We must raise more revenue. Currently, we do not even get enough revenue to pay for Social Security, Medicare, Medicaid, and defense. In order to keep these benefits, we have to get back to the tax rates that we had in the 1990s — before the Bush tax cuts — when we were able to balance the budget. We cannot do this overnight, but we have to begin sometime instead of continuing to kick the can down the road.
Anything we do to raise taxes is recessionary, so we just have to go slowly, over a several year period. We could start by raising the taxes on people making over $1,000,000, and eliminating the ridiculous Social Security tax holiday.
At the same time, we must reduce Federal Spending by a factor of $2 to $3 for every dollar we increase in revenue. Start with defense cuts, along with some immediate revisions to Social Security and Medicare — means testing is a start. It will hurt, but it must be done. Our goal must be to cut $300 Billion.
The problem is that cutting any federal spending will also be recessionary, and combined with the tax increases this will affect GDP and will hurt the economy.
So what do we do? Continue to increase the debt until we can no longer borrow money, or suffer for a few years so we can get back to fiscal sanity?