If You Were the Supercommittee…

This simulation from Pew is a great way to understand what the supercommittee is trying to do. Called “the Pew Budget Challenge,” it presents close to 100 revenue and expenditure alternatives for bringing the debt down to 60% of GDP by 2021. You make the decisions and see where the debt goes.

If you want more of an academic approach, this Congressional Budget Office (CBO) report explains budget controlling alternatives. I’ve noted below the CBO’s candidates for cuts and revenue boosts. Within each category, items are listed in descending size order.

SPENDING CUTS

Mandatory:

• Social Security
• Medicare
• Other
• Medicaid and other Health Programs
• Unemployment Compensation

Defense Discretionary:

• Operation and Maintenance
• Military Personnel
• Procurement
• Other

Nondefense Discretionary:

• Other
• Education, Training, Employment, Social Services
• Transportation
• Income Security
• Health
• Veterans
• Justice
• International Affairs

REVENUE BOOSTS

(The CBO cites 35 ways to raise revenue in their report.)

• Individual Income Taxes (42%)
• Social Insurance Taxes (40%)
• Other Revenue Sources (10%)
• Corporate Income Taxes (9%)

Called “Fiscal Commission Deja Vu,” this past econlife post looks at proposals from presidential budget commissions. The 2 commissions had similar proposals but the Congress and President never proceeded. And now, we await the supercommittee.

The Economic Lesson

Specifically defined, federal fiscal policy refers to taxing, spending, and borrowing. It involves the federal deficit which is the shortfall between annual spending and revenue. The federal debt is the total amount that the U.S. government owes.

An Economic Question: In the Pew simulation, how much could you cut the growth of the debt?