The New York Times has a budget deficit puzzle on its site which offers lots of options and gives estimates of the fiscal effects of each. See if you can balance the budget by 2015; we did it in about five minutes with $38 billion to spare – and our 2030 budget is $428 billion in the black. According to the puzzle we did 85 percent of the work with spending cuts and 15 percent by tax increases, though that part we argue with since the majority of what the NYT calls tax increases are actually tax simplification.
The options offered, of course, are plentiful but still limited. They address entitlements, government pork, military spending and tax policy. Some for-instances from our selections follow…
– We chose to save $17 billion yearly by cutting foreign aid in half. Aid to countries like Egypt and Indonesia is an abject waste of our money, and other examples of American foreign aid actually hurt the people we’re trying to help. Had there been an option to eliminate voluntary U.N. contributions, we’d have been pleased to check that box as well and in so doing save some $50 billion per year.
– We saved $14 billion by eliminating earmarks. This is good politics, as Senate minority leader Mitch McConnell recognized by taking to the floor to endorse Sen. Jim DeMint’s plan to do away with them. The counter-argument to this, made by Sen. Jim Inhofe last week, is that if you do away with earmarks you’re giving the president the power to spend money rather than Congress as the Constitution intended. That’s BS, we think; when you’re broke you don’t spend any money at all. The guy who can’t make his rent doesn’t buy an X-Box or get HD cable with all the movie channels, and in like manner it doesn’t matter whether President Obama or Sen. Inhofe chooses to establish the International Chinch Bug Museum or build an airport in Dry Prong.
– Another $14 billion comes from eliminating farm subsidies. Seems like it might be an even larger amount than $14 billion. Farm subsidies are a stupid and unproductive idea; if American farms can’t turn a profit (and generally speaking that isn’t a problem for them in the least) without subsidies then we can always bring in a protective tariff to alleviate the situation. Of course, they exist so as to keep Iowans, who for some reason get to decide who’s a viable presidential candidate, happy.
– Addressing the federal workforce saves $26 billion. We chose two options to achieve these savings, cutting $12 billion by “RIF’ing” 10 percent of federal employees and another $14 billion by asking federal employees to take a 5 percent haircut. We completely understand that taking both of these two options will turn our streets into those of Athens or Paris; so be it. It’s unfortunate that we don’t have an option to force the de-unionization of the federal workforce; that might not directly save money right away but it certainly would in the future.
– Other cuts to the government save $30 billion. These include killing the Office of Drug-Free Schools (that’s a function local and state governments should have), cutting funds to the Smithsonian (private fundraising could absolutely make up the difference there) and the National Parks, eliminating funding for public broadcasting and other items reflecting low-hanging fruit.
– Cutting aid to states by 5 percent saves $29 billion. This is some pretty tough medicine, particularly at a time when a good many states are already in the hole financially. But the majority of the deficits among the worst state offenders come as a result of bad promises to public-employee unions, and that has to be addressed or else the whole system will tank. There’s no better time than the present for the states and local governments to rein in or de-certify the unions, but it won’t happen until such a decision is forced on them from above.
– Reducing troops in Iraq and Afghanistan to 30,000 by 2013 will save $86 billion. Frankly, our mission in Afghanistan was fulfilled in 2002 when the Taliban were overthrown. What we’re doing now is nation-building, in a place more ungovernable than Somalia, and dropping bags of cash on heroin dealers and warlords. Some of this has to be done, but we’ll never turn Afghanistan into a modern social democracy and we should stop trying. After nine years, it’s clear the carrot doesn’t work there and it’s time to get out. As for Iraq, it looks like we’ve won there. They can’t seem to agree on a government, but we’re not in a position to talk about how terrible that is. A deployment of 25,000 or so troops as advisors and rapid-response forces should be enough to handle what the locals can’t.
– Medical malpractice reform saves $8 billion. We think this is a grossly understated figure. If we got a handle on med-mal and the junk lawsuits doing so would eliminate, the guess is you’d see tens of billions of dollars wasted on defensive medicine melt away.
– Increasing the Medicare age to 70 saves $104 billion by 2030. This is obviously a phase-in, but we’ve got to move away from a system where the federal government is cutting checks directly to doctors or else we’ll never eliminate the waste, fraud and paperwork abuse that inflates the health-care bubble. Giving folks the option to buy private health care policies and use some sort of combination of catastrophic/major medical policies and health savings accounts to get out of medicare altogether would work wonders to wipe out the unfunded Medicare mandate over time.
– We save $41 billion by reducing tax breaks for employer-funded health insurance. The guess here is we’ll save taxpayers a lot of money over time while doing so, if it’s done correctly. To make this make sense, you’ve got to cut the cost of health insurance as well, and this is where things like buying insurance across state lines and expanding HSA’s come into play. But employer-funded health insurance is a relic of wage and price controls dating back to World War II, when top tax rates as high as 90 percent funneled high-end employee pay into benefits like health insurance and those benefits ultimately made their way into collective bargaining agreements. It’s a system that has proven itself unworkable and it’s time for individuals to start taking over their own insurance and health-care purchases.
– Capping Medicare growth starting in 2013 will save $29 billion, and $562 billion by 2030. The point here is to try to wean people off of Medicare over time, though what’s quite obvious is that it would drive lots of doctors out of serving Medicare patients altogether. Obamacare is doing that anyway, so it’s imperative that while doing this other policies are put in place which allow the private sector to fill the void for seniors to get affordable health care.
– Raising the Social Security age to 70 would save $13 billion by 2015 and $247 billion by 2030. We would go a lot further, and transform Social Security into a program of forced savings and individual accounts for folks under 50. Let’s face it, Social Security is a Ponzi scheme, and more people under 40 believe in UFO’s than that it will be around when they retire. And the retirement age of 65 is ludicrous; 65 was the age set up when Social Security was established in the 1930’s. At that time American life expectancy was 55. It was never envisioned that people would draw money for one-third of their lives, which is why this system is unsustainable. This might have been a third rail for a while, but people get it now. When Marco Rubio is demogogued to death on the Social Security issue and still wins easily in elderly-laden Florida, public opinion is obviously coming around to the concept that something needs to be done. Ultimately, the way to fix this is to encourage people to save for their own retirement and not leave it up to the government; individual retirement accounts will generate rates of return, while Social Security doesn’t.
– Stopping disability abuse saves $9 billion. Tightening eligibility requirements for disability payments, which the Social Security Administration handles, would eliminate a lot more than that number the way we see it. Either way, it’s clear there is rampant abuse within the disability system; we think it ought to be administered by the states anyway.
– Changing the way inflation is measured would save $21 billion. Cost of living adjustments on Social Security are based on the Consumer Price Index, which some economists think overstates inflation. Changing methods to something a bit stingier would, those economists say, better reflect reality. Of course, the true reality is that COLA’s aren’t likely to come often anytime soon until the budget is brought into balance anyway. And if it wasn’t for the Fed’s debasement of the currency it wouldn’t be necessary to pay COLA’s in the first place.
And then there are the two tax proposals we decided to vote for, though our interpretation of them differs from the NYT’s…
– Cutting tax rates and eliminating loopholes saves $75 billion. The budget deficit commission recommended a re-vamp of the tax brackets to have an 8 percent, 15 percent and 26 percent structure while cutting corporate income taxes to 28 percent from the current 35 percent. That’s a better system than what’s in place now, as our corporate tax rate is the second-highest in the world, renders our economy uncompetitive and costs us money. But the commission also wants to eliminate the dodges in the code a la the 1986 tax reform, and that’s OK by us. Frankly, 28 percent is too high for corporate taxes; we’d rather drop the number to 20 percent or below so that corporations would then invest in research and development and pay dividends, which would help alleviate the retirement worries of folks for whom we might not be showering with as much Social Security swag. We’d also rather see a flat tax put in place since flat taxes grow economies very quickly everywhere they’re put in place. This is considered a tax increase by the NYT; we don’t see it that way at all. It might increase revenue, but we think it does so by ending wealth redistribution and spurring growth.
– Reducing mortgage-interest deductions by converting them to tax credits saves $25 billion. If ever there was a time to do this it’s now, when the housing sector is in the doldrums. As we understand this proposal, it creates a tax credit to apply to regular folks’ mortgages and in so doing flattens out the tax benefits from the current system – where the higher your tax bracket and the larger your mortgage, the better off you are with the mortgage interest deduction. We’re looking for a way to keep future housing bubbles from happening, and essentially giving folks a tax writeoff to overpay for houses was one mechanism home prices went through the roof for in the first place.
It’s unlikely most of what we’d do would pass. But some sort of austerity program will have to come into being. We’re ready for the budget axe to fall, come hell or high water. We know it’s unlikely any real changes would happen until a new occupant for the White House is found, though.