US Budget Deficits Require Both Spending Cuts and Tax Increases

The CRFB Speaks

By Children’s Home Society of Florida Foundation

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The nonpartisan Committee for a Responsible Federal Budget (CRFB) has published a release on October 20 that discusses some of the options to tackle the federal deficit. According to a Bloomberg News poll, there are two major issues that are foremost in the minds of voters as they go to the polls on November 2nd. The first is jobs and the US economy. The second issue focuses on federal finances and the budget deficit.

CFRB Suggestions

The CFRB suggests that there are four potential options for reducing expenditures and one for increasing revenue.

1. Fraud, Waste and Abuse – A favorite comment of all political candidates is that he or she will reduce fraud, waste and abuse. While there may be some savings, this historically has been a fairly modest part of actual deficit reduction.

2. Strengthen Social Security – Congress will need to address methods for strengthening Social Security. The Social Security program used to run a substantial surplus each year. However, in 2010 the federal deficit will total approximately $40 billion. That is, the amounts received by Social Security will be $40 billion lower than the amounts distributed for benefits.

Social Security

By 2020, Social Security could be running a $100 billion deficit. Social Security Trustees have stated, “The projected trust fund shortfalls should be addressed in a timely way so that necessary changes can be phased in gradually and workers can be given time to plan for them.”

3. Healthcare – The Congressional Budget Office notes that the current healthcare programs could require nearly one-half of the federal budget by 2030 or 2040. Therefore, there will need to be further changes in healthcare in order to make the program fiscally sustainable.

4. Defense – Defense expenditures in 2010 were 4.7% of Gross Domestic Product (GDP). This amounted to $692 billion. Defense Secretary Gates has acknowledged that there may be opportunities to eliminate some weapons systems and reduce expenditures.

5. Increased Taxes – The CFRB release states, “It is very difficult to lay out a credible deficit plan that would not increase taxes. It is also very difficult to develop a comprehensive plan that would not raise taxes on families making less than $250,000 per year.” The potential for increased taxes has focused on income taxes, capital gains taxes, estate taxes and a consumption tax such as a gas tax or a value added tax.


The Fiscal Commission appointed by President Obama is expected to issue a report in December that discusses these issues.

Editor’s Note: Your editor and this organization take no position with respect to the many financial and tax options that are available to Congress. This information is offered as a public service to our readers.


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4 Responses

  1. House Ways and Means Chairmen Comment on Taxes

    In the lame-duck session that convenes mid-November, current Ways and Means Committee Chairman Sander Levin (D-MI) will be directly involved in the actual language of tax legislation. The Ranking Republican on the House Ways and Means Committee is Rep. Dave Camp (R-MI). In January, the probability is that the Republican majority will select Rep. Camp as the incoming Chairman of the Ways and Means Committee and the Democratic members of Congress will elect Rep. Levin as the Ranking Member.

    Both Levin and Camp published statements on taxes following the election. Chairman Levin noted, “We must find a way to enact common-sense tax policies that help stimulate further tax creation and economic growth in the near term while addressing the critical issue of our long-term fiscal deficits.”

    Rep. Camp also sounded a conciliatory note in his statement. He stated, “The uncertainty about how high taxes will go next year is already costing us jobs and it was a mistake for Congress not to have already addressed the 2001 and 2003 rates as well as AMT, the tax extenders and a host of other tax provisions.”

    Source: Children’s Home Society of Florida.

    Editors Note: Leading tax writers and President Obama have all indicated that they hope the lame-duck session will pass the tax extenders. This would include the IRA charitable rollover, retroactive to January 1, 2010. Because the actual bill is not likely to be signed by the President until early December, there will be a very short time for charities to inform their donors about the potential of an IRA charitable rollover for 2010. The marketing effort will be almost entirely through email and websites due to the very short time available.


  2. Baucus Proposes Repeal of $600 Form 1099 Requirement

    During the 2009 negotiations for the Patient Protection and Affordable Care Act, there was an obvious need for revenue offsets. After an extensive search for ways for the government to increase tax collection, Congress decided to extend the Form 1099 requirement to all payments for goods and services to a single business that total more than $600 in a year. The requirement is effective starting in the year 2012.

    Previously, the requirement existed for corporations to file Form 1099 if they made payments for services more than that amount, but they were not required to file the form for all payments for goods. The reaction to the proposed rule has been overwhelmingly negative. Many mid-size and small businesses have stated that they will be required to file hundreds of Forms 1099. The accounting and administrative burden in their view, is much greater than the potential tax revenue to be gained.

    Following a firestorm of criticism by advocates for a small business, Senate Finance Committee Chair Max Baucus (D-MT) attached an amendment to the FDA Food Safety Modernization Act of 2010. This amendment would repeal the $600 Form 1099 requirement for payments by corporations for goods.

    Source: Children’s Home Society of Florida Foundation


  3. Payroll Taxes

    I am pleased to report that President Obama and Republicans have just agreed to a “payroll tax holiday” in 2011.

    For one year only, an employee’s portion of the Social Security tax will be reduced from 6.2% to 4.2%.



  4. New Deficit-Reduction Plan Seeks $600B in Healthcare Cuts

    The former co-chairmen of the president’s bipartisan fiscal commission have introduced a deficit-reduction proposal that calls for an additional $2.4 trillion in savings over 10 years, with roughly a quarter of those savings—or about $600 billion—coming from Medicare and Medicaid. Erskine Bowles, former White House chief of staff in the Clinton administration, and former Sen. Alan Simpson (R-WY) unveiled the framework as a way to show lawmakers that a so-called grand bargain to lower the nation’s ballooning deficit is still within reach.

    To reduce spending in the nation’s healthcare entitlement programs, the plan calls for reducing provider payments, changing cost-sharing rules, increasing premiums for higher earners, and “savings from lower drug costs and adjustments to account for an aging population,” according to additional information provided by the Moment of Truth project, for which the former leaders of the president’s National Commission on Fiscal Responsibility and Reform serve as co-chairmen.

    Source: Jessica Zigmond, Modern Healthcare [2/19/13]


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