Here, You Fix the Budget

By next Wednesday, a group of politicians dubbed the "supercommittee" has to come up with a plan to slash federal deficits by at least $1.2 trillion over the next decade. If they don't, or if Congress rejects their plan, an automatic sequester cuts deficits by $1.2 trillion over eight years, split evenly between defense and non-defense spending cuts.

Some are holding out for a megadeal that cuts deficits by as much as $4 trillion over a decade. Others are less optimistic -- maybe more realistic -- and don't expect the supercommittee to reach an agreement at all.

But why wait for them? Here's a simple question: How would you fix the budget?

The Congressional Budget Office forecasts deficits out to 2022, but so much guesswork goes into 10-year forecasts that their significance is questionable. The Office of Budget and Management, however, forecasts specific line items of the federal budget going out to 2016 -- probably as far out as you can realistically project. The figures are still reliant on assumptions, but they're a decent estimate of future spending based on current law. Have a look:

Source: Office of Budget and Management.

Those are the numbers. How would you fix them? A few things to keep in mind before you make your changes: First, the most bloated areas of the budget are also the most popular with voters. According to the Tax Policy Center:

Three-quarters of Americans believe that entitlement programs such as Medicare and Social Security "will create major economic problems" over the next 25 years. But two-thirds are opposed to addressing these challenges by reducing benefits, and 56 percent are against raising taxes.

In other words, voters have a strong message for their politicians: Entitlements are going to wreck the budget, but don't you dare touch them.

Then there's defense. One of the biggest obstacles to making cuts at the Pentagon is how concentrated the defense industry has become. Just five companies -- Lockheed Martin (NYSE: LMT  ) , Boeing (NYSE: BA  ) , Northrop Grumman (NYSE: NOC  ) , General Dynamics (NYSE: GD  ) , and Raytheon (NYSE: RTN  ) -- have defense contracts worth more than $100 billion. As New York Times columnist Joe Nocera wrote, "the Pentagon simply can't allow them get into serious financial difficulty; there are just too few of them." Furthermore, these five spent more than $60 million lobbying in 2009. The result: When the Pentagon does find the will to make cuts, the savings usually find their way back into other defense projects. Last year, former Defense Secretary Robert Gates announced he was cutting $100 billion in waste out of the defense budget but that almost all the cuts would be reinvested into "higher priority systems." Net impact on the federal budget: nil.

Finally, tax revenue is expected to be a healthy 19.3% of GDP by 2016 -- about what it was in the late 1990s -- but that relies on two assumptions: that all of the 2001/2003 tax cuts will be allowed to expire, and that the unemployment rate will drop to around 5%. Both are unlikely. For the unemployment rate to hit 5% by 2016, we'd need to add roughly 500,000 jobs a month going forward, compared with 150,000 a month so far this year. The odds are high that tax revenue will be lower, and hence deficits larger, than these forecasts show.

Those are a few constraints, but don't let them hold you back. How would you make the budget more efficient and sustainable? Tell us your plans in the comment section below.

And if you haven't already, check out my new e-book. It's currently one of the best-selling investment books on Amazon's Kindle bookstore.

Check back for Morgan Housel's columns on finance and economics every Tuesday and Friday.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter, where he goes by @TMFHousel. The Motley Fool owns shares of Lockheed Martin, Raytheon, General Dynamics, and Northrop Grumman. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On November 18, 2011, at 5:25 PM, FutureMonkey wrote:

    Legalize all drugs, tax them, but just like the drinking age is 21, make the drug age 65. Retiring Boomers will love it, revenue increases, and if more Boomers go out in a blaze of glory instead of fading away, we save on both Social Security payouts and Medicare.

    Either that or we can realize that deficits are not the worst problem facing America or the economy and the last thing we should be doing is raising taxes or cutting spending in 2012.

  • Report this Comment On November 18, 2011, at 5:29 PM, ramwem wrote:

    My thoughts are to start the cuts were they belong, if the National unemployment rate is @ 15% then we should start by cutting (layoff)15% of our Government Representatives. Why should they not feel the rath of our economy as we do. If the economy goes up re-hire if it goes down, layoff some more. This is a business and should be treated as one. Bill

  • Report this Comment On November 18, 2011, at 5:31 PM, BarryRobert wrote:

    Look - I'm not a 1%'r, but I'm close enough to know that the deck is stacked to favor those of us who make the rules. Here's a couple of first steps:

    1) Admit that they are truly entiltlement programs - they are a form of social support whereby we care for those that cannot care for themselves. 2) Approach the care of the elderly and the poor as a ressponsibility for our society. 3) Protect those in need from those who scam the system 4) Increse revenues by increasing the income to these programs (that would be more taxes).

    That's the way it works in the real world kiddies.

  • Report this Comment On November 18, 2011, at 5:35 PM, breed311 wrote:

    Number 1, you are never going to balance the budget!

    Number 2, if the politicians were not taking it all home, ( in the artical above it said that just 5 lobbiest's were spending 60 million ), how much are the rest of them paying for whatever bribes they are giving? And let's face it, lobbyist's are nothing but "bag men" anyway. And where is it going?

    Number 3, Roosevelt did a pretty fair job of pulling us out of the depression. Why not use some of his tactics?

  • Report this Comment On November 18, 2011, at 5:38 PM, KCinAustria wrote:

    1. Campaign finance reform.

    2. Simplify the tax code so it fits on 1 sheet of 8"x11" paper, size 11 font, 1" margins.

    3. Cut taxes, especially for the wealthy.

    4. Start wars with Iran, North Korea, Pakistan, and Syria; resume war in Iraq; double-down on war efforts in Afghanistan.

    Wait, what was the question? ;)

    (Until something meaningful happens on #1--and to a lesser extent #2--I'm not sure anything else matters; I hope my sarcasm shined through on a couple of those.)

  • Report this Comment On November 18, 2011, at 5:53 PM, TMFBiggles wrote:

    @ FutureMonkey -

    I think they made a movie about that. It's called Grandma's Boy.

  • Report this Comment On November 18, 2011, at 7:22 PM, CaptainWidget wrote:

    <<Number 3, Roosevelt did a pretty fair job of pulling us out of the depression. Why not use some of his tactics?>>

    I'm not sure what depression you're thinking about, but nothing Roosevelt did pulled us out of it.

    http://www.youtube.com/watch?v=AQQon4tjlSA

    4 minutes of your life will give you some insight into the great depression

  • Report this Comment On November 18, 2011, at 7:23 PM, Eerkes wrote:

    Means test to cut the top 10 percent off of medicare and social security. Cut another 10 percent out of social security by raising the retirement age by 1 year starting in 2015 and across the board.

    This is $254 billion.

    International Affairs, this sounds like International Aid, gone. Allow the American citizen to take over in this regard. Let the charity of our nation be judged by the charity of our citizens.

    This is $58 billion.

    Income security, what isn't all ready delegated at the state level should be moved there, cut 25% out. States could look to community examples like West Michigan, where citizens through private charity do an excellent job of taking care of each other at a very low cost. Over time this number could be lowered.

    This is $140 billion.

    This is over $450 billion.

    On the revenue side, reform tax codes, revenue neutral as a base, cut out all deductions. At the corporate level this would lower the cost of collection, raising profits by perhaps a trivial amount leading to modestly high revenues. Ill call it an easy $10 billion, assuming at a 25% rate, US companies spend at least $40 billion on additional costs. Unfounded, maybe, but definitely realistic given the size of the US accounting industry.

    Add in the revenue currently gathered from cap gains and div taxes to the corporate rate and get rid of it at the personal income level.

    Create a sensible repatriation tax system, with a tax rate that would be the equivalent of the increase in the rate atrributed to div. and cap gains.

    Personal Income tax, simplify system. how about 10% for first 40,000, 15% up to 200,000, 20% up to 500,000, 25% up to 2 million, and 30% above that.

    Sole exemptions of 8g per adult, 5g per dependent for first 4 dependents, and 3g after that.

    Tinker with the rates to make it revenue neutral plus a 5% increase.

    This would be a $100 billion increase in revenue. This is all but $150 billion of the deficit.

    The rest would need economic growth.

    Ideas:

    Energy plan-use pickens plan to put semis on nat gas. build necessary pipelines to maximize canadian oil use. Increase domestic drilling, and fracking. Doing these two things would cut oil we get from mid east and venezuela to zero. That money would stay in economy and go to Canada. An uptick in Canada's economy would be a boon for the US as we are their biggest trading partner.

    Start allowing younger workers to opt out of social security, this would allow their employers out too, lowering the cost of labor, and making it more wage dominated. Simplifying the personal tax code would cut labor-overhead costs for employers as well, once again lowering the cost of labor. The government needs to get in the business of lowering the non-wage cost of labor, not raising it. Lowering the non-wage cost of labor would make US labor more competitive.

    Healthcare-the kingpin. The issue with healthcare costs is that our current system too often incentivizes quantity over quality. This leads to gross overutilization in many areas of our country. It is not an issue of who pays, it is structural. The solution lies in looking at successful models and duplicating them. The Mayo Clinic for instance boasts among the highest quality healthcare in the world at among the lowests costs. How do they accomplish this? Group practice in a not-for-profit setting. Doctors lose volume-driven profit motive.

    Ill check back tomorrow, everybody tell me how much I suck.

  • Report this Comment On November 18, 2011, at 7:24 PM, Eerkes wrote:

    <Means test to cut the top 10 percent off of medicare and social security. Cut another 10 percent out of social security by raising the retirement age by 1 year starting in 2015 and across the board.>

    I meant raise the ret. age by 1 year and get the remainder of the 10 percent cut by across the board cuts.

  • Report this Comment On November 18, 2011, at 7:59 PM, DividendsBoom wrote:

    Boo Eerkes, the idea isn't to actually try, that would take too much effort

  • Report this Comment On November 18, 2011, at 11:33 PM, zymok wrote:

    The things I'd do that might have some remote chance of actually passing in some shape, form, or fashion...

    Raise the social security retirement age, more or less gradually, to about 70. Index it to future changes in life expectancy.

    Eliminate the SS COLA.

    Cut defense spending by half.

    Eliminate all tax deductions.

    Tax capital gains and interest income the same as earned income.

    That should do for a start.

  • Report this Comment On November 19, 2011, at 1:31 AM, sliderw wrote:

    Cap total transfer payments (social security + SSI + unemployment benefits + ...), to twice the minimum wage for example.

    Say no to least-bang-for-the-buck medicine, such as $500K treatment to extend life for just 6 months.

    Treat all types of income identically and tax them progressively. No preferential rate, no exemption, no cap.

    Limit total tax deductions to a certain fixed percentage of the tax base, so that Congress must trade off one deduction for another (or balance them) instead of piling them on.

    Cut spending on too-similar defense projects and foreign military aid.

    Cut interest payment by reducing the public debt.

    Free speech does not include unlimited political spending. Why should a person or entity be allowed to spend hordes of money to drown out a small-spending person's free speech? Fix the Constitution on this point.

  • Report this Comment On November 19, 2011, at 6:48 PM, TMFBlacknGold wrote:

    Take a page out of Finland's book:

    Replace unemployment benefits with job-training. The unemployment rate among those with a college degree: 5%. Those without: 12%. It is clear that individuals who are unemployed may not work the same occupations they once had - and giving them money to keep searching for those jobs is wasteful. Re-train the unemployed for new jobs that are in demand. Finland has learned that re-training is much cheaper than handing out unemployment benefits. People get jobs more quickly and start contributing to the GDP.

    Now there's a thought.

  • Report this Comment On November 19, 2011, at 7:44 PM, Strasvootsia wrote:

    What is income security? Is this unemployment?

    So the areas where there is the most room for cuts are: Defense (but too deep would would increase un-employment and decrease national security) - so minus 8% here, Medicare and Medicaid (concentrate on the waste, excessive charges and hidden drug company subsidies) - say -25%, then cut income security by 10%, same cut for international affairs - 10% and Natural Resources and Environment - 10%. If I did the numbers right that would be $396b.

    The remaining $304b should come from corporate taxes which could be boosted by 25%, increase import duties, add a tax on off-shore services and employment (say 10%) and add a Value Added Tax of say 5% on durable goods. In combination that would add about $330b to the revenue side. Which would create a little surplus with which to work down the debt. My numbers are probably not exactly correct but concentrating on the above areas of spending and tax could produce a result instead of rhetoric, finger-pointing and excuses.

    What does anyone else think?

  • Report this Comment On November 19, 2011, at 9:28 PM, tomzog wrote:

    I have a means test through the VA every year, so why can't Social Security have one and they are entitlement programs, since we take out more then we put in.

    Cut out all the fraud that is in Social Security and medicare/medicaid.

    Change the tax code and figure out how to tax the 46% of people who don't pay taxes.

  • Report this Comment On November 19, 2011, at 10:56 PM, fredgei wrote:

    "Change the tax code and figure out how to tax the 46% of people who don't pay taxes."

    I presume you mean "pay income taxes." If they're working legally, they're paying Social Security and Medicare taxes. If they buy gas, they're paying gas taxes. In most States, if they buy anything, they're paying sales taxes.

    Having said that, if they're single, working, but not paying Federal income tax (and not cheating), they're earning less than $8,500 a year (before Social Security and Medicare taxes are taken out). Where I live, that will either buy food for one or rent, but not both. Trying to tax them more heavily, reminds me of the old adage about blood and turnips.

  • Report this Comment On November 20, 2011, at 2:26 AM, skypilot2005 wrote:

    "On November 18, 2011, at 5:35 PM, breed311 wrote:

    Number 3, Roosevelt did a pretty fair job of pulling us out of the depression. Why not use some of his tactics?"

    WWII "pulled" us out of the Great Depression.

    Obama IS using Roosevelt's "tactics". The result is a complete failure by any measure.

    I recommend a review of history and credible economic theory.

    Fool On

    Sky Pilot

  • Report this Comment On November 20, 2011, at 2:35 AM, skypilot2005 wrote:

    I would lower taxes for everyone currently paying taxes, institute a minimum tax for low income workers not currently having any federal income tax liability and decrease spending.

    Everyone needs to have some "skin" in the game.

  • Report this Comment On November 20, 2011, at 2:24 PM, FutureMonkey wrote:

    Sky Pilot -- There is a misnomer that low income workers of people don't pay taxes. They don't pay federal income tax because they earn too little to exceed the threshold. These people definitely pay taxes - payroll taxes, state income, property (either directly or through their landlord), gasoline tax, vehicle registration fees, etc etc, Because these taxes are regressive vs progressive federal taxes, their impact of taxes as a percentage of income is higher than the other 54%. They have plenty of skin in the game -- more than most, since they are also the people hurt first and more deeply by economic downturn, inflation, reduction of public services.

  • Report this Comment On November 20, 2011, at 5:19 PM, brenemak wrote:

    How about lowering the taxes on business so that companies actually build something in the US. That way you put people back to work and increase your tax revenue.

    On top of that I would change the tax code, I like the fairtax, but would be open to a flat tax also. Let everyone pay their fair share. Half of the country shouldn't be able to get away with paying no taxes.

    Also, let energy companies actually drill for energy in the US. We have more oil and gas then any other country, why do we import any?

    If necessary to get corporations to move manufacturing to the US then have tariffs on imports. I know some would say this is isolationism, but screw the rest of the world, and put our country to work. I know there are limits on this, but some could be beneficial to make it a level playing field.

    Pull the majority of the military back to the US, I understand we want a couple forward bases, but don't need half the military deployed and putting money into the foreign countries economy.

    Get rid of half the government agencies that do so much duplication of work. Way to many 3 letter agencies out there that don't work together. Cut the hidden defense budget by half would save billions.

  • Report this Comment On November 21, 2011, at 12:05 AM, RushingFool wrote:

    Since every specific area or group targeted for spending cuts or tax increases is going to gnash teeth, instead share the burden and gently phase it in: decrease federal spending of each department 1% a year and increase income taxes 1% a year across the board until the budget is balanced. If 1% is too little or too much, pick a number that works better, but apply it across the board so everyone can feel they are 1) not being targeted, and 2) are rather jointly contributing to a solution.

  • Report this Comment On November 21, 2011, at 5:47 AM, dbtheonly wrote:

    TMF Biggles,

    Did you ever see a movie called, "Wild in the Streets"?

    One suggestion. Wal-Mart has a rule where none of it's Buyers can receive anything of value from suppliers, potential or otherwise. Why not have that rule for elected representatives?

  • Report this Comment On November 21, 2011, at 12:55 PM, quadshot wrote:

    I would add a tax of 2% on every securities transaction. Buyer pay's 1%, seller pay's 1%.

  • Report this Comment On November 21, 2011, at 3:36 PM, DJDynamicNC wrote:

    "I'm not sure what depression you're thinking about, but nothing Roosevelt did pulled us out of it."

    Unemployment climbed drastically under Hoover, then started declining immediately upon Roosevelt's implementation of his New Deal policies; climbed again in 1937 when those programs were temporarily rolled back; then fell again, dropping precipitously when the government undertook a massive program of deficit spending (otherwise known as World War II) which then led to unrivaled prosperity in the succeeding years.

    Roosevelt was at the helm for all of that.

    Moreover, in 1936 he campaigned on the New Deal against a Republican who accepted the New Deal as necessary but claim to want to trim its wasteful aspects. Roosevelt won by a landslide.

    In other words, the New Deal was viewed by the people who lived through it as so successful that both parties wanted to claim credit for it, and it gave Roosevelt a landslide victory in 1936.

    It's a little hard to get around the historical record here.

  • Report this Comment On November 21, 2011, at 3:58 PM, DJDynamicNC wrote:

    I think there are some good suggestions across the board here for solving the deficit problems.

    Some I particularly liked:

    1) Enough with the overseas bases. We have military bases in practically every country on the planet. Is that really an effective use of our tax dollars?

    2) End the Bush tax cuts for the wealthy. Remember, prior to those tax cuts we were running a surplus and were well on our way to being deficit free. Yes, there were other factors as well, but this is a big hole in the budget that we clearly can't afford (even going beyond the ethics of the matter).

    3) End prohibition. Roosevelt ended alcohol prohibition to raise tax revenue during the Great Depression. Ending some of our current forms of prohibition could have a similar beneficial effect. And honestly, does anybody really still think the war on drugs has been worth it?

    4) Retraining instead of unemployment benefits. Give fired and laid off employees job training at a new job. Pay for their basic cost of living while the training is under way and help them with job placement. I think a transition period would be good - say 3, 6 or even 12 months of unemployment during which the labourer can attempt to find a new job in his or her existing field, and after that time cut off the money and replace it with job training and payments for food/shelter/basics, with an option to make the switch earlier if desired. Much more cost effective than just hoping for the best while handing out cash.

    5) A living wage. People with money to spend, spend it, and the economy prospers as a result. This is one of those occasions where the smart economic policy is also the ethical one - I happen to believe that anybody willing to work 40 hours a week should make enough money off of it not to have to struggle to pay the bills.

    6) A truly global economic framework. The wild income disparity between areas of the globe is a major source of the problems in the capitalist system. We can't fight for good jobs here so long as companies can simply export the jobs for a dollar a day to the developing world. However, an isolated economic system is both impossible and not desirable. The solution is greatly increased globalization, bringing living standards up to snuff across the globe, coupled with a truly global economic management system setting minimum standards across the world economy (obviously this would require extreme delicacy in phasing it in). Idealistic? Sure. But then, so is democracy.

  • Report this Comment On November 21, 2011, at 4:00 PM, DJDynamicNC wrote:

    Also - there is no "46% of people who don't pay taxes." That is a fiction; or to be more blunt, it is a bald-faced lie.

    There are plenty of people - roughly 47% of the population - who make so little that they aren't required to pay federal income taxes, meaning that they only need to use some of their extremely limited income to pay property taxes, payroll taxes, sales taxes, excise taxes, gas taxes, school taxes, state income taxes.....

  • Report this Comment On November 21, 2011, at 4:02 PM, catoismymotor wrote:

    Shakedown small countries for protection money.

  • Report this Comment On November 21, 2011, at 4:35 PM, Doris411 wrote:

    When we talk about taxing or reducing benefits, such as social security, for those who fail some sort of "means test", what is our ultimate purpose?

    Do we want to discourage older workers from working in order to free up jobs for younger workers?

    Do we want to reduce the cost of entitlement programs?

    Do we want to increase taxable income in order to gather more tax revenue?

    Do we want to force liquidation of assets that might otherwise stay in estates instead of being spent?

    Before you suggest making social security and medicare fully taxable, consider that the money we paid into those systems while working was taxed. Unlike IRAs and 401Ks, the money did not reduce taxable income when collected. At the very least, the amount originally collected should be tax-exempt when we get it back.

    The Social Security Administration knows how much is in each taxpayer's account in order to determine benefits, so they certainly ought to be able to track when benefits start to exceed the taxes collected. Treat it like a return of principal invested (albeit involuntarily), and tax the "return on investment" like any other income.

    Anyone truly dependent on social security benefits is probably going to be in the lowest tax bracket anyway, and pay little or no income tax on their meager income.

  • Report this Comment On November 21, 2011, at 4:59 PM, Darwood11 wrote:

    @DJDynamicNC, there is a line of argument that states that unemployment dropped under Roosevelt because of the implementation of social security, which took older people out of the work force or job lines and "retired" them.

    Returning to the article and the question, anyone who is an American and has been on this planet has listened to politician after politician make declarations about the cost of their pet program. First and foremost, hold politicians accountable for the costs of their programs. "Medicare" benefit changes will only cost "125 billion over 3 years" then fine, include in the law passed that funding ceases if that line is crossed.

    Any program which increased expenditures must be met with increased taxation or reduction in other expenditures. It's simple, really and most households which practice "living within your means" understand this completely, I do understand that such households may be in a very small minority in this country, Perhaps we're the 1% and the 99% are living beyond their means?

    So if Pres. Bush wants to go into Iraq, then taxes go up to pay for it, and such increases are automatic. Simple really.

    I find it amazing that our congress, the President and various experts are unable to figure this out.

  • Report this Comment On November 21, 2011, at 8:14 PM, TrumanTrout wrote:

    Hey Flat Tax Fans,

    Let's make the payroll flat tax truly flat by eliminating the cap. It's not fair that McWorkers pay a significant share of their pay on this tax while McCEO pays a negligible percentage. Can you give me an "Amen" flat tax fans?

    TrumanTrout

  • Report this Comment On November 21, 2011, at 9:37 PM, Gyre07 wrote:

    What's the harm in bringing ending our role as The Global Policeman? When did we citizens decide to fund over 700 military garrisons abroad? What's that getting us? Since when did we decide that we'd occupy the middle-east? I'll tell you. Never.

    In my opinion, the military is a black hole for $$$ with an insatiable appetite, which doesn't produce a thing. The weirdest aspect is that nobody (other than Ron Paul) even questions the $700+ billion per year to keep them in arms that no reasonable person can comprehend the necessity for.

  • Report this Comment On November 22, 2011, at 12:27 AM, Melaschasm wrote:

    The easy answer is a 6 year spending freeze. It would take about three years to balance the budget, and by year six we would have made a nice dent in our total debt.

    As long as total spending doesn't increase, politicians would be free to increase and decrease spending on specific programs.

  • Report this Comment On November 22, 2011, at 3:51 AM, MichaelDSimms wrote:

    I have heard some foolish comments in my time however, some in this forum and at the top on the list.

    Inventions due to defense spending (in the world)

    Laser technology

    Aircraft and subsequent improvements (jets)

    Computers

    VCRs/DVDs

    Satellites

    These are just a few, the fact is mankind is at it's best when competing for it's survival and when it gets paid for it. Our military is the envy of every country in the world. It also guarantees the ability to bring forth the very existence of this and every other forum in the world. Without which there would probably only be one and it would be printed in German.

    Across the board cuts is the only answer for balancing the budget. Certainly there is no reason why the EPA, Dept of Commerce, Dept of Education and others cannot take budget cuts. Defense will take more than it's share, it's already been stated. Why the Federal government is in the housing business or pushing education demands down to the state level is beyond me.

    Section 8 of article I of the Constitution declares that " the Congress shall have power to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and general welfare of the United States.

  • Report this Comment On November 22, 2011, at 10:37 AM, DJDynamicNC wrote:

    @Darwood - as the first payroll taxes were not collected until 1937, and the first payouts not disbursed until 1940, any argument that social security was responsible for the decline in unemployment that occurred in 1933 bears a fairly fundamental flaw.

  • Report this Comment On November 22, 2011, at 10:44 AM, DJDynamicNC wrote:

    @MichaelDSimms

    Across the board cuts are not the "only" answer for balancing the budget. They aren't even the best answer. Do not confuse that which is ideologically pure with that which is sensible, for rarely the two shall meet.

    Also, please note that Section 8 of Article I does not stop at "common defense" but goes on to say "and general welfare." If you truly believe that the EPA has nothing to do with the general welfare of the United States, I encourage you to slug back some water spiked with mercury and take a stroll in sulfuric acid rain some time, and then get back to me.

  • Report this Comment On November 22, 2011, at 1:10 PM, JGBFool wrote:

    I have heard before that WWII pulled the U.S. out of the Depression.

    If that is the case, then massive government spending IS the answer.

  • Report this Comment On November 22, 2011, at 4:41 PM, PragmaticBuckeye wrote:

    I have a million ideas about things we ought to be doing, but here are my guiding principles (if you want to skip the rest of my post because it is too long, reading this would give you the gist):

    -Cap Spending: First rule, stop digging.

    -Raise Existing Taxes: Previous cuts are proving unaffordable

    -Create New Pigovian Taxes: An entity that imposes costs on society should pay those costs. This is about raising revenue and enforcing personal responsibility for economic decisions. You pollute? You pay for the cleanup.

    More details:

    1) Hard cap on non-mandatory federal spending at current nominal level for 5 years, no inflation bumps allowed.

    Must start here to prevent new tax revenue from burning a hole in our collective pocket.

    2) I'd let the Bush tax cuts expire, for everyone.

    A lot happened since the balanced budget, but those tax cuts are the original sin of the current budget mess. Any new tax system that involves tinkering instead of completely overhauling should begin here.

    3) Get out of Iraq and Afghanistan as fast as is reasonably possible, do not look back, do not try to hit another country on the way out.

    This one is easy money, and has the benefit of being decent foreign policy anyway.

    4) Reform corporate taxes: End nearly all loopholes and subsidies. Cut the corporate tax rate to somewhere b/w 20-25% and impose a mandatory minimum rate of 10-15%.

    Cuts the nominal rate, gives many companies a real tax cut, prevents companies from deducting themselves to zero tax obligation (or even getting PAID to file!).

    5) Simplified income taxes. No itemizing, everyone gets the standard deduction. Double the standard deduction. No more different rates for different kinds of income. Dividends, cap gains, interest, stock options, W2 income, 1099 income...it all falls under one category: Income.

    Nobody cares how you got paid, cash your check and pay the tax.

    6) Temporarily means-testing for Social Security and Medicare.

    Ultimately, these programs are intended to be for everyone, but extraordinary times...you know the rest. Require that all savings from this temporary maneuver go directly to retiring debt, and require that benefits be phased back in as the deficit falls. So that a temporary benefit cut doesn't become permanent.

    7) New Wall Street transaction tax of a fraction of a penny. Half should be earmarked (or dare I say, "lockboxed") for a future financial crisis.

    It raises revenue, acts as an insurance fund against future crashes, and swings some of the balance back to human-directed trading.

    8) Pollution tax, Carbon Tax, CO2 tax, whichever you prefer.

    Even dismissing global warming out of hand, there's no denying the externalities caused by pollution. I'm fine with doing it at half the level that a more Al Gore-friendly liberal might choose. It raises tax revenue, makes renewables more competitive, effectively forces OPEC to pay part of our deficit, and more closely aligns the monetary cost of pollution to the true cost. This is in line with our financial needs AND our national energy priorities. Greg Mankiw has an excellent paper from 2007 or 2008 that addresses why this makes sense regardless of your political tendencies.

    These are just a few of the things I would do, but I sense I've already written a comment that falls under the TL;DR clause of the internet, so I'll stop there.

  • Report this Comment On November 23, 2011, at 9:46 PM, snowmon wrote:

    Disappointing thread. It's the growth rate of spending that is killing us here.

    Just pass the 2008 budget (2.9Trillion) instead of 2011 (3.8 Trillion). Civilization as we know it existed in 2008, so we know it can be done.

    Heck, it was bloated then. This is really not as tough as some pretend.

  • Report this Comment On November 24, 2011, at 8:45 PM, TMFHousel wrote:

    ^ Easier said than done. There were 5 million fewer unemployed people collecting unemployment benefits in 2008, fewer collecting Medicare, Medicaid and Social Security, and war spending that was kept off the books through emergency budget tricks that masked the DoD budget.

  • Report this Comment On November 24, 2011, at 10:36 PM, ETFsRule wrote:

    skypilot2005 wrote:

    "Obama IS using Roosevelt's "tactics". The result is a complete failure by any measure.

    I recommend a review of history and credible economic theory."

    During FDR's time as US president, he increased federal gov't spending by approximately 1300%.

    Obama has increased federal gov't spending by a paltry 6% since he came into office on Jan 20, 2009.

    So, despite his rhetoric about "infrastructure" and "stimulus", Obama has done nothing of the sort. Any comparision of Obama to FDR is based on political fantasies, not reality.

  • Report this Comment On November 25, 2011, at 11:51 AM, donbcms wrote:

    Revamp the entire "TAX CODE" with its $1.1TRILLION in "cuts", exemptions & "loopholes"; plus the fact "IT" allows 45% of taxpayers to pay "NOTHING"? ? There is your "DEFICIT"..! !

  • Report this Comment On November 25, 2011, at 1:43 PM, ershler wrote:

    catoismymotor,

    Best idea by far!

  • Report this Comment On November 25, 2011, at 2:29 PM, DJDynamicNC wrote:

    @Snowmon - since that deficit total completely failed to include the cost of the wars, which Bush hid using accounting gimmicks so the deficit wouldn't appear as big, it's a flawed comparison. Obama put military expenditures back in the budget - which makes sense to everybody who has ever actually managed a budget - so deficit numbers look a lot higher now. Which is probably why Bush was hiding those numbers in the first place. Perception matters.

    @Donbcms - Beyond the fact that a taxpayer who pays nothing is not technically a taxpayer, there is nobody in the United States that pays ZERO taxes. Even the smallest child pays sales tax on a candy bar.

  • Report this Comment On November 25, 2011, at 3:49 PM, armnhammer wrote:

    There are a lot of good ideas here but one I haven't seen anyone put forth is the Fair Tax. This completely eliminates the old system and replaces it with the broadest possible base of taxation but it is not an income tax but a federal sales tax. I didn't like the idea much but I went to the website and read through it to give it a fair shake and I have to say after really reading through it, I am convinced it is a major improvement over our present tax system. Check it out and keep an open mind. www.fairtax.org

  • Report this Comment On November 25, 2011, at 5:13 PM, ecm3131 wrote:

    <<I'm not sure what depression you're thinking about, but nothing Roosevelt did pulled us out of it.>>

    Liek any worthless one-dimensional analysis, this You-tube video implies that Hoover's tariff bill alone caused the spike in unemployment in 1930. Hoover slashed the federal budget in 1930, and THAT caused the unemployment that followed. That is why they called homeless camps "Hoovervilles". I live in one at the age of 12. Don't pretend that this unknown idiot is somehow more knowledgeable about federal spending than everyone else on the planet.

  • Report this Comment On November 25, 2011, at 5:42 PM, DJDynamicNC wrote:

    @armnhammer - my biggest gripe about the fair tax is that it's particularly regressive to replace the income tax with a sales tax. However, I did as you asked and checked out their site to see if they had an answer to my concern, and sure enough, they had a section expressly devoted to that question. Good on them!

    Unfortunately, the answer was less than satisfactory. Essentially, their argument is that the wealthy would pay more than they currently do because the capital gains tax is 15%, and under the fair tax, they'd be paying 23% on any expenditures they make. That's a bait and switch right there; where as now they pay taxes on the gains themselves (at admittedly ridiculously low rates), under this system they would pay NO taxes on capital gains until they actually spent the money.

    Now, what kind of effect do you think that will have on their expenditures? It would become MUCH wiser and more cost effective for the rich to simply invest more of their money - which would now be completely tax free - rather than spending it. That further rewards the rich for being rich and would only exacerbate our already severe resource distribution problems.

    I'm afraid I can't support such a system without serious improvements.

  • Report this Comment On November 25, 2011, at 5:43 PM, DJDynamicNC wrote:

    @ecm3131: +1 to that comment.

  • Report this Comment On November 25, 2011, at 6:24 PM, Painters wrote:

    The first thing I would do is to get rid of every illegal person in this country. No more special education classes for them, no more welfare for their kids, no more accidents involving illegals who are not insured.

    Secondly, I'd stop sending any money to other countries. We need our money to stay in the USA.

    Thirdly, no more special benefits for members of congress/senate. They should have to pay for the same insurance/retirement, etc. we have to pay for.

    Forth, I would put prisioners back on road details to clean up our streets of trash and graffiti. Prisons should start up farming and raising animals for their own food.

    No more special interest groups to benbefit from government except for farmers.

    I would stop districts from always changing the boundaries of the districts. Somne people move from district to district because they do/or do not want to live in certain districts.

    Fathers should all pay child support. We need to limit the number of children who receive government assistance per Mother. Population control should be very important for this country.

    As cold as this sounds, children born with severe defects and infirmaties should not be given extra life saving measures when born.

    Abortion should be a woman's choice and made readly available. Those who do not agree should adopt unwanted children.

    A parent should be responsible for their children and not the courts or the government.

    People who have highly, transmittable diseases should be place in quartined housing to protect the rest of the population and therefore decrease the medical costs the rest of the public ends up paying for.

    No more sex change operations for prisioners.

    Our police officers, firemen, EMT's, diasters relief workers should be the highest paying jobs in the country.

    Wall street types or anyone who makes tons of money with the use of another persons money should pay a much higher income tax rate.

    Representatives and Congressmen who do not pay their fees, taxes, fines or who break the law should automatically be removed from office without retirement and any other benefits what so ever.

    This is where I would start...

  • Report this Comment On November 25, 2011, at 6:40 PM, TrulyCommando wrote:

    I will hazard the guess that the populace could cope with a 5% reduction in Social Security, Medicare, Medicade, and defense. Give it 5 years to settle in, and then see where the budget ends up. If it were carefully applied, with no cheating, I think it would be a good step. The tax code needs to be fixed. Too many well off people and corporations pay very little in comparison to their incomes.

  • Report this Comment On November 25, 2011, at 7:03 PM, donbcms wrote:

    "AX THE TAX CODE"

  • Report this Comment On November 25, 2011, at 7:55 PM, Navistarjones wrote:

    since our congressmen are unwilling to bite the bullet, so to speak, how about having them take 5% cuts in compesation. Then ask all employers to have all emplloyees to stay home one day every two weeks, so as to increase the work force.. Next, congress should reduce each budget item spending by 1% each month, til the budget balances. Tax exemptions for farming, Ethanel, Mining, land subsides, Sugar, the whole works be reduced each year by 5% starting immeadeatly, and continuing each year thereafter the same rate. All such special favors could not be continue for more than 6 years, without an up or down vote on each item separatelyAlso Illegal immagrants should be unable to receive goverment assistance .If we are unwilling to reduce goverment expenses, then how about requiring each citizen to pay some small percentage of the national debt via their tax return. Essentally, this has to be a shared responsibility, according to our ability. Also those living outside of the US should have SS or other moneys from the US reduced to their chosen country living standard the same as the rest of us.

  • Report this Comment On November 26, 2011, at 2:50 AM, lightimpact wrote:

    The answer is oh so very simple.....but so very hard to implement.

    Two things need to be addressed - the high medical costs in the US and absurdly high defense spending.

    1. In 1984, when I was in college, Milton Friedman proposed a solution to the high medical costs in the US. He suggested we open up the medical industry to competition - train more doctors and nurses, let foreign ones come in, reduce the barriers to offering medical services (ie, high licensing requirements, malpractice insurance costs, etc.), break the AMA's barriers that prevent doctors from competing on price, etc.

    2. Cut defense spending not by 30% but to 1/3 of what is is now. There is almost no value to the high tech high cost equipment we have. It is for fighting a war we will never fight. Why won't we fight it - because the consequence would be unimaginable destruction.

    You think this can happen? The so called conservatives we have now in the Republican party are not fiscally conservative. They are spendthrifts - but just for their favorite causes. The whole debate now in politics is not touching anything meaningful.

  • Report this Comment On November 26, 2011, at 1:14 PM, kdeken wrote:

    When corporations need to cut the budget, everybody must share the pain. New goals are handed down to managers, who must meet the goals or find themselves another job. In my experience, while this means people get laid-off and programs get cut, the new budgets get met. This, my friends, is the real world. We need to do the same thing with government. Everything gets cut, and taxes get increased. For starters, how about a 5% cut in Social Security, Defense, Medicare, and all transfer payments. And taxes go up by 5% for everybody. The tax increases would amount to about $150 billion in new revenue. The spending decreases would save more than $150 billion per year. $300 billion would get us on the way. And it will never happen because we are a nation of wimps today.

  • Report this Comment On November 26, 2011, at 4:03 PM, nick2h wrote:

    The only way to prevent special interests from staking claims is to do an across the board belt tightening: 10% out of each federal budget. Excluding interest payments on the debt listed above, that's 405B. No one can claim favoritism that way. Each dept figures it out from there.

    Then you increase personal income tax receipts by 10%: 180B.

    Leftover is a 115B deficit. Out of a 14.5T economy, that's 0.8% of GDP per year. As long as GDP increases that much per year, we're golden.

    If only politics were as simple as arithmetic...

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