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Average Americans Can Solve The Budget Deficit Crisis, Including Healthcare And Social Security

Government BudgetsA new University of Maryland study finds that when average Americans are presented the federal budget in some detail, most are able to reduce the budget deficit dramatically and resolve the Social Security shortfall. What adjustments would you make? Take this free online budget simulation exercise using the link at the end of this report. A link to download the complete study findings is also available.

Through a combination of spending cuts and tax increases, on average, respondents cut the discretionary budget deficit projected for 2015 by seventy percent. Six in ten solved the problem of the projected Social Security shortfall through adjustments in payroll taxes, premiums, and benefits. The projected Medicare shortfall was also dramatically reduced.

The study was conducted by the Program for Public Consultation (PPC), affiliated with the University of Maryland’s School of Public Policy, and fielded by Knowledge Networks. Unlike conventional polls PPC consults with the public by first presenting respondents with information on policy issues and a range of options for addressing them.

“When given information and a chance to sort through their options, most Americans do a pretty good job of dealing with America’s budget problems – better than most politicians,” says University of Maryland Senior Research Scholar Steven Kull, who directs PPC.

Respondents were presented 31 of the major line items of the discretionary federal budget with a description of each one, the amount budgeted for 2015, and the projected deficit. They were then given a chance to increase or decrease each item as they saw fit and to try to reduce the deficit.

average buget cuts

How citizens - when informed - resolve budget deficits. (credit - Program for Public Consultation

Spending Cuts
On average respondents made net spending cuts of $145.7 billion. The largest cuts included those to defense ($109.4 billion), intelligence ($13.1 billion), military operations in Afghanistan and Iraq ($12.8 billion), and the federal highway system ($4.6 billion) – all of which were cut by majorities.

On average respondents increased revenues by $291.6 billion. The largest portion was from income taxes which were raised by an average of $154.8 billion above the levels currently in place. Majorities increased taxes on incomes over $100,000 by five percent or more, and increased them by 10 percent or more for incomes over $500,000.

Majorities also increased corporate and alcohol taxes, and turned to new sources of revenue, including a tax on sugary drinks, treating ‘carried interest’ income as taxable (also known as the hedge fund managers’ tax), and charging a crisis fee to large banks. A plurality (49 percent) favored a tax on carbon dioxide emissions. But a sales tax was rejected by 58 percent of respondents.

For the estate tax, a majority (77 percent) favored reverting at least to the 2009 levels, taxing estates over $3.5 million at a 45 percent rate. Only 15 percent of respondents supported the estate tax levels recently passed: taxing estates over $5 million at a 35 percent rate.

Social Security
Most respondents also successfully dealt with the problem of Social Security. Respondents were presented eight possible steps for dealing with the Social Security shortfall that will occur as the baby boom generation retires.

Table Summary of Budget Cuts

Summary of changes to the main budget and general revenues. (credit - Program for Public Consultation)

Six in ten respondents selected enough steps to resolve the problem. This was the case even though many of them also chose to make the problem more difficult by increasing benefits to low income retirees.

The most popular approaches – selected by large majorities – called for raising the limit on wages subject to the payroll tax to at least $156,000, and increasing the retirement age to at least 68. Substantial numbers also selected a gradual increase in the payroll tax rate, as well as changes to cost-of-living adjustments.

Because the effect of the new Health Care law on Medicare in the future has not been fully analyzed, it was only possible to have respondents evaluate a series of options for reducing the Medicare deficit, rather than a full exercise at erasing it.

Some options were found at least “just tolerable” by majorities. These included raising Medicare premiums to $135 a month, raising the payroll tax rate by 1 percentage point, reducing payments to doctors by 5 percent, and gradually raising the age of eligibility to 68. Views were divided on the tolerability of raising the payroll tax by 2 percentage points.

Tax Reductions
A separate sample was also asked to consider reducing or eliminating certain deductions for individual incomes taxes. A majority found the following at least “tolerable”:

  • Limiting the amount of mortgage interest that can be deducted to $25,000;
  • Reducing by half the amount of mortgage interest that can be deducted;
  • Eliminating the exclusion of income earned overseas;
  • Reducing the benefit of ‘cafeteria plans’;
  • Eliminating the child tax credit to children 13 and over.

Majorities also favored raising the maximum tax rate for both capital gains (58 percent) and for dividends (56 percent) at least back to the 20 percent that was in place before the Bush tax cuts.

The study was conducted in two waves. A sample of 1,250 respondents was fielded October 8-22 and a second sample of 793 respondents was fielded December 18-29. It was conducted using the web-enabled KnowledgePanel© – a probability-based panel designed to be representative of the U.S. population.

Take The Simulated Exercise Yourself
Try the online interactive budget exercise.

Material adapted from Health Behavior News Service, part of the Center for Advancing Health.

Download / Reference
Steven Kull, Clay Ramsay, Evan Lewis, & Stefan Subias. How the American Public Would Deal with the Budget Deficit: A Study by the Program for Public Consultation and Knowledge Networks. February 3, 2011.

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