Budget options

The legislation ending the federal government shutdown established a working group in Congress to look at a long-run solution to federal budgetary issues. N.C. State University economist Mike Walden explains what they will be considering.

“Well, they’re going to look at two sides of this equation, spending and taxes. On the spending side, they probably are going to look at the two big sources of increased spending for the federal budget over the next couple of decades. That would be Social Security and Medicare. Obviously, both of those are related to our aging population. And we might hear proposals about, for example, raising retirement age to receive full Social Security. We might on Medicare hear proposals about means-testing it, meaning that people with more income won’t get quite as generous of Medicare assistance as someone with lower income.

“Those are very, very contentious issues. I don’t think we’re going to see much beyond the discussion stage. But I think that will be on the table.

“On the tax side, we’re probably going to hear some comments about whether we need to see scaled-back deductions and credits at the federal income-tax level. For example, every dollar that’s giving in a deduction actually reduces federal taxes by 30 cents. Every dollar that’s given in a credit actually reduces federal taxes by a dollar. The challenge there of course is the challenge we’ve always faced.  Every deduction, every credit that’s in the federal tax code is there because it benefits a certain group of taxpayers.  So, this is a big agenda.  It’s not a new agenda, but we may hear some more discussion about it in the coming months.