Economics: Proposal to Cut the Budget Deficit


The federal budget is an explosive problem which if not acted upon
soon, threatens to swallow the entire domestic income. I have placed
together several decisions that create a minimal impact upon the economy,
yet reduce the federal budget deficit by 2/3s. The aggregate demand curve
ultimately will shift, not greatly, to the right as the economy is slightly
increased throughout my proposal.

To accomplish this feat, the plan to be presented to Congress in
January will consist of many revenue increases and some spending increases
and decreases. This plan will not decrease the entire deficit to a
positive budget because the impacts of that kind of change could severly
cripple the economy. Taxes must be raised, yet to offset the taxes, some
spending must be spent to help profit the economy. My plan is similar to
the Gramm-Rudman Hollings Law, except these cuts are possible, but it will
take more than 1 term.

The taxing that I plan would move the aggregate demand curve to the
left, as money is taken away from the people. Imposing the Ad Valorem tax
on energy, increasing the average residential bills by $50 a year would
reduce the deficit by 25 billion, and shrink the economy by 4 billion.
Making all entitlements subject to income tax would reduce the deficit by
74 billion and shrink the economy by 24.66 billion. Basing Medicare
payments on cost of managed care plans would reduce the deficit by 70
billion, and shrink the economy by 23.33 billion. Converting Medicaid to a
block grant in states would reduce the deficit by 54 billion, yet decrease
the economy. These tax increases will reduce the deficit by 223 billion,
and through the net tax multiplier (mpc/1-mpc while mpc = .25) the economy
will shrink at around 70 billion.

My increased spending shall position the aggregate demand curve back to
its origional place then move it a tiny fraction to the right, as marginal
growth would be accomplished through this entire plan. Increasing defenses
3% in 2002 would increase the deficit by 44 billion, and expand the economy
58.66 billion. Increasing domestic discretionary spending would increase
the deficit by 9 billion, and expand the economy by 12 billion. The
spending revenues would raise the deficit by 53 billion, and through the
expenditure multiplier (1/1-mpc), will expand the economy by 70.66 billion.

In retrospect, this plan will reduce the deficit by 170 billion and
increase the economy by .66 billion. My political cost throughout this
process would rise to 340, making it difficult to be reelected, but once my
plan is placed into work, it will reduce the deficit, and keep the economy
stable.