US Deficit Panel Recommendations: Cuts, Cuts, Cuts

by Darwin on November 10, 2010

Today, Obama’s fiscal commission released initial proposals to curtail the burgeoning US deficit.  While it’s only a “preliminary report” and there’s no telling what, if anything from it will actually be instituted by the administration and Congress in the coming years, here are some serious game-changing recommendations:

What The Deficit Panel Wants to Cut

  • Defense Spending – $200 billion in domestic and defense spending cuts in 2015.  Cut weapons purchases by 15% and terminate the V-22 program while trimming F-35 purchases.
  • Cutting the Bloated Government Payrolls – Cut 250,000 contractors from domestic agencies, eliminate ALL earmarks, freeze government (non-defense) salaries and bonuses over 3 years starting in 2012.  Cut the federal workforce by 10% by 2020.
  • Taxes/Deductions – Drop the Alternative Minimum Tax, remove most tax deductions, remove/limit the mortgage interest deduction (covered in great detail at Darwin’s Finance), and simplify tax brackets to 15%, 25% and 35%.  Tax dividends as ordinary income. Finally, change the corporate tax structure as well.  See all 2011 Tax Deductions.
  • Social Security – Push Social Security solvency out to 75 years by reducing annual cost-of-living adjustments (see this year’s COLA furor), and to increase the retirement age from 67 to 68 by 2050, then to 69 by 2075 (I predicted this a while ago – see reaction to Social Security age increase).  There is some caution in lumping in Social Security changes since that program should be reformed on its own and not counted as part of deficit reduction due to its “supposed” standalone status.

This is just the tip of the iceberg.  There are myriad other cuts, but these comprise the majority of the big savings.

What It Means

The deficit panel came up with 58 total ideas, anticipated to save $200 Billion per year in spending.  What’s especially shocking and demoralizing is that even with these significant cuts – leaving virtually nothing untouched, all it really does is “reduce” the annual deficit to the tune of 15% of today’s amount, and 33% of the projected 2015 deficit.  To repeat, these cuts don’t actually even put us at break-even, we just wouldn’t be taking on “as much” debt as planned under the current trajectory.

Not In My Back Yard

Inevitably, EVERY group will protest ANY cuts to their interests.  Homeowners will be upset to removal of the mortgage interest deduction, even though tax bracket rates are expected to drop to offset some of the pain (who knows, maybe a middle-income family like ours would actually see a benefit?).  Corporations will balk at certain changes, military hawks will shudder at the notion of decreased defense spending and international aid.  In the end, the only way the US can prosper is for everyone to take a haircut.  That’s what’s happening in the EU and it has to happen here – countries need to be saving money rather than spending it for decades just to wipe out their debt obligations.  Austerity hurts.  But we’ve been running up a tab for decades with no exit strategy.  So, it’s coming time to start paying up.

What Are Your Thoughts on the Recommendations?

{ 7 comments… read them below or add one }

ctreit November 11, 2010 at 12:54 pm

My favorite proposal is simplifying the tax code. So what if we lose some deductions? Simple is better than hanging on to a bunch of deductions.

As you say, these cuts “only” amount to $200 billion a year. If we were talking about my own personal finances, this would not suffice. If I spent $1000 more than I made, I would not solve any problems by cutting expenses by $200. Imagine I made such a proposal to my creditors!


Darwin November 12, 2010 at 12:27 am

What’s especially annoying is all the politicians, advocates and pundits attacking ANY notion of cuts. People are delusional. They think either no cuts are needed, or just nothing they’re involved with. People are complaining about putting seniors out on their butts – who are teenagers today! The changes wouldn’t take effect until decades from now. Life expectancy continues to expand and people should stop assuming Social Security is a pension plan meant to live off of in the golden years. It’s not. It was meant to be a safety net only and it was set up when life expectancy was in the 50s.


gm November 12, 2010 at 10:48 am

“Inevitably, EVERY group will protest ANY cuts to their interests. ”

That sums it up right there. You can only giveth not taketh away, without a fight anyway.

I agree with ctreit the simpler the tax code the easier it will be for people to see how much of their own money goes to socialistic federal programs.


retirebyforty November 12, 2010 at 2:38 pm

I would say do it! But I’m sure it won’t happen due to all the special interests.
They also recommended raising gas tax right? I would raise gas tax by $1 and add a VAT. We need to start reducing the deficit.
It’s unsettling to be financial responsible and live under this cloud of debt. I guess I’d better look into moving some money offshore. What else could we do as individual investors to protect ourselves?


Bret @ Hope to Prosper November 15, 2010 at 6:07 pm

I think most of these measures are very necessary, if we are going to remain solvent as a country.

I would love to see the tax code simplified and am happy to give up some of the deductions. If everybody paid their fair share, we could either all pay less or we would have a lot more tax revenue.

It’s funny to see how upset people have gotten about raising the retirement age. It’s almost as bad as France. This is so obviously necessary that it’s not even debateable. People are living way longer and we can’t afford 40 year retirements for everybody. This wouldn’t even fully take effect until 2075. By then, a high percentage of the population will be living to 100 years old.


Roger, The Amateur Financier November 16, 2010 at 2:04 pm

“What’s especially shocking and demoralizing is that even with these significant cuts – leaving virtually nothing untouched, all it really does is “reduce” the annual deficit to the tune of 15% of today’s amount, and 33% of the projected 2015 deficit.”

Wow, that is pretty demoralizing. I suppose we need to think of this as a good starting point, although far from the end of trying to balance the budget. Of course, given the uproar I foresee with some of these suggestions, it’s not going to be easy, but the longer we delay, the more it’s going to hurt when we (or the next generation, if we keep pushing it off) finally get around to seriously tackling the deficit. And that’s not even getting trying to pay down the national debt…


Bret @ Hope to Prosper November 16, 2010 at 2:37 pm


Here is the deficit problem in a nutshell, entitlements. Unless someone has the guts to cut entitlements, all of the other cuts won’t matter.

Here are some fun facts to consider:

64% of the Federal budget is now spent on entitlements.
45% of all households now receive some form of federal assistance.
47% of taxpayers owed no federal income tax in 2009.

We are almost as bad as Greece.


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