The Hamilton Project

15 Ways to Rethink the Federal Budget

A Hamilton Project Budget Book

In the coming months, policymakers will be making important decisions on how to reduce the federal budget deficit. These decisions pose significant political and economic challenges, but also create a rare window of opportunity for policymakers to decide what kinds of programs and investments our country values, and what sort of society we will create for future generations.

To this end, The Hamilton Project asked leading experts from a variety of backgrounds — the policy world, academia, and the private sector, and from both sides of the political aisle — to develop policy proposals which could form a partial menu of options to achieve responsible deficit reduction. The mandate given to the authors was to describe pragmatic, evidenced-based proposals that would both reduce the deficit and also bring broader economic benefits. The resulting fifteen proposals are included in The Hamilton Project’s 15 Ways to Rethink the Federal Budget. While not intended to cover every budget category, these papers take on a wide-ranging set of topics, including immigration, transportation, health care, defense spending, and tax expenditures, and include options to reduce mandatory and discretionary expenditures, raise revenues, and improve government efficiency.

Note: The papers were released at two Hamilton Project events on February 22 and February 26.

An Enduring Social Safety Net

Innovative Approaches to Tax Reform

New Sources of Revenue and Efficiency

Budgeting for a Modern Military

1
Transitioning to Bundled Payments in Medicare
Michael Chernew and Dana Goldman
Proposal

Proposes a global payment system, where provider systems are paid a fixed fee per beneficiary to cover all spending.

Broader benefits to U.S. economy

Promotes efficiency in the Medicare program by providing incentives to treat disease rather than paying for individual services; continues to encourage improvements in the quality of care, but at lower costs.

Deficit reduction as estimated by authors (10-year)

$100 billion
2
Reforming Federal Support for Risky Development
David R. Conrad and Edward A. Thomas
Proposal

Proposes to reform federal disaster programs to prioritize hazard mitigation, and change incentives to encourage risk reduction in local public- and private-sector investments.

Broader benefits to U.S. economy

Reduces budget costs of natural disasters; reduces risks to life and property of Americans living in disaster-prone areas.

Deficit reduction as estimated by authors (10-year)

$40 billion
3
Restructuring Cost Sharing and Supplemental Insurance for Medicare
Jonathan Gruber
Proposal

Proposes an integrated, progressive Medicare cost-sharing structure with new limits on out-of-pocket expenses; imposes a tax on supplemental insurance policies to reflect costs shifted to Medicare.

Broader benefits to U.S. economy

Insures consumers against high out-of-pocket costs; aligns the costs faced by consumers with the actual cost of care; discourages incentives in private plans that encourage excess use of Medicare benefits.

Deficit reduction as estimated by author (10-year)

$125 billion
4
An Evidence-Based Path to Disability Insurance Reform
Jeffrey B. Liebman and Jack A. Smalligan
Proposal

Proposes three early intervention demonstration projects to help people with disabilities stay at or return to work. Also proposes mandatory funding for initial eligibility determinations and redeterminations so that the Social Security Administration can perform more timely and thorough eligibility reviews, thereby improving accuracy and reducing program costs.

Broader benefits to U.S. economy

Potential to increase employment and economic engagement of workers with disabilities and provide more rapid and reliable resolution of disability insurance claims for those who cannot work. Results of the pilots would inform broader reforms of the disability insurance system, leading to additional longer-term benefits.

Deficit reduction as estimated by authors (10-year)

$10 - 20 billion
5
Eliminating Fossil Fuel Subsidies
Joseph E. Aldy
Proposal

Proposes to eliminate twelve tax provisions that subsidize the production of fossil fuels in the United States.

Broader benefits to U.S. economy

Levels the playing field among fossil fuel producers and relative to other business investments; leads to potentially lower global fuel prices by providing the United States with increased leverage in negotiations over eliminating fossil fuel subsidies in the developing world.

Deficit reduction as estimated by author (10-year)

$41 billion
6
Better Ways to Promote Saving through the Tax System
Karen Dynan
Proposal

Proposes improving incentives for saving by low-income households by expanding use of behavioral approaches and incentives; reduces inefficient tax expenditures for higher-income households.

Broader benefits to U.S. economy

Improves saving and economic security for low-income households; reduces expensive and ineffective federal subsidies for high-income households.

Deficit reduction as estimated by author (10-year)

$40 billion
7
Limiting Individual Income Tax Expenditures
Diane M. Lim
Proposal

Proposes limiting itemized deductions to 15 percent, with special provisions to maintain incentives for charitable giving.

Broader benefits to U.S. economy

Raises revenue more efficiently by reducing tax expenditures; limits potential negative impacts on subsidized sectors by preserving certain tax incentives; equalizes implicit subsidies across middle- and higher-income taxpayers.

Deficit reduction as estimated by authors (10-year)

$1 trillion
8
Replacing the Home Mortgage Interest Deduction
Alan D. Viard
Proposal

Proposes replacing the mortgage interest deduction with a 15 percent refundable credit based on up to $300,000 of mortgage principal.

Broader benefits to U.S. economy

Reduces the artificial incentive for the construction of high-end homes by reducing and better targeting the tax breaks for housing.

Deficit reduction as estimated by authors (10-year)

$300 billion
9
Funding Transportation Infrastructure with User Fees
Jack Basso and Tyler Duvall
Proposal

Proposes expanding the use of user fees and tolls to fund ground transportation.

Broader benefits to U.S. economy

Raises revenues, reduces congestion on major roadways, reduces pollution; promotes wiser infrastructure investments.

Deficit reduction as estimated by authors (10-year)

$312 billion
10
Creating an American Value-Added Tax
William G. Gale and Benjamin H. Harris
Proposal

Proposes a 5-percent value-added tax on consumption starting in 2017, and offsets regressive impacts through refundable cash payments.

Broader benefits to U.S. economy

Raises revenue in a manner that does not distort saving and investment choices.

Deficit reduction as estimated by authors (10-year)

$1.6 trillion
11
The Many Benefits of a Carbon Tax
Adele C. Morris
Proposal

Proposes a $16 per ton carbon dioxide tax, consolidates and rolls back redundant climate-change regulations, reduces corporate income tax rates, and offsets tax burden on the poorest households.

Broader benefits to U.S. economy

Reduces the buildup of greenhouse gas emissions; replaces commandand- control regulations and expensive subsidies with transparent and powerful market-based incentives; promotes economic activity through reduced regulatory burden and lower marginal tax rates.

Deficit reduction as estimated by author (10-year)

$199 billion
12
Overhauling the Temporary Work Visa System
Pia M. Orrenius, Giovanni Peri, and Madeline Zavodny
Proposal

Proposes replacing the current system for allocating temporary worker visas with permit auctions for employers.

Broader benefits to U.S. economy

Maximizes the economic benefits of workoriented visas by allocating visas to firms (and immigrants) based on market needs; raises revenue through auctions.

Deficit reduction as estimated by authors (10-year)

$7 - 12 billion
13
Increasing the Role of the Private Sector in Housing Finance
Phillip Swagel
Proposal

Proposes to increase private participation in mortgage securitization markets, privatize the mortgage finance firms of Fannie Mae and Freddie Mac, and provide secondary government insurance on housing securities.

Broader benefits to U.S. economy

Improves incentives for risk taking and investment in the mortgage market and market for homes; reduces taxpayer exposure to risk; fosters competition and innovation in housing finance.

Deficit reduction as estimated by authors (10-year)

$134 billion
14
National Defense in a Time of Change
Gary Roughead and Kori Schake
Proposal

Proposes restructuring and restrategizing the military force structure by scaling back ground combat troops, altering acquisition practices, and reforming compensation packages.

Broader benefits to U.S. economy

Improves the military's ability to respond to modern challenges, particularly in Asia and the Middle East; makes military procurement of assets more efficient and competitive; designs benefit packages more in line with troops' preferences.

Deficit reduction as estimated by authors (10-year)

$500 billion
15
Making Defense Affordable
Cindy Williams
Proposal

Proposes changes to slow the growth of costs for military health care, pay, weapons acquisition, and operation and maintenance; offers one option to downsize the military consistent with the Budget Control Act and another to reduce and reshape the forces strategically, consistent with rebalancing toward Asia and the Pacific.

Broader benefits to U.S. economy

Addresses growing internal costs in the defense budget to preserve military capabilities; reshapes military forces in a way that reduces future budgets while keeping a strong and ready military.

Deficit reduction as estimated by authors (10-year)

$540 - 770 billion
Interactive by Christopher Ingraham

SUMMARY

The Hamilton Project asked experts from a variety of backgrounds—the policy world, academia, and the private sector—and from both sides of the political aisle, to provide innovative, pragmatic proposals for lowering the deficit by reducing expenditures or raising revenues, and that take into account impacts to the economy at large.