The federal budget is out of balance: for each dollar of revenues collected, $1.33 is spent . Congress and President Obama will soon meet to begin finalizing the approach to be taken in order to balance the budget over the long term.
A growing economy increases federal revenue; however, the current economy has not yet reached full employment status and, for the purpose of crafting a budget, future economic growth cannot be assumed, but can be considered. Spending formulas related to GDP increments are another possibility.
Various approaches have been suggested to correct this budget imbalance. One approach is to establish a flat tax to collect more revenue. Another approach is to adjust deductions such as those for charitable contributions, mortgage interest, medical expenses and a myriad of others. Another possibility is to allow deductions on Schedule A based upon an
income sliding scale. For example, taxpayers making $50,000 or below would get the full deduction, while those making $50,000 to $100,000 would receive a lower deductible, such as 75 percent, on up to a complete phasing out of deductions at the highest income levels.
The biggest drivers of the federal budget are defense spending and social
programs such as Medicaid. Defense spending increased dramatically due to
the Iraq and Afghanistan engagements, but these are now being phased out, which should result in significant reductions in the DoD budget over time.
In a peacetime economy under President Clinton, the budget was first balanced
and then came into a surplus over $230 billion. The surplus disappeared over the course of the Iraq and Afghan engagements. Prior to President Clinton,
President Nixon was the only other chief executive to balance the federal budget while still preserving some semblance of a social services infrastructure.
There has been some discussion of migrating responsibility for the Medicaid program and its funding back to the states. The thinking is that the states know how to spend the money more efficiently than the federal government. In addition, the states have the requisite databases necessary to reduce or eliminate data processing duplication and paperwork.
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