Age requirements for Social Security and Medicare should be raised to curb the entitlement spending that has helped government debt balloon to 75 percent of GDP, says Martin Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan.
"Entitlement reforms and a limit on tax expenditures are the keys to creating the framework for the tax-rate reductions and infrastructure spending that can stimulate growth and employment while gradually shrinking the relative size of the national debt," the Harvard economist writes in The Wall Street Journal
"Without such a program, the U.S. economy will continue to limp along with slow growth, declining earnings and weak employment."
On the entitlement side, raising the age to get full benefits is the best way to control the cost of Social Security and Medicare, Feldstein says.
In 1983, Congress increased the age for full Social Security benefits from 65 to 67.
"Since then, the life expectancy at age 67 has increased by an additional three years," Feldstein says. "Congress should vote now to continue raising the full benefit age from 67 to 70."
The move should occur gradually, he says. "When that is fully phased in, the annual cost of Social Security benefits would be reduced by about 20 percent."
Meanwhile, the Medicare eligibility age also should be increased from 65 to 70, Feldstein says. That would save more than 1 percent of GDP in 2020 and beyond, he says.
"The only way to reduce future deficits without weakening incentives and growth is by cutting future government spending."
Cutting back on tax breaks also would help reduce the deficit, he says.
"The combination of tax credits, deductions, and exclusions increases the annual budget deficit by hundreds of billions of dollars. Those tax breaks are really subsidies that should be seen as government spending."
As with the entitlement reforms, tax-break reductions should be adopted slowly to avoid torpedoing the economic recovery, Feldstein says
Meanwhile, "with the future debt under control, it would be fiscally responsible to enact permanent tax-rate reductions and an effective short-term program of infrastructure investment in things like bridges, airports, and other projects that will boost demand," Feldstein writes.
"Each dollar spent on a well-designed infrastructure program would increase GDP by a dollar or more."
Cutting personal tax rates would boost economic growth by making additional earning more attractive and by increasing entrepreneurial activity, Feldstein says. And trimming the 35 percent U.S. corporate tax rate close to the 25 percent norm for other developed economies would spark investment and production, he maintains.
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