Heritage Foundation Unveils New Debt-Reduction Plan

This morning, The Heritage Foundation released a comprehensive fiscal plan aimed at reducing the federal budget deficit by significantly cutting spending and reducing the overall size of government. The proposal, Saving the American Dream, balances the budget within ten years, limits spending to 18.5 percent of GDP, and reduces debt to 30 percent of GDP in 25 years. The plan would dramatically reduce federal spending, signficantly reform entitlement programs, and overhaul the existing US tax code.

See table below for highlights of the proposal.

Social Security
Raises the normal retirement age and early eligibility age to 68 and 65 respectively, then indexes both to life expectancy
Gradually transitions to one flat benefit indexed to wage growth
Gradually reduces or eliminates benefits for higher earners
Switches to chained CPI to more accurately measure inflation
Implements a special tax deduction for those who work past the normal retirement age
Implements optional private retirement savings accounts starting in 2014
Health Care
Repeals health care reform legislation
Transforms Medicare into a premium-support program (though an individual can choose to use their subsidy to purchase traditional Medicare)
Enacts a permanent "doc fix"
Caps total Medicare spending, indexed to inflation and Medicare population growth
Eliminates tax exclusion for employer-sponsored health care and replaces with a non-refundable credit
Block-grants Medicaid and caps at 2007 levels starting in 2014, adjusted for medical inflation thereafter
Tax Reform
Replaces income and corporate tax systems with a single flat tax
Eliminates tax expenditures except the mortgage interest deduction, charitable contribution deduction, and higher education expenses deduction
Returns most non-defense discretionary spending to 2008 levels
Reduces and reforms federal education and anti-poverty spending
Reduces defense spending from approximately 5 percent of GDP to 4 percent and keeps it there
Replaces farm subsidies with Farmer Savings Accounts (tax-deductible IRA style accounts)
Elimates federal spending on local job training, justice, environmental, or community and economic development programs

The proposal also implements caps on total federal spending at 18.5 percent of GDP, as well as requires Congress to publish estimates of projected 75 year costs of all policy proposals and funding levels for federal programs.

CRFB applauds Heritage for proposing a specific plan that would stabilize and reduce our debt. We hope that more organizations from across the political spectrum will follow their example and offers substantial fiscal plans as well.