"It profits me but little that a vigilant authority always protects the tranquillity of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life."

--Alexis de Tocqueville, Democracy in America

Monday, August 15, 2011

The Regular Guy Reacts to 10 Ways to Fix the Budget (and Maybe Save America)

Robert Samuelson, writing in the Washington Post, has an article that lists 10 ways he proposes the federal budget can be fixed.   It's a decent jumping off point for a discussion.   I'll paraphrase them, and give the Regular Guy's thoughts on each:

1. Decide to balance the budget over a decade. “Deficit reduction” isn’t good enough. The case for balance (albeit at “full employment”) is simple: discipline. If people want public services, they should be willing to pay for them.
Agreed, naturally.   We have to get to a balanced budget.  But the Regular Guy believes that we don't have a decade to do it, because that means that we'd be piling up new debt the whole time.   We have to do it quicker.   The next President will have a four-year term.   I'd say balance it in four years, and if he doesn't, find someone else who will.
2. Favor spending cuts over tax increases. Tax increases over the next 15 to 20 years could easily reach 25 to 50 percent to cover the costs of (a) the doubling of the 65-and-over population from 2000 to 2030, (b) spiraling health costs, and (c) the continuation of other programs at recent levels of national income. These staggering tax increases are too burdensome. They might hobble the economy and would be unfair to younger workers.
Right.  The problem with the federal budget is not that we don't pay enough taxes.   We pay too much.   The problem is that we spend more than we take in.   Period.   No new taxes.   Say it again:  no new taxes.

3. Cut Social Security, Medicare and other retiree programs. They represent half of non-interest federal spending. Exempting them would require gutting other programs or enacting huge tax increases. We live longer; eligibility ages should be higher. Wealthier retirees can afford steeper Medicare fees and lower Social Security checks. The Census Bureau classifies about 30 percent of the 65-plus population as “high income” (incomes at least four times the poverty line). In 2008, the median net worth of married elderly couples was $385,000.
Yes.   The sham of the SS program has been evident for a long time.   Let's call it what it is:  welfare for the elderly poor.    And let's means test it for higher income elderly, and shift the retirement age back to 70.   Is that fair to those who have paid in over their lifetimes?  No.   But it's more fair than bankrupting our grandchildren.

4. Don’t spare current retirees or baby boomers. People don’t lose the capacity — or moral obligation — to change just by turning 65. They should bear some of the burden.
Right.   I understand the argument that we have to make these changes gradually, that it shouldn't affect people already in the system.   B.S.!   It's the people in the system who have bankrupted it.   They need to pay their "fair share" too.  
5. Evaluate defense needs independently — and pay for them. National security is the government’s first job. When America’s military is put in harm’s way, it should not become a victim of a rich nation’s cheapness.
A nuclear China with designs on hegemony in the Indian Ocean and South Pacific isn't getting any less threatening.   A nuclear Iran isn't going to get less threatening.   A nuclear Pakistan isn't going to get less threatening.   A disintegrating and impoverished Europe isn't going to get less volatile.   A strong national defense must be our first priority.   It's the only thing that we can't privatize.  
6. Eliminate outdated, ineffective and wasteful programs. Across-the-board domestic spending cuts perpetuate bad programs and penalize the good. This ensures lousy government. Subsidies for farmers, public broadcasting and Amtrak, among others, should end.
I agree with cutting obviously unnecessary programs, and the three Samuelson lists are good starting points.   But they're chicken feed.  The problem is not the content of the programs, it's the salaries and benefits and administrative bloat of any government program.   So I'd do an across the board cut of 10% (to start) and I'd cut individual departments and programs.   I just can't believe that 10% of the cost of any government program isn't pure waste paid to the Assistant Administrator for Human Resource Program Management Administration, or other content-free positions.   Let them get real jobs.
7. Lower income tax rates by reducing tax breaks — and make the system more progressive. The idea: Spur economic growth. There should be three rates — 10 percent, 20 percent and 30 percent. Capital gains (profits on sales of stocks and other assets) should be taxed at ordinary income rates, not at today’s top rate of 15 percent. This low rate is the biggest tax break for the rich; two-thirds of capital gains go to the wealthiest 1 percent. The overhaul should be revenue neutral; all money from ending tax breaks should go to lower rates.
No.   There should be less progressivity, and more reward to people who take risks and create wealth.   Cutting rates on top earners and flattening out tax rates would also get the government more revenue.   I guarantee it.   Laffer was right a long time ago, and he's still right.   Also, I would keep capital gains taxes low (or eliminate them entirely) as a way to spur investment.   Again, saving and investing in productive activity should not be penalized, it should be rewarded.

That being said, if rates were significantly lowered, I would be in favor of doing away with government subsidies through tax deductions for home mortgage interest, charitable giving, and the number of children a family has.   Government should get out of the business of rewarding certain behaviors and punishing other behaviors; that's where lobbying and graft and corruption come from.

Again, however, if you're going to simplify the tax code by doing away with deductions, the rates have to lowered accordingly, so it's revenue neutral.   No new taxes.   Say it again:  no new taxes.
8. Enact an energy or gasoline tax. Even with spending cuts, higher taxes will be needed to balance the budget. A 25-cent-a-gallon fuel tax would raise $291 billion over a decade, says the Congressional Budget Office. The actual tax might have to be $1 or more. But it would have an added benefit: curbing oil imports by spurring drivers to buy more fuel-efficient cars.
I'd go the other direction.   Rather than raising taxes on gasoline to make it more expensive, let's lift regulations that currently keep us from drilling aggressively offshore or on Alaska's north slope, and let's ease regulations that keep us from aggressively building and operating new nuclear power plants.   You want to get revenue, grow the economy.   You want to grow the economy, tap into the untapped wealth of our natural resources.   Cheap energy = economic growth.   It always has, it always will.
9. Control health costs. This is crucial, because health spending already represents 25 percent of federal outlays. Unfortunately, there’s no consensus on how to do this. The committee should create a group of experts to prepare two plans: one favoring liberals’ approach of tougher regulations; the other reflecting conservatives’ preference for vouchers and tax credits. The report should be ready by late 2012 for the next president and Congress to debate and decide.
More reports.   More committees.   More blue ribbon commissions.   Yuck!   Look, the only way to solve the problem of federal spending on health care is to get the federal government completely out of it.   We don't suddenly say to people over 65 that the government should pay for your car insurance.   Why exactly is it that the federal government, through Medicare, should essentially pay for health insurance just because someone has turned 65?   And we don't say to poor people that the federal government and state governments should pay for the extended warranty plan on your new iPhone or Blackberry.   So why should they pay for health insurance (through Medicaid)?   There will always be charitable institutions that will serve the truly needy poor, but deciding who is and who is not truly needy is something that is much better done on the local level.   What we're doing now is not sustainable, and as Mark Steyn is fond of saying, what can't continue, won't continue.

10. Make changes gradually. It’s important to limit adverse effects on the economy and to win public acceptance. Increasing Social Security’s eligibility age to, say, 70 could occur over 25 years. A $1-a-gallon gas tax could be introduced over six years. Axed programs could be phased out over three years.
See No. 1.   In a word:  No.   We're on a cliff.   You don't pull back from the abyss gradually, you either leap away from it and start running the opposite direction, or you go over it, and you fall to your death.  

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