I cut the federal deficit in an hour

COMMENTARY On Monday, after working on this problem since the August, the debt supercommittee announced that it had failed to come to an agreement on finding $1.2 trillion of savings in the federal budget over the next 10 years. That made me wonder how hard it actually is to reduce the deficit, so I thought I'd give it a try.

The Pew Charitable Trusts, an independent nonprofit organization dedicated to "a rigorous, analytical approach to improve public policy, inform the public and stimulate civic life," offers an online educational tool called the Pew Budget Challenge. The tool lets you cut spending on various federal entitlement programs or raise taxes, then shows you the progress your changes would make toward meeting the budget-cutting goal and the impact you'd make on reducing federal debt as a percent of the GDP.

I used this tool on Monday as I flew across the country, returning home from a business trip. It took me about an hour to identify a combination of spending cuts and tax increases that I could live with.

But why should an actuary and retirement writer care about the federal debt? It takes a financially strong nation to allow a significant portion of its population to consume goods and services without contributing to the total output. And it doesn't take a genius to see that the value of our 401(k) accounts is eroding due to a lack of confidence in our politicians' ability to make tough decisions about the federal budget. As I was writing this post, the stock market was tanking again, a situation that has largely been blamed on the budget mess.

The Pew tool allows you to go to a fairly granular level of detail regarding the various programs you can reduce or the taxes you might raise, so space limits me to telling you about all the changes that I modeled. Here's a quick summary of revenue enhancements I could live with:

-- Increase by one percentage point all income tax rates -- corporate taxes as well as individual ordinary income and capital gains taxes. C'mon, Tea Partyers and Republicans: That's not gonna end the world as we know it.

-- Increase the Social Security taxable wage base to $170,000 in 2012, up from $106,800 in 2011.

-- Extend Social Security to new hires at state and local governments that don't currently participate in Social Security.

And here are a few of the larger spending reductions I could live with:

-- Freeze all nonmilitary spending at 2011 levels. Reduce the level of overseas troops to 45,000 by 2015 and freeze defense spending at current levels. Reduce the number of active aircraft carriers to 10, the number of navy air wings to nine, and eliminate spending on a few weapons programs. With these cuts, I don't feel less safe from terrorists or other threats to our national security.

--Consolidate Medicare Parts A and B as recommended by the Erskine-Bowles commission on deficit reduction.

-- Reduce Social Security benefits for higher-income recipients while protecting lower-income recipients through a combination of formula changes and modifications to the cost of living adjustment (COLA). I believe that the wealthiest generation of Americans can afford to lend a hand to everybody else.

-- Eliminate all agricultural subsidies. Our nation doesn't have a problem with producing enough food for our citizenry.

AARP's position on Social Security and Medicare is not realistic
Huzzah! Supercommittee's failure is good news

Some of my other spending changes included eliminating first dollar coverage under TRICARE -- the retiree medical program for retired military -- reducing subsidies to the federal mortgage programs, reducing subsidies to the student loan programs, and increasing fees for security at airports. I feel that those people who use these programs can afford to pay for a greater share of their costs, and that the level of federal subsidies is unnecessary. And with mortgage interest rates at all-time lows, we really don't need the federal government's help to create affordable mortgages.

I decided to protect some spending programs for health, children and education. Our children are our nation's future -- we can't afford to shortchange their education. And the health and well-being of all our citizens is a good that I value and that I'm willing to pay for it. However, I'm all for incentives for our citizens to take responsibility for their well-being to reduce the significant costs of our unhealthy lifestyles, including obesity.

I'm not happy about making these reductions and I realize that many people will be hurt by them, but nevertheless significant federal spending needs to be curtailed to reduce the federal deficit.

At the end of my hour, I had found $3.8 trillion in reductions in the federal deficit. About half of my savings came from a reduction in spending, one-third from revenue enhancements, and the remainder from savings in interest payments. With my suggested changes, in 10 years, the federal debt would be 50 percent of GDP. (If we maintain our current course, this ratio is projected to climb from 70 percent in 2008 to almost 110 percent by 2015.) There's no consensus on the debt-to-GDP levels that are considered safe, but a cause for alarm is the rapidly growing ratio, as has been the case for the U.S. in recent years.

If I could rein in government spending in one hour, I'm sure you could too. Give the Pew Budget Challenge tool a try -- it's very educational. It starkly shows the tough choices our nation faces. I'm sure you might make different choices than mine, but I'm pretty sure you could also make some tough choices you could live with.

I don't mean to trivialize this effort -- I realize there are significant political barriers to the choices that I made. And if I were doing it in reality, I'd spend more time researching the consequences of my decisions. I acknowledge that there would be impacts on our economy with these choices. Nevertheless, I would still make the tough choices and compromises that we need our elected officials to be making. We need them to put our country ahead of party interests and ideology. C'mon, debt supercommittee: Do the job we elected you for.

  • Steve Vernon On Twitter»

    View all articles by Steve Vernon on CBS MoneyWatch»
    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.