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Choosing the Nation’s Fiscal Future
security, veterans, education, the environment, transportation, and many other functions. This diverse category of domestic and defense spending rose sharply in 2009, if temporarily, as the government addressed the major economic downturn and its consequences.
People have widely differing views of the value of some of the programs in this category, and some arguably are sustained more by the power of their political constituencies than by evidence of their effectiveness. The options for limiting this range of spending are similarly numerous. For this category, the committee broadly illustrates in Chapter 7 how priorities for spending cuts might be set and what the likely implications are of different levels and mixes of spending.
Four options are presented for defense. All assume that costs for the wars and Iraq and Afghanistan are reduced over time, as in the study baseline. On the high end of the committee’s options, defense spending would remain nearly at its current level as a percentage of GDP, although lower than in the Cold War period. At the low end of the committee’s options, defense spending would be a smaller share of GDP than in any recent period, though it would be higher than the combined amount spent by U.S. allies in the North Atlantic Treaty Organization (NATO).
Four options are presented for other domestic spending. At the lowest spending level, this broad category of programs would be reduced by 2019 to a level 15 percent below the study baseline. At somewhat higher spending levels, two broad strategies for other domestic spending are illustrated. One intermediate option would allow other domestic programs to grow to a level 10 percent higher than the baseline. This growth would allow for substantial new investments intended to enhance the economy’s future growth, as well as benefiting people directly. These kinds of investments might be viewed as favoring younger age cohorts, because they will have more years to enjoy the future returns. The other intermediate option would reduce other domestic spending to a level 6 percent below the baseline, leaving no room for new investments unless offset by other program cuts. A fourth option for other domestic spending suggests what could be done if spending were to grow to a level 14 percent above the study baseline.
Options for federal revenues depend in part on whether the nation pursues a path to sustainability that keeps spending and revenues close to their recent historical levels, as a percentage of the economy, or pursues a path with higher spending, which would require higher revenues. If revenues need to increase substantially, then there are severe limits on how much can be collected efficiently by simply raising rates within the current income and payroll tax structure. Reform of the tax structure would be