For Social Security, you left out the option of increasing the payroll tax, either by raising the rate or broadening the income base it applies to. How come?

    January 3, 2011 12:29 pm at 12:29 pm |
  2. S.B. Stein E.B. NJ

    The gasoline tax needs to be raised. I say this, and I drive to and from work every day. We need to take that money and make sure it goes to the road. Personally, I say that we slap a tax on those vehicles that get less than 15 MPG city and/or 20 MPG highway that would support R&D into better more sustainable fuels (other than things like ethonal from corn as an example) as well as mass transit. There are other things that need to be done as well. This is just a start.

    January 3, 2011 12:37 pm at 12:37 pm |
  3. Four and The Door

    There's no question that getting control of a $14 trillion debt in an economic downturn is difficult. The strategy of massive government "Stimulus" spending did not work. At all. It was a flaming failure and just put the nation in a much larger rut and deeper hole. Americans put up a big stop sign for that strategy in November.

    The strategy that makes sense for everyone right now is to cut government spending and the recent actual growth of government through new entitlement programs and regulation agencies. Going forward it is absolutely necessary to encourage private industry growth. And yes, with 'clean' or dirty, stinky jobs. Extending the tax cuts for everyone was one of the best things the government could do in this regard. Throwing hundreds of billions of tax dollars at banks without having any guarantee that they will lend it was also a colossal lousy idea that didn't work.

    Republicans have given America a clear set of objectives and we have given them a mandate to execute their plan. Of course, the execution is extremely critical. But they have an excellent start!

    January 3, 2011 12:42 pm at 12:42 pm |
  4. dwayne

    Christian republicans plan to destroy health care and social security for poor people. Even though the CBO A nonpartisan agency: States that the Health-care reform bill cuts deficit by $1.3 trillion over 20 years. Republicans need tax cuts for billionaires and increased deficit; I guess.

    January 3, 2011 12:46 pm at 12:46 pm |
  5. LIsa Desjardins

    Don, That's a good point. It was on my initial drafts of this post. I'm not sure why and am embarrassed that I dropped it.

    January 3, 2011 12:48 pm at 12:48 pm |
  6. Pennsylvania Super Patriot Deluxe

    No, no american with an emphasis on the moronic Tea Party and the Republicans have any idea what this means. i am at the point where i want absolutely everything cut. i then want to watch all of these Tea Party Losers cry in their Budweiser about their own entitlements they are too stupid to realize they are getting. i also can't wait to cut the Farm Subsidies and watch those yahoo's (are you listening Michelle Bachman with your $250,000 in government hand outs for your farm) understand they are also part of the problem they have been complaining about. no more government subsidies for oil, defense (haliburton-no bids), etc.... let it happen capn

    January 3, 2011 12:50 pm at 12:50 pm |
  7. rs

    Clearly we see Republicans have no stomach now (or ever probably) for reducing the debt and deficit- they are only governing for their 2%, and not for the rest of America. Americans have spoken, by wide margins we want to see appropriate tax increases on the over $250,000 wage earners. As stated above ther ought to be higher taxes on gasoline, fuel oil and diesel- as well as on gas guzzlers and other luxury items. The tax system needs an overhaul for sure, and loop holes for corporations must be closed.

    The biggest money waster though are Bush'e misadventures in the middle east. Shut down the wars in Iraq and Afghanistan and we save $12 billion a month!

    January 3, 2011 12:51 pm at 12:51 pm |
  8. Rick McDaniel

    Raising the SS retirement age, is counter-productive, as employers will not keep workers until those ages. indeed, I myself, am barely making it to retirement at 66, without loosing my job, and my wife worked past her retirement, only to be cut to part-time, by age 69.

    It looks good on paper, but in the real world of jobs, it won't work. It will simply cause people to loose their jobs, before they can get full retirement benefits, leaving them no where to turn for 1-4 yrs., and destroying any possibility of an adequate retirement.

    January 3, 2011 01:26 pm at 1:26 pm |
  9. thor

    The government has no intention of paying back the money that it has borrowed.How is this different than a default on it's loans? Wake up America.We've been had.

    January 3, 2011 01:27 pm at 1:27 pm |
  10. Sniffit

    "For Social Security, you left out the option of increasing the payroll tax, either by raising the rate or broadening the income base it applies to. How come?"

    Which income bracket do you think the vast vast majority of CNN employees with decision-making/editorial authority fall in?

    January 3, 2011 01:37 pm at 1:37 pm |
  11. T'sah from Virginia

    Four and the Door ["The strategy of massive government "Stimulus" spending did not work. At all."]

    And the "sophisticated STIMULUS" that extended the Tax Cuts for the RICH was also just passed that added another trillion to the deficit!! So which "Stimulus" are you talking about?????

    January 3, 2011 01:56 pm at 1:56 pm |
  12. Roger E

    Most will see this as simplistic and even stupid but with a little deeper thought you will find that it is true. We are letting ourselves down by not understanding debt and money and by not asking the right questions. The only debt that the US really is liable for is the trade deficit. We buy more from overseas than we sell overseas. We simply have to reduce imports and or increase exports. This is predominantly a function of the collective wills of the US people rather than government policy. It's a choice between not buying junk made overseas versus buying US made products (as few as they may be). Buying a Ford, GM, or Chrysler vehicle instead of a Toyota, BMW, or Ferrari is the simplest example.

    In terms of government debt, stopping spending is akin to telling people to stay home and do nothing and hope that the private sector will create jobs. Good luck on that front! The US economy should be viewed as a closed system in terms of debt. Debt is not bound laws of nature, nor is economics. These are human problems that have human solutions, and simple ones at that. I am not talking about communism, or socialism which many will of course assume is what I am advocating. It is about priorities, balance, efficiencies, and most of all, choice. We have to change our thinking to realize that in an enclosed economy we have all the money we will ever need if we just know where to look. Trade is important and necessary but trade must be balanced.

    Start by asking what is cost? What is debt? What is money? Come to the right conclusion and through cooperation and understanding, almost all of our problems are solved. Big statement I know but all it calls for is to think a little differently instead of the same old tired ideas that we are working with today. Your children's futures are the stakes!

    January 3, 2011 01:59 pm at 1:59 pm |
  13. Bill

    dwayne.... that figure is not the latest from the CBO. You need to update your information....

    On to another topic.... how are we reducing costs when you have to have a perscription from a Dr. to obtain OTC drugs and have them be eligible for spending account usage? Imagine what it will be like to get into see your Dr. now.... every body that wants a cold rememdy (nyquil, theraflu ...etc even your aspirin for your heart) So we are going to have to pay Dr. appointment costs to get OTC .... why not eliminate all OTC drugs ... just put them under the control of the FDA???

    January 3, 2011 02:05 pm at 2:05 pm |
  14. Casey

    Four and the Door, wasn't it the Bush administration that gave out the TARP money with no strings attached? As for getting a hold of the massive debt, how did putting ourselves into debt to the tune of an additional $700 billion help us do that? Is this the kind of bright ideas you think the Republicans have for getting us out of this mess? The debt we incurred for the stimulus kept our economy from totally going over the edge. For roughly the same price, we've only managed to pad the bank accounts of the wealthy. Great Deal!

    January 3, 2011 02:23 pm at 2:23 pm |
  15. Mike

    TAX THE RICH! The Bush tax cuts for the rich are going to be paid for by increasing taxes on the middle class in the future. People who have a lot of money can live quite extravagantly just on the interest that accrues on the principle. Do they need more while so many others are struggling to feed their families, and stay in their houses?

    If you have 10 million dollars for instance, you can afford good investment advisers.
    A reasonable rate of interest accrued per year on 10 million dollars would be 8%.
    Pay 3% of that for capital gains tax on the interest you made for the year, and by sitting on that 10 million and doing nothing- you just made $500,000 in a year doing nothing.

    Do the rich really need tax breaks? What a farce the Bush tax cuts are. The politicians have fooled us into believing it's good for the economy, but trickle down economics is a joke- trickle down means "I'm rich because I suckered you into believing you'd get a crumb when my taxes were reduced." In reality they will spend it on more lavish mansions, yachts, and cars. Even billionaire Warren Buffet called the current tax system unfair when he realized that he effectively pays %17 on his income because his lawyers use so many loopholes and deductions, while his secretary pays 33% of her meager income to taxes. Is that fair? TAX THE RICH AND REMOVE THEIR LOOP HOLES!

    January 3, 2011 02:27 pm at 2:27 pm |
  16. rob

    Over the past 4 years the Dem controlled congress with the help of a Republican President as well as President Obama have increased "Baseline" budgets (The starting level of spending when considering future funding) and raised spending on new programs to unsustaineable levels. Now that the american people have resoundingly voted the Dems and their policies out, the Republicans have a very sensible plan to roll back spending to 2008 levels. This includes non funding of the Presidents Health Care Biill which used accounting gimmicks to hidt the true cost of this monstrosity. This bill will cost a TRILLION DOLLARS while not reducing "Health Costs".

    The Dems and the liberal media will sream that the Republicans are "Cutting and Slashing" spending that will HURT the eldery,the not so eldery, the poor, the not so poor,the children and minorities and women and any non rich white men. It will be the same broken record they always play, but the people are wise to this demagoguery and won't fall for it.

    We will be watching and Nov, 2012 isn't that far away.

    January 3, 2011 02:37 pm at 2:37 pm |
  17. Dean

    3. TACKLE MEDICARE AND SOCIAL SECURITY: Currently the Medicare Trust Fund is projected to run out of funds in 2029 and the Social Security Trust Fund in 2037.------------------Social Security has done nothing to contribute to the debt of the U.S. In fact the U.S. owes Social Security about 3 trillion dollars. Maybe they should think about paying that money back to social security........
    Further thought..........
    Does anybody remember the reason given for the establishment of the DEPARTMENT OF ENERGY..... during the Carter Administration?

    Anybody?

    Anything?

    No?

    Didn't think so!

    Bottom line. We've spent several hundred billion dollars in support of an agency....the reason for which not many people who read this can remember!

    Ready?? It was very simple..and at the time, everybody thought it very appropriate.

    The Department of Energy was instituted on 8/04/1977, TO LESSEN OUR DEPENDENCE ON FOREIGN OIL.

    Hey, pretty efficient, huh???

    AND NOW IT'S 2010 - 33 YEARS LATER - AND THE BUDGET FOR THIS "NECESSARY" DEPARTMENT IS AT $24.2 BILLION A YEAR. IT HAS 16,000 FEDERAL EMPLOYEES AND APPROXIMATELY 100,000 CONTRACT EMPLOYEES; AND LOOK AT THE JOB IT HAS DONE! (THIS IS WHERE YOU SLAP YOUR FOREHEAD AND SAY, "WHAT WERE THEY THINKING?")
    33 years ago 30% of our oil consumption was foreign imports. Today 70% of our oil consumption is foreign imports.
    Ah, yes - good old Democratic – Federal bureaucracy.

    NOW, WE ARE HAVE TURNED OVER THE BANKING SYSTEM, HEALTH CARE, AND THE AUTO INDUSTRY TO THE SAME GOVERNMENT?

    Hello!! Anybody Home?

    And there are many other government agencies that we can do without not to mention our giving money to North Korea.

    January 3, 2011 02:38 pm at 2:38 pm |