sustainability—of the policy options discussed in these chapters. As will be seen, the higher defense and other domestic spending options discussed in this chapter are plausible only if they are combined with options to significantly reduce the growth of Medicare, Medicaid, and Social Security spending. Even then, such combinations will require federal revenues to be at levels much higher than the norm of recent decades.



1. Although labeled “domestic” here for convenience, this category also includes spending for international programs, such as those for diplomacy and foreign assistance. However, in 2008, international programs accounted for just 4 percent of the spending under this label.


2. While Congress has put a stronger spot light on “earmarks” in an effort to curb such parochial, constituency-based practices, the aggregate effect on the budget in the most aggressive instances of earmarks has been typically less than 1 percent of total appropriations.


3. The timing of these outlays will depend on recording decisions by the Congressional Budget Office and the Office of Management and Budget. It appears that the bulk of costs for the Troubled Asset Relief Program (TARP) and capital assistance to Fannie Mae and Freddie Mac, among other interventions, will be recorded in the 2009 deficit.


4. Devolution might also increase disparities among state and local governments, since certain federal grants would play less of an equalizing role.


5. The committee adjusted for the minor overlap between the programs targeted for devolution and the programs selected from the Congressional Budget Office (2009b) report.


6. The report (Congressional Budget Office, 2009b) from which the committee identified illustrative budget savings contains arguments for and against each of the options.


7. For example, when the price of apples rises, the standard CPI registers that fact as an unalloyed loss of well-being. However, consumers can recoup some of that loss by switching their consumption to oranges or something else; the standard CPI does not capture that effect. See Johnson et al. (2006) and Gordon (2006) for a technical discussion of biases in the CPI.


8. A chained CPI uses spending data from more than one time period to account for substitution behavior on the part of consumers (see Cage et al., 2003).


9. Total savings would amount to $31.3 billion dollars by 2019. The chained CPI is also used in one of the committee’s illustrative Social Security options (see Chapter 6 of this report) and in one part of the simplified tax alternative to the current-tax structure (see Chapter 8).

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