The federal budget is an explosive problem which if not acted uponsoon, threatens to swallow the entire domestic income.
I have placedtogether several decisions that create a minimal impact upon the economy,yet reduce the federal budget deficit by 2/3s. The aggregate demand curveultimately will shift, not greatly, to the right as the economy is slightlyincreased throughout my proposal. To accomplish this feat, the plan to be presented to Congress inJanuary will consist of many revenue increases and some spending increasesand decreases. This plan will not decrease the entire deficit to apositive budget because the impacts of that kind of change could severlycripple the economy. Taxes must be raised, yet to offset the taxes, somespending must be spent to help profit the economy. My plan is similar tothe Gramm-Rudman Hollings Law, except these cuts are possible, but it willtake more than 1 term.
The taxing that I plan would move the aggregate demand curve to theleft, as money is taken away from the people. Imposing the Ad Valorem taxon energy, increasing the average residential bills by $50 a year wouldreduce the deficit by 25 billion, and shrink the economy by 4 billion. Making all entitlements subject to income tax would reduce the deficit by74 billion and shrink the economy by 24. 66 billion. Basing Medicarepayments on cost of managed care plans would reduce the deficit by 70billion, and shrink the economy by 23.
33 billion. Converting Medicaid to ablock grant in states would reduce the deficit by 54 billion, yet decreasethe economy. These tax increases will reduce the deficit by 223 billion,and through the net tax multiplier (mpc/1-mpc while mpc = . 25) the economywill shrink at around 70 billion. My increased spending shall position the aggregate demand curve back toits origional place then move it a tiny fraction to the right, as marginalgrowth would be accomplished through this entire plan. Increasing defenses3% in 2002 would increase the deficit by 44 billion, and expand the economy58.
66 billion. Increasing domestic discretionary spending would increasethe deficit by 9 billion, and expand the economy by 12 billion. Thespending revenues would raise the deficit by 53 billion, and through theexpenditure multiplier (1/1-mpc), will expand the economy by 70. 66 billion. In retrospect, this plan will reduce the deficit by 170 billion andincrease the economy by . 66 billion.
My political cost throughout thisprocess would rise to 340, making it difficult to be reelected, but once myplan is placed into work, it will reduce the deficit, and keep the economystable.
