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American Public Shows How it Would Cut the Budget Deficit

July 3, 2011

Published February 3, 2011

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A new study finds that when average Americans are presented the federal budget in some detail, most are able to dramatically reduce the budget deficit and resolve the Social Security shortfall.

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In December the Chairs of the President's Fiscal Commission released their proposal for addressing the budget deficit and the projected shortfalls for Social Security and Medicare. This new study shows how the American public would deal with these challenges.

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 School of Public Policy at the University of Maryland, 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.

Steven Kull, director of PPC comments, "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."

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.

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 5% or more and increased them by 10% or more for incomes over $500,000.

Majorities also made increases in corporate taxes and alcohol taxes as well as new sources of revenue, including a tax on sugary drinks, treating 'carried interest' income as ordinary income (also known as the hedge fund managers' tax), and charging a crisis fee to large banks. A plurality (49%) 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%) favored reverting at least to the 2009 levels, taxing estates over $3.5 million at a 45% rate. Only 15% of respondents supported the estate tax levels recently passed: taxing estates over $5 million at a 35% rate.

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 when the baby boom generation retires.

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--were raising the limit on wages subject to the payroll tax at least to $156,000 and increasing the retirement age at least to 68. Substantial numbers also selected gradually increasing the payroll tax rate, and recalculating downward the inflation rate for the benefits of new beneficiaries and cost-of-living increases for all benefits.

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 in which respondents could work to resolve that deficit.

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%, and gradually raising the age of eligibility to 68. Views were divided on the tolerability of raising the payroll tax by 2 percentage points.

A separate sample was also asked to consider reducing or eliminating certain tax 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 the amount of mortgage interest that can be deducted by half; eliminating the exclusion of income earned overseas; reducing the benefit of 'cafeteria plans'; and eliminating the child tax credit to children 13 and over. However, less than half found it tolerable to completely eliminate the child tax credit.

Majorities also favored raising the maximum tax rate for both capital gains (58%) and for dividends (56%) at least back to the 20% 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. Initially, participants are chosen scientifically by a random selection of telephone numbers and residential addresses. Persons in selected households are then invited by telephone or by mail to participate in the web-enabled KnowledgePanel┬«. For those who agree to participate, but do not already have Internet access, Knowledge Networks provides a laptop and ISP connection. More technical information is available at http://www.knowledgenetworks.com/ganp/reviewer-info.html.


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