Six Think Tanks Tackle the Budget Deficit

Today, at the request of the Peterson Foundation, an ideologically diverse group of six think tanks proposed their long-term solutions to the federal deficit problem. Not surprisingly, they disagreed on most details. But the project reflected surprising consensus (though hardly unanimity) on a some big issues. Most important, four of the six aimed to hold federal spending two decades from now at around 23 percent or 24 percent of Gross Domestic Product. Similarly, four projected federal tax revenues at roughly the same level. This suggests a significant increase in taxes over today (and over the House-passed budget) and a big drop in deficits. 

The groups represented views from the political right (the Heritage Foundation and the American Enterprise Institute), the left, (the Economic Policy Institute and the Center for American Progress), and the middle (the Bipartisan Policy Center). The sixth group, the Roosevelt Institute Campus Network, was chosen to represent the views of young people. The Tax Policy Center served as a “scorekeeper” for the tax proposals, but the plans themselves are the work of the individual think tanks and not TPC. 

Reviewing these plans is a glass half-empty/ glass half-full exercise, and it would be easy to focus on areas of disagreement—of which there are many. But I really was struck by the broad consensus in some key areas. For instance, the spending targets for AEI, BPC, and CAP all clustered at around 23 percent of GDP. Roosevelt was a bit higher at about 25 percent. The outliers were Heritage at 18 percent (very close to the House budget) and EPI at 28 percent. The consensus reflects the view of most mainstream economists and budget analysts that spending on programs such as health care will inevitably rise as the population ages and use of medical technology grows. 

Interestingly, the groups disagreed in some important ways on how they’d spend money in 2035. Federal health costs, which the Congressional Budget Office projects will reach about 10 percent of GDP in 2035, would also hit that level under the BPC and EPI plans. AEI, CAP and Roosevelt figure they could drive that down to 7 or 8 percent and Heritage thinks it can cut it  to 6 percent. Heritage, BPC, and AEI all favor shifting Medicare to a premium support/voucher system. EPI and Roosevelt would expand the payment reforms in the 2010 health law.  

Those spending estimates very likely drove revenue targets for most of the groups to roughly the same 23-24 percent levels. BPC, CAP, EPI, and Roosevelt all clustered in that range, while Heritage aimed for about 18.5 percent and AEI about 20 percent. 

How did they get there? They all would reduce or eliminate many tax expenditures, although most would preserve subsidies for charitable giving and mortgage interest in one form or another. After that, it was a free-for-all. AEI backed a progressive consumption tax, Heritage favored a “modified’ flat tax. The other groups would maintain the existing income tax system framework with a variety of changes. 

Four of the groups–AEI, CAP, EPI, and Roosevelt– backed a carbon tax. Most of the plans would increase or even eliminate the cap on earnings subject to Social Security payroll taxes. However, Heritage would go in the opposite direction and repeal the payroll tax entirely and fund the (much smaller) Social Security system through the flat tax. 

Take a look for yourself at these plans. They reflect a wide variety of ideological views. But all of them would reduce deficits and debt levels below where they would be without action. And that, at least, is something to build upon.