I know that when reports about the debt, deficit and debt ceiling air on television, some people simply tune out. My friend threw down a challenge yesterday: "I dare you to talk about any of these terms and not seem like the economics teacher, played by Ben Stein, in "Ferris Bueller's Day Off" ("... Anyone know what this is? Class? Anyone? Anyone? Anyone seen this before?")
With the federal budget grabbing headlines (at least until the Royal Wedding), it's time to get beyond the political soundbites and explain what all of this hoopla means to you. After you watch, I'll get into the difference between the Republican plan, which was presented by Senator Paul Ryan last week, and the plan President Obama laid out yesterday.
National Debt and Deficit:
Now that you have the basics down, how exactly do we attack the national debt and deficit? The answer is actually pretty simple: the government can increase the amount of money it brings in by raising taxes; it can reduce the amount of money it spends by pulling back on programs like Medicare, Medicaid or even defense; or it can do some combination of the two.
This where the political debate begins. The Ryan/Republican plan goes heavy on the spending side of the equation (cuts of $5.8 billion over 10 years), with no tax increases. President Obama's plan cuts spending by $3 trillion and adds taxes to the tune of $1 trillion, to beef up the government's cash flow.
Both sides agree that rising health care costs are one of the big drivers of the debt problem. Ryan would completely overhaul the two programs for Americans under the age of 55. For Medicare, there would be a voucher-type of system that would provide Americans with money to purchase insurance from private carriers care. Medicaid would be replaced by a block-grant program administered through individual states.
Obama's plan would keep Medicare and Medicaid in tact, but he would wring out an extra $200 billion from Medicare over 10 years and $100 billion from Medicaid.
One area of agreement: both sides say the government must simplify the tax code, by eliminating tax breaks and loopholes. Ryan's plan would slash the top income tax rate for both individuals and corporations from 35 percent to 25 percent and would make permanent the Bush-era tax breaks for all income levels, which are set to expire at the end of 2012.
Obama would allow those Bush tax-cuts to expire for individuals making $200,000 or more a year and couples making $250,000 or more and plans to limit itemized deductions for the wealthiest 2 percent of Americans.
Neither plan would touch Social Security, at least not yet.
Now class, that wasn't too hard, was it? Anyone? Anyone?
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