White paper: Reducing the Debt

AHMAD ABDEL-AZIZ, OMAIR

ALAM, BILL BURKEY

Executive Summary

Rising national debt stalls economic progress and limit

investments in infrastructure, education , and technology

New revenue generation, wasteful spending elimination,

and economic standards must be enacted to remain

globally competitive

The growth of inequalities threatens the American dream

of social mobility and life chances

Executive Summary

Take actions to dissuade practices dangerous to economic and environmental prosperity

Present a new, unbiased asset management vehicle to secure market stability and long term economic health

Revise the tax code which favor a few over the many chipping away at entitlements, long term market stability, and employment opportunities.

Increase US global competitiveness and productivity

Recommendation’s

Bring the debt down to 60% of GDP then gradually lower it over time to regain fiscal flexibility

Cut defense spending by $75 Billion and $100 Billion in healthcare spending over the next decade

Reduce tax expenditures by 10% and limit growth and divide proceeds between lower tax rates and deficit reduction

Add over a $1 trillion in new revenue with Carbon Tax and tax on risky financial transaction

Healthcare Savings

Limit Medical Malpractice Torts, $64 Billion in savings

Cost sharing, increase premiums for the well off that a total 35 percent of program costs would be covered

Raise Medicare copayments slightly to make participation more price sensitive with exemptions for the lowest income retirees

Increase the retirement age for Medicare benefits to 68 beginning in 2015 and indexing it for longevity

Medicare Reform

Medicare Commission strengthen the newly created

Independent Payment Advisory Board (IPAB)

Exchange subsidies health reform included subsidies for

individuals purchasing insurance with incomes between

133 percent and 400 percent of the poverty line

We would scale back subsidies for people on the higher

end of the earnings scale

Social Security

Increase in normal retirement age to 67 and then indexing

it to ongoing increases in life expectancy also index the

early retirement age currently set at 62 for longevity

Slower Indexing slow the growth of benefits for medium-

and higher-income earners through “progressive price

indexing”

Fix the CPI change the consumer price index (CPI) measure

used to calculate Social Security benefits (as well as other

federal programs and tax brackets) to better reflect the

effects of inflation on participants

Healthcare SavingsPolicy Savings in 2025

Malpractice Reform $10 Billion

Increase Premiums and

Cost Sharing

$20 Billion

Increase the Retirement

Age

$20 Billion

Expand Medical

Commission

$10 Billion

Reduce Subsidies for Health

Exchange

$40 Billion

Total $110 Billion

Defense Savings

Weapon Systems reducing outdated ineffective

and excessively expensive weapons

Reduce the nuclear arsenal significantly reduce

the U.S. arsenal and scale back related delivery

systems

Defense Savings

Cancel unneeded programs E.g. Expeditionary

fighting vehicle, V-22 Osprey, further missile

defense development

Scale back several programs and fleets E.g. Scale back the future combat systems program,

reduce the size of the U.S. Navy

Military Compensation reform

Limit the rate of increase to that prevailing in the civilian

economy

Calculation of civilian-military parity raises should take

into account non-wage compensation E.g. cash

allowances and tax advantages

Controlling costs by reforming Tricare

Contracting reform. Reform procurement system within

DOD

Defense Savings

Policy Savings by 2025

Reduce Weapon Systems $30 Billion

Reform Compensation and

TRICARE

$20 Billion

Contracting Reform $20 Billion

Scale Back Research and

Development Activities

$5 Billion

Total $75 Billion

Tax on Greenhouse Gases

Assess a tax of $16 per ton of carbon, generating revenue of $1.1 Trillion

Phased in on predetermined schedule along the lines of 25% of target price in 1 year, 50% in year 2 and 100% in year 3

Green House Gas Revenue will

Provide credits for renewable energy

Off set social safety net programs

Off set increase in corporate tax rates

Align the U.S. with global standards of emissions and prevent the flight of manufacturing and Developing World industrial advantage

Financial Transaction Tax

A tax levied on a miniscule fee on a estimated

$2.9 trillion of daily financial activity through the

trading of stocks, bonds, and derivatives in U.S.

financial markets, based on our analysis

Makes the most speculative unproductive

trading unprofitable, thus steadying markets and

promoting real investment while raising much-

needed revenues

Financial Transaction Tax

Raise over $50-120 Billion dollars in new revenue

Dissuade increased market volatility and encourage long-term holding of shares and productive investments

Increased market stability, job creation

Increased alignment with the global market as several countries already initiated this tax mitigating flights of capital

Countries with Financial Transaction

Tax

Germany

France

Italy

Spain

Austria

Portugal

Belgium

Estonia

Slovakia

Slovenia

U.S. Sovereign Wealth Fund

Politically independent fund to address growing debt problems

Protection against rising interest rates and possible changing to international reserve currency status

Wise investments could be purchased and yield good returns for nationwide improvement projects

Fund would not consist of US Government securities

U.S. Sovereign Wealth Fund

Fund would take the investment burden off of the Fed

and allow it to only make monetary policy

recommendations

Be a source for future funding of all stimulus

Recommendations for the start of such a fund could

come from Social Security or Medicare at an initial

investment of $1 trillion dollars

U.S. Sovereign Wealth Fund Will…

Be more sophisticated stewards of liquidity vs the Fed

bottomless pit policy of bailouts

Possible pension system of the future with focus on long-

term returns and the development of sustainable state

economies

Funds are more likely to be invested in equites to remain

inter generationally viable

New Revenue

Policy Option Estimated Revenue

Carbon Tax $1.1 Trillion (over 10 yrs)

Financial Transaction tax $50-120 Billion

Sovereign Wealth Fund N/A

Tax Expenditures

Reform tax expenditures: targeted, deductions,

exemptions, exclusions and credits

Bring tax expenditure together in a tax

expenditure budget cutting that budget by 10%

and capping growth thereafter

Tax reform policy package

Gradually phase down the home mortgage deduction from $1 million to $500,000 and eliminating the tax break for vacation homes

Phase out the deduction for state and local taxes

Replacing the employer-provided health care exclusion with a flat credit

Tax reform policy package

Consolidating tax breaks for education

Consolidating tax breaks for saving

Eliminating unproductive corporate subsidies

Tax Reform Policy Package

A new strict “PAYGO for tax expenditures” under which no new tax breaks could be added without offsets from that area of the budget

Divide revenues from tax expenditure reform between lowering the deficit and reducing both individual income tax rates

Additionally, we strongly support revenue neutral corporate income tax reform to bring down the corporate tax rate

Political Challenges

In today’s polarized political environment

comprehensive fiscal plan is extremely difficult

The main obstacle to a viable debt reduction plan is

neither economic nor moral, but political

Our plan will require significant budgetary changes,

including wide ranging spending cuts and substantial

revenue increases

Impact of Global Competitiveness

Increased opportunity and life chances

Macroeconomic Stability

Infrastructure

Education and training

Innovation

Conclusion

Innovative ways of enacting economic discipline will generate

sustainable returns and limit moral hazards of markets past

Capital markets can benefit society at large and provide

prosperity for all

Needed cuts to defense and entitlements can be off set by an

unbiased wealth fund for generations to come

US future competitiveness depends on life chances and a

fulfillment of basic needs of education, health, and retirement