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Here Are the Numbers. You Fix the Fiscal Cliff

Check the Top Stories section at every weekday for our latest fiscal-cliff coverage. We won't stop till the madness does. To read previous stories in this series, follow the links at the end of this article.

Money in, money out. Balancing a budget or trimming a deficit shouldn't be hard.

Yet in reality, it's preposterously difficult. Every dollar of wasteful spending is someone's paycheck -- and that someone isn't going to bow out quietly. Every tax deduction can be seen as either a boost to the free market or an unfair subsidy to a particular social class. Budgeting is about much more than arithmetic. It's politics, economics, psychology, philosophy, lobbying, and public relations all rolled up into one big, ugly brawl.

Over the next few weeks, Congress and the president will try to hammer out a budget deal in order to avoid the fiscal cliff. If elected leaders fail, taxes will rise, and spending will be cut come Jan.1 -- there's something for almost everyone to hate.

Any final budget deal will probably attempt to cover a 10-year period, but that's more formality than substance. Budgets are made on a yearly basis, and anything done today can easily be overturned tomorrow. The whole reason we're having a fiscal-cliff debate is that no one wants to accept the conditions of previous budget deals, which shows how fickle the deals really are.

So, Fool readers, let's look at this on a one-year basis. Here's what federal government spending looks like this year:

Source: Office of Budget and Management; Federal Reserve; author's calculations. Income security = unemployment benefits, food stamps, etc.

And here's what tax revenue looks like this year:

 Source: Office of Budget and Management; Federal Reserve; author's calculations.

We're looking at a deficit of about $1.3 trillion.

And for good measure, here is the cost in lost tax revenue of the top 10 tax deductions:

Source: Credit Suisse.

Those are the numbers. Now it's your turn. 

How would you fix the budget deficit? Share your plan in the comment section below. 

Wrapping things up
The Motley Fool wants to help investors understand the fiscal cliff and put it in its long-term context. This article is part of a series discussing the fiscal cliff. You can find the three previous articles below:

Read/Post Comments (138) | Recommend This Article (108)

Comments from our Foolish Readers

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  • Report this Comment On December 07, 2012, at 10:55 AM, mdk0611 wrote:

    Does "retirement contributions" include the reduced rateoif FICA tax? If not, I think the revenue loss from that on it's own would get it into the Top 10.

  • Report this Comment On December 07, 2012, at 11:04 AM, ejclason2 wrote:

    Finding governments programs to cut, that you don't benefit from or support, is easy. However all federal programs have supporters.

    The question should be: For what government programs, that you benefit from and/or support, are you willing to see spending reduced? (Assuming other programs are also reduced.) If you are unwilling to see spending reduced for any programs you support, you are part of the problem.

  • Report this Comment On December 07, 2012, at 11:35 AM, kumbehr wrote:

    I'd cut back on the "income security" line and medicaid line (>50% each). The "war on poverty" doesn't seem to be working through the government.

    Ask yourself this: what's been the result of all this welfare? Is it people going to work? No, it's more welfare. Maybe we should try something else.

  • Report this Comment On December 07, 2012, at 11:42 AM, TMFBlacknGold wrote:

    Thanks for the numbers. Isn't the largest source of lost tax revenue derived from corporate breaks? I know the NYT article recently estimated the number at $80 billion, but I'm sure it could be higher than that.

  • Report this Comment On December 07, 2012, at 11:58 AM, Quantemonics wrote:

    Mathematically, the numbers are no longer FIXABLE. We blew it the last 12-24 months, and now we become Greece or Spain.

    Sorry to say, that's the math. Any real austerity will plunge U.S. into recession and create even HIGHER deficits.

    Doing NOTHING will result in higher deficits as baby-boomer start sucking all available income from others to support programs for the aged.


  • Report this Comment On December 07, 2012, at 12:09 PM, getrichslowfool wrote:

    Based on this chart, defense spending is lower as a % of GDP than the historical average. Income security is higher as a % than the historical average.

    Both of these two major chunks of our spending should be heavily scrutinized, while all other facets of government should have some fat trimmed.

    It's hard to reduce the social security spending because people paid this money with the expectation of future returns.

    Income security seems to be the easiest one to pick apart. There was a time when people who needed that extra help looked to family and friends for assistance. Those days are seemingly over, and people just look to the government. The problem is that the government doesn't nag moochers nearly as much as family and friends do...

  • Report this Comment On December 07, 2012, at 12:16 PM, DukeTG wrote:

    I wouldn't fix anything. At least right now, when we can borrow money for practically free. In the medium to long term, sign me up for simspon-bowles.

    And yes, I know what's in it:

    Higher gas taxes and capital gains taxed as ordinary income? Sign me up!

  • Report this Comment On December 07, 2012, at 1:47 PM, ClimbinFool wrote:

    I'm not a fan of taxing risked capital at the same rate as income earned from labor. Isn't the purpose of taxes to incetivize behavior?

    I like the pragmatic, albeit naively idealistic, policies suggested from the Planet Money podcast episode "Six Policies Economists Love"

  • Report this Comment On December 07, 2012, at 1:56 PM, astuber9 wrote:

    On December 07, 2012, at 11:58 AM, Quantemonics wrote:

    Mathematically, the numbers are no longer FIXABLE. We blew it the last 12-24 months, and now we become Greece or Spain.

    Sorry to say, that's the math. Any real austerity will plunge U.S. into recession and create even HIGHER deficits.

    Doing NOTHING will result in higher deficits as baby-boomer start sucking all available income from others to support programs for the aged.


    Game over might be overstating it a bit but I think you are more correct than everybody else that has an idea of small changes that will "put us back on track" regarding the deficit. Our ability to pay off the debt diminish every day and the bond market will see that at some point in the next couple of years and respond accordingly. The closer we come to a balanced budget, the more leash we will be given. Although as you point out the more changes we make to balance the budget, the worse it will be for current growth. I would like to be more optimistic but the facts don't allow me to. Let's hope Morgan's optimism over housing and energy carry us through.

  • Report this Comment On December 07, 2012, at 3:35 PM, toastedseeds wrote:

    This really shouldn't be that difficult. Do it over an 8 year period. 12.5% of this years deficit will be around $125b. That shouldn't be that hard to find between revenue increases and spending cuts. Do that each year and you have a balanced budget and can then talk about whittling down the debt.


  • Report this Comment On December 07, 2012, at 3:40 PM, slpmn wrote:

    Cut defense spending. We're still building nuclear subs at a cost of about $2.6 billion per. The cost/benefit of programs like that needs to be discussed openly and critically. There needs to be some perspective. For example, a lot of medicaid goes for paying the bills of old people in nursing homes. I don't know how much that costs, but let's say $50,000 per year. Dumping that one sub would pay for a year of nursing home care for 52,000 people.

  • Report this Comment On December 07, 2012, at 3:59 PM, mdk0611 wrote:

    That's nursing home care for 1 year. And I don't think we're building 1 sub per year.

    The budget deficit for the last 4 years has exceeded the ENTIRE defense budget, and we're not going to cut it back to zero.

    This never gets solved without reforming entitlements. And every bipartisan group (Simpson-Bowles, Domenici-Rivlin et. al.) has come to the same conclusion.

  • Report this Comment On December 07, 2012, at 4:21 PM, pbk100 wrote:

    I'm confused - do you want us to fix the fiscal cliff or the deficit? Those are two separate issues. The fiscal cliff is a combination of tax increases and spending cuts - attempting to fix it through additional spending cuts is like trying to break our fall by installing spikes at the bottom of the cliff.

  • Report this Comment On December 07, 2012, at 5:03 PM, whereaminow wrote:

    "Defense" is much higher than the reported $713 billion (although that number is insanely freaking high already.) The number is likely over $1 Trillion, according to many economists who included off budget items and items that the DoD is able to put on other departments, yet are clearly military.

    Cut Defense Spending dramatically. The economy will thrive.

    David in Liberty

  • Report this Comment On December 07, 2012, at 5:05 PM, slpmn wrote:

    mdk0611 - I don't know how many subs we build each year. But the cost of one equates to a year of nursing home care for 52,000 people. Its about perspective, and I think that is usually lacking in the budget debates.

    That said, what is happening in DC is almost restoring my faith in politics. The Cliff is doing exactly what it was supposed to. They are going to make a deal that involves the balanced approach, and that would not be happening without the cliff.

    I would like to see entitlement reform, and we are going to. I would like to see defense cuts, and we are going to. I would like to see some revenue increase, and we are going to. These guys all agree on about 90% of it, the barrier has been the tax pledge and that is falling apart.

  • Report this Comment On December 07, 2012, at 5:11 PM, mdk0611 wrote:

    You have more faith than I do.

  • Report this Comment On December 07, 2012, at 5:11 PM, rdub76 wrote:

    Cut out education and training: -$139B

    Take away income security (welfare): -$580B

    Do away with transportation: -$103B

    Gone are Commerce and housing: -$80B

    Get rid of community development: -$32B

    DOE out the window: -$23B

    Stop agriculture subsidies (farmer welfare): -$19B

    Just that cuts $454,000,000,000 out. All things the federal government has no business being involved with. If you dig into the Justice outlays and get rid of the drug war you'll net a few billion more. Trim the defense budget by stopping immoral wars with no clear end game and thats a few billion more. Cut back unemployment benefits to the 26 weeks that worked just fine and you got yourself a few more billion. Stop sending foreign aid to countries that hate us, pocket those billions. Pretty soon you got yourself a sustainable budget and people are less dependent on the system and the tax burden is decreased across the board with revenues going up because it is shared over a broader segment of society.

  • Report this Comment On December 07, 2012, at 5:17 PM, rdub76 wrote:

    Also NO ONE for any reason should EVER get a tax refund for more than they paid in.

  • Report this Comment On December 07, 2012, at 5:17 PM, DukeTG wrote:


    I am a big fan of Planet Money's economic platform (and I totally would have voted for their fake candidate). I would wholeheartedly support a move to a consumption tax (one somehow implemented progressively) and away from income. But note that one of their bullets (eliminating the corporate income tax) is premised on the idea that if you want to tax rich people, tax the people not the corporation (something I also support).

    I understand the argument that risked capital deserves special treatment, but I don't think I agree with it. How much of that capital is actually being applied to something that we want to incentivize? Is it going towards starting a business or is it going towards making money off arbitrage and high frequency trading? How much incentive should you really get for having a ton of money in stock and getting dividends every quarter? I'm all for doing that, but I have a hard time seeing that you should get taxed at the rate of someone making $20k a year. And if you are risking capital in a venture that deserves the benefit of an incentive, the chances are your reward for doing so will be greater than if you just had a job and earned income. I don't think the government needs to give you a tax break.

    The way I see it, if we're going to tax income, then by god let's tax income and tax it fairly. With the government saying that you get taxed less if you invest, sure they are encouraging savings and in some cases job creation, but they are also saying, "if you make your money at a 9-5 job, you're kind of a chump, and your contribution to society is less valued." I have a hard time reconciling that. A common complaint about government is that they're too often in the business of "picking winners". This is, to me, another example of that.

    Finally, note that S-B would lower ordinary income tax rates (I think it's highest rate was 28%), so unless you are extremely rich already chances are you won't see a huge increase in your actual tax bill.

  • Report this Comment On December 07, 2012, at 9:51 PM, irvingfisher wrote:

    where's the capital gains tax deduction, corporate welfare, and dividend tax cuts?

  • Report this Comment On December 08, 2012, at 8:25 AM, Mathman6577 wrote:

    It's simple math (and common sense). If they cut all spending by 10% across the board and eliminated half of all deductions the deficit will be reduced by 700 billion (> half of the total).

    Next year do the same. And the year after. And the year after .... it requires a long-term solution.

  • Report this Comment On December 08, 2012, at 10:18 AM, rd80 wrote:

    I think you've said a deficit of around 3% is sustainable in previous articles. That would be around $480 bill. You list a deficit of $1.3 trillion, so, rounding, we need to close about $800 billion.

    Cut the listed budgets as shown below:

    SS 40

    Def 72

    Inc Sec 163

    Medicare 24

    Medicaid 91

    Ed/Trng 139

    Trans 10

    Com & Hous 40

    Justice 6

    Int Aff 6

    Res/Env 4

    Comm Dev 32

    Gen gov 3

    Sc/Sp/Tec 3

    Energy 6

    Ag 2

    TOTAL $640 billion.

    That's a default 10% cut except SS & Medicare only get hit 5%, Income Sec goes back to its historical norm, Medicaid goes half way back to its historical norm, vet benefits and interest aren't cut and some lines take bigger hits or get zeroed because there are a lot of things the fed gov has no business doing.

    That leaves $160 billion per year in revenue to close the gap.

    Start by eliminating tax breaks for muni bonds, state and local tax. We're almost half way there.

    Your chart doesn't show how much you'd get from going back to taxing dividends as regular income and doing something like extending the holding period for long term cap gains, but add those in and put a cap on the total amount of deductions and we should be pretty close.

    I don't like a lot of the things on this list, but I think it at least gets us close. The wealthy would shoulder the bulk of the revenue increases, but I think there's some sacrifice for nearly everybody in there.

  • Report this Comment On December 08, 2012, at 12:06 PM, mscott2003 wrote:

    Why isn't the cost of Congress ever listed in any analysis of Debt. Not necessarily the sitting Congress but all Congress cost for "retired" members. I believe that this is a significant number.

  • Report this Comment On December 08, 2012, at 12:10 PM, mscott2003 wrote:

    Don't touch Social Security. That is money that the Government took (non-voluntarily) from us. Now they need to give it back with interest.

  • Report this Comment On December 08, 2012, at 12:15 PM, ichabod61 wrote:

    I feel that one important cost may not be included unless it was part of General Government. How much could be saved if Congressional benefits were deducted from their salaries?

  • Report this Comment On December 08, 2012, at 12:16 PM, TMFMorgan wrote:

    <<That is money that the Government took (non-voluntarily) from us. Now they need to give it back with interest.>>

    The problem is "us" is actually "you" (and me, and everyone else who pays taxes ...)

  • Report this Comment On December 08, 2012, at 12:17 PM, TMFMorgan wrote:

    <<Why isn't the cost of Congress ever listed in any analysis of Debt>>

    It's on the list. "General government."

  • Report this Comment On December 08, 2012, at 12:24 PM, chesswino wrote:

    I'm neither an economist or an accountant. But we need to agree that if they don't at least start going in the right direction they all (Dem. & Repub.) should be voted out. It is the only real pressure they have to act in our interest.

  • Report this Comment On December 08, 2012, at 12:27 PM, nickwtl wrote:

    For the fans of massive cutting of government services and spending might I suggest you take a close look at any european country currently engaged in sado-masachistic austerity drives. Austerity is causing massive and rapid contractions in their economies resulting in increased unemployment, higher welfare payments and misery all round.

  • Report this Comment On December 08, 2012, at 12:40 PM, shawnkalin wrote:

    It looks like 'debt reduction' is impossible.

    However, it's likely that a new western or even global currency will evolve this decade.

    So that will change many, many things about our finances.

  • Report this Comment On December 08, 2012, at 12:47 PM, Nalltheway wrote:

    How do you make a fire bigger? You give it more combustible material to consume. Thats what happen to china when we gave them our manufacturing sector. So now they collect ever growing huge deposits of commodities and make more products to sell to the world. How about exposing more U.S. government land to drilling and expediting the time it takes to get leases approved. We have trillions of dollars of resources waiting to be tapped. This alone will put kindle on the fire and allow the government to collect more taxes and justify printing more money and it will pay off the national debt. That's what you call making money on the front end and we can still work on reducing government spending on the back end. Lets work on both!

  • Report this Comment On December 08, 2012, at 12:59 PM, Morgana wrote:

    We have a tax revenue problem. . . Not a spending problem. Check history.

  • Report this Comment On December 08, 2012, at 1:06 PM, rrr3511 wrote:

    Defense- cut 50 billion, bring our troops and equipment home and put more of the burden on other countries.

    Income Security- cut 580 billion, welfare does not work, never has never will

    Medicad-cut 361 billion, should be covered by Obamacare

    Education and Training-Cut 139 Billion, let the states and local governments handle this

    Transportation- cut 103 Billion, leave this to private industry

    Commerce and Housing- cut 80 Billion, too much government assistance for too many people

    International affairs-cut 20 Billion, no need for us to provide assistance to the world when we are broke

    Resources and Environment-Cut 43 billion, we should be making money off our resources not spending money

    Community Development-cut 32 billion, leave this to the states and local governments

    General Government-Cut 10 Billion, make federal employees pay equal to private pay and eliminate federal pensions, everyone should be contributing to SS

    Energy- Cut 23 billion, we should be making money on our energy not paying for the energy our country has, we have more energy reserves that any other country.

    Agriculture-Cut 19 billion, you don’t see poor farmers anymore.

    Total cuts 1,460 billion, now we are back to surpluses

  • Report this Comment On December 08, 2012, at 1:17 PM, gael72 wrote:

    exp 20.1 less tax 17.9 def 2.2. eliminate and reduce as follows .19 science and space;.20 general gov,t;.20 commerce dev;.35 international affairs;.87 education training(should be given back to the states) and reduction of .4 in defense spending. The idiots in Congress should of been to resolve so now lets just cut out the fat. Eliminate the staffs of Congressmen and Senators so they have to do their own work and then maybe something will get done. The house and senate think they are on vacation l

    Lets get the job done.

  • Report this Comment On December 08, 2012, at 1:20 PM, cfravel wrote:

    I like the thinking, Morgan. A lot of these articles turn into arguments about the facts in the article, so instead just provide the figures and ask for the analysis.

    My own opinion: the fiscal cliff was the right idea. Make everyone contribute to balancing the budget, across the board, both privately and publicly.

    Its only real failing was that it proposed too big a change, too fast, thus scaring people. A graduated approach might have been smarter. Personally, I'd prefer even bigger cuts. I'd rather take pain now than postpone it into the future. But that's just me.

    Also, taking the slow approach means that it will take longer to see if the solutions work. During that "wait and see" period, the problems might accelerate.

  • Report this Comment On December 08, 2012, at 1:29 PM, Rudyescher wrote:

    before Obama broke social security by lowering the payroll deduction by 2% a 1% increase would have funded social security indefinitely. This is from the SS annual reports.

    Social security must pay for itself for it to work. Therefore it should be broken out of the table and balanced accordingly by raising the SS taxable income by the change in median income every year and by increasing the total paid by employers and earners. That is fair. the Republican solution of robbing the average wage earners 401K income after retirement to pay for medicare and ss is a major swindle of the middle class. Reference the Coker plan December 2012.

    Then increase taxes on wealthy, institute a wealth tax on Billionaires who escape the income tax by not drawing large incomes. Warren Buffet is a good example. His salary is less than his secretary's salary.

    Corporate taxes are obviously too low they should at least equal income taxes. This is not well known. I have voted republican for every election since Nixon, and obviously after looking at these tables I was wrong.

    Remember when Reagan took office the marginal rate was around 70%, he lowered it to 35%, with graduated rates higher than now. He also had the largest tax increase in history by eliminating the deduction for interest on all loans except homes. That's right car loans, credit card loans, etc. he balanced the budget through the largest increase in taxes on the middle class. Now it is time to raise the taxes on the wealthy who have hoarded their take over the last 20 years.

  • Report this Comment On December 08, 2012, at 1:31 PM, jmarkstockton wrote:

    it seems some fairly simple actions could balance the budget:

    1) remove the cap on social security contributions. that should provide for SS solvency into the future

    2) drastically reduce the defense budget by closing bases abroad and bringing our troops home

    3) restoring the pre-bush tax rates to the higher income brackets

    4) receive competitive rates for the leases of our public resources - oil, gas, mining, etc - that is stop the give away of public assets to provate corporations

  • Report this Comment On December 08, 2012, at 1:44 PM, Rudyescher wrote:

    Remember any program that you cut has trickle up effects, less revenue and higher unemployment payouts. Cuts are not really possible at these numbers the only way to raise revenue is to tax those who benefit from America's freedoms, the super rich.

    Those worth over one billion dollars.

  • Report this Comment On December 08, 2012, at 2:02 PM, wisterialane wrote:

    Have no maximum on social security and medicare tax on income.

    Make social security and medicare needs based. Don't cut these benefits for those who need them most. Social security was set up to help the elderly who had no income. It was never meant to be part of a retirement plan for everyone.

    End all business tax deductions and lower tax rate on business. Every business should pay the same rate.

    Limit individual tax deductions based on income.

    Get control over health care costs paid by Medicare and Medicaid. 60% of all health care dollars are spent in the last 6 months of a person's life. Why do we extend the life of those with terminal illnesses. We need to offer more palliative care and less tests/procedures that just prolong the dying person's suffering. Let's make palliative care a priority for those with medicare and medicaid. If one has private medical insurance, be my guest and prolong your suffering. I, for one, do not want my suffering to be extended at the end of my life.

    Cut military spending. There is too much waste.

    Make our schools more responsive to the needs of employers. Lets give our youth the skills they need to get good paying jobs. Not everyone needs to go to college. Changes need to be made at all levels of education. Let's brainstorm about education. What we have now is not working. Do we really need college level courses in history, geography, humanities, etc.for everyone? These courses do nothing to prepare people for jobs. I value education but people need jobs, not education for educations sake.

    Let's be more open minded about health care, education, and entitlements. We can no longer be tied to what may have worked in the past. The world has changed and we need to change with it.

    Let's put an end to the private education businesses who waste tax dollars. Tax dollars could be better spent on making sure those who get tax dollars for education are really getting an education that will train them for jobs.

    I don't have all the answers and no specifics but I'm not an expert. All I know is what makes sense. Let's go to the experts and let the dialog begin.

  • Report this Comment On December 08, 2012, at 2:21 PM, rattler15 wrote:

    1st - Return to 2006 spending levels. $2.7T

    2nd - Eliminate the automatic 8% +/- budget increases (Base Line Budgeting)

    3rd - close Dept of education (all they do is consume $ and teach no one) -$.09T

    4th - 7th Close Depts. of Energy (they haven't produced any oil), Depts. of agriculture, EPA, and Science. These Depts are bloated, ineffective, and strangle honest hardworking Americans. -$.08T

    8th Reduce spending 2006 levels 10% across the board -$.16T

    Total Spending Budget $2.52T+/-

    Income $2.47T +/-

    Balanced Budget within the margin for Error

  • Report this Comment On December 08, 2012, at 2:57 PM, snoswell wrote:

    Most solutions posted here call for significant cuts in spending (defence etc). This would create a massive jump in unemployment, increased social costs, less tax revenue and other negative flow ons that shrink the economy and increase costs. Hence cuts can't be dramatic, nor can increases in tax for the same reason. I'm not a economics expert but shouldn't this budget include policy changes that stimulate economic recovery, increase productivity, encourage foreign investment etc be included here?

    And whilst spending 80% of attention on the solution is best, it staggers me that the country got into the situation where spending is over 50% greater than the income in the first place. Given control on the Hill has been in the hands of both Dems and GOP in recent years then once the initial agreement on the budget is in place, measures need to be put in place that don't allow this to happen again (eg Bills that push spending beyond, say, 20% debt simply can't be passed).

  • Report this Comment On December 08, 2012, at 3:14 PM, BuckBucks wrote:

    The dollar columns are the most useful. the % of GDP and average % of GDP columns would only be of intrerest to policy wonks or persons comparing the US with other countries. The bottom lines on the dollars are that we are set at $2.47 trillion of income, so ignoring the desperate need for total tax reform, that's what the spending should be capped at. Since the spending chart shows $3.8 trillion, we should cut spending down to $2.47 or lower, to match current income. As for the idea of "lost income" from tax deductions, it proceeds from the concept that the money belongs primarily to the goverrnment, not the earner. This is a false premise, and a poor starting point for fixing the broken system. National defense needs to be cut drastically, as we are not engaged in any wars. (Congress has not declared any wars lately.) the only national defense we need right now is a strong border patrol, and Coast Guard. Other savings can be made by reducing or elimating areas where the government has no business or mandate, such as "income security" healthcare, housing, community development, and agriculture, to name a few. The needed cuts are possible, but not likely, because of the lack of term limits on elected officials.

  • Report this Comment On December 08, 2012, at 3:22 PM, carjjc wrote:

    It is clear that the any proposed solution will have organizations that dont agree. Having said this I support many of the government programs and do not feel like cutting them. I somewhat benefit from military spending and would support gradual reductions in that budget.

    Motley Fools have published information showing that raising or lowering taxes do not have a direct effect on what the economy did just after the raise or cut.

    So first of all I am ok with my taxes going up. I make quite a bit less than $250k but I do ok. I believe if we are going to fix this and the debate is so difficult then lets fix it now. And we can. Increase the rate of the high earners. I am ok with an increase to 45% for the highest tax bracket. But i would prefer several a 70%, a 60% and a 50% and then 40% and then the lower ones. We have given money away to the high earners and we should not have. This tax system will let the high earners pay for the government they use. And the high earners and corporations use a lot of the government. We should then reduce loopholes for high earners and corporations. Then we should phase out some of the deductions for all of us.

    If we chose to tax the poor and middle class or the equivelant of reducing their take home pay the economy will not recover. At this time we need for the poor and middle income pay to increase to increase demand. The approach I outline above will put the government on sound footing and go a long way to helping the working class in this country get their fair share and then they will spend it and the rich will still get richer. And I like this because it is more likely that everyone will win in the end.

  • Report this Comment On December 08, 2012, at 3:35 PM, MaryRoyston wrote:

    In addition to cutting Congress benefits & salaries, to at least be equal to what the Govt employee has, tell them that all days off and/or vacations are cut until the Fiscal Cliff issue is resolved and resolved fairly, not just a quick-fix so they can go home. We put them in office to serve us, not themselves!!!

  • Report this Comment On December 08, 2012, at 5:15 PM, Laramie09 wrote:

    I see two problems here. One is that even the MF contributors here, who are arguably the most logical, least emotional investors in the world, seem to have lost their numeracy. That is, it's all well and good to want to dock Congressional pay and benefits for days not spent "in the office," but that amounts to a laughably small fraction of the problem, so we end up being penny-wise and pound-foolish. Second, it's not obviously easy for citizens to know how they benefit from one or another government program. I'm in the government, and I know that if I were allowed to specify how my office contributes to national security, most taxpayers would agree that the relatively small expense is worthwhile. And yet, I notice that a number of contributors above would completely wipe out my organization. They're certainly entitled to their opinion, but they're not informed. At least the Congressmen and Senators on my authorizing and appropriating committees do have that important contextual background for their decision-making.

  • Report this Comment On December 08, 2012, at 6:09 PM, Saberair wrote:

    Your article makes a very convincing argument for President Obama's case. If you cancelled all deductions you get $654 million, which doesn't get you close to a balanced budget. Ergo, you must raise revenue, no matter what anyone says..

  • Report this Comment On December 08, 2012, at 6:22 PM, TMFMorgan wrote:

    ^ Keep in mind, those are just the top 10 deductions. There are hundreds, maybe thousands, more (though significantly smaller).

  • Report this Comment On December 08, 2012, at 6:52 PM, mize30 wrote:

    Eliminate federal agencies such as Agriculture, HUD, Education, anything that the states can do for themselves. Block grant 80-85% of that budget to the states based on population and let the states do what works for them, saving money via better efficiency and getting more benefit for the same money. Eliminate all federal subsidies and allow the states to subsidise what they think works best for their state (I doubt there will be many). Local voters can much better decide and get involved. Ask every agency left under the federal government to cut their budget by 10% (waste is probably far more than 10%, this includes defense). We have to address Social Security and Medicare and raise the age of elegibility. Repeal Obama Care and look at a system that addresses the 18-30 million uninsured at a much lower cost than Obama Care. Lower the Corporate tax rate to 20% and offer a one time 15% tax rate on repatriating profits held outside the US. This would bring in $150-$300 billion just as a one off and pump $1 - $2 trillion into the US economy (one hell of a real stimulus) from the corporate sector right into the public sector not from the government to the public sector (Peter to Paul you might say.). Replace the entire tax code with a Fair or flat tax where we prebate taxpayers an amount equal to 110% of the poverty rate based on family size (recalculated annually) and eliminate virtually all deductions. This would eliminate estate, dividend, investment taxes all together and stop punishing positive behavior.

    Long term solution to Social Security would be to privatize Social Security. This will have to be done over a 20 year period which will be a trasitional period from the existing progam into a mix of the old and the new to only the new. First start by having 5% of contributions per year going into the new personal SS account (10% the second year, 15% the third year and so on.) (these accounts would be the personal property of the contributor and could not be touched by the government. They could be left to future generations to be added to their personal SS account for when they retire.) Over time as more people on the old system died off there would be a transition to the new system. Under the new system 95% of all future contributions would go into your personal account and 5% would go into a safety net program to provide for the truely disabled. Investment accounts should have investment options similar to the way most 529 college savings plans are set up. People would be able to make up their own mind as to how much risk they would like to take by investing in diversified models 80/20 equity/fixed income all the way down to 100% fixed income or money market.

    (Most people don't know that the S&P500 has returned CAGR of 9.09% from 1929 - 2011, an 82 year period that included the great depression, world war, terrorist attack, high inflation, high unemployment, many recessions, booms and busts. We need to stop scaring people away from this type of approach by calling investing in the market just gambling.) After age 50 the maximum risk allocation you should be able to take on would be a 60/40 equities to fixed income allocation to safeguard a huge loss in the years right before retirement. The plan administrators should provide long term estimates on portfolio growth and a range of likely valuations at various retirement ages to help people make informed decisions on how to allocate for the 40-50 year investment period. People should be given the option to buy an annuity (or several for diversification purposes) or invest in an income allocation and decide on if they want to draw down principal based on their projected life expectancy. Eventually there we could eliminate almost all of the Social Security expenditures from the federal budget and people would be able to provide for themselves with a legacy effect over many generations. Eventually we may be able to eliminate most of the Medicare expenditures as a result. There are many ways of fixing the problems we have allowed our representatives to create but we have to get serious about the cuts and fixes and stop the class warefare.

  • Report this Comment On December 08, 2012, at 7:23 PM, ethwc wrote:

    Several things appear appropriate to me:

    1. Increase income taxes for all payers. The super wealthy neither have enough nor are the sole accountable agents for balancing the budget.

    2. Change social security both age at receipt and indexing for income level

    3. Charge social security withhold on income to include bonuses, percs, and income to $250,000

    4. Cut DoD by 10 percent

    5. Any future wars should have mandatory increase tax rates for duration of the war. It is neither fiscally responsible nor moral to wage war on borrowed money as we have done since the Viet Nam debacle

    6. Cut most corporate subsidies except for those involving evolving technology in which it may be responsible to help them become economically viable. Petroleum subsidies should have been eliminated decades ago. Ethanol subsidy is well past its value.

    7. Reform Congressional, Executive, and Judicial pensions, health care (after they retire or are "fired") to conform with what is available in the private sector. What other employer gives excellent health care and pension to employees who depart after as short a tenure as two years?

  • Report this Comment On December 08, 2012, at 7:30 PM, KunoUKnow wrote:

    1) Lets start with defense spending which has almost tripled since 2001. Excessive defense spending is a symptom that something is out of balance with common reason and the killer of all governments.

    2) A flat tax on all citizens closing all loopholes and get rid of the IRS.

    3) Get rid of Obamacare before it gets deployed and let the medical industry compete for your health care.

    4) Get rid of entitlement programs that inspire laziness. There is a reason the sign says, "Don't feed the animals." Teach men to fish for their meals.

    5) Increase the maximum paid into Social Security. This will not affect the backbone of America.

    6) Term limit the politicians. They are the real problem.

    I could go on and on

  • Report this Comment On December 08, 2012, at 7:42 PM, DSL102 wrote:

    Do the math: Medicaid and welfare (Soc. Inc. security) alone add up to $941 billion. That is a problem as it far surpasses Soc.Sec. and Medicare together. Those receiving Soc. Sec. and or Medicare have already contributed to those programs. Current seniors (those who are in their late 70's, 80's and 90's are the winners because their contributions were based on 1%-2% of a salary that may have been $25.00 per week during the '50's and maybe $10,00.00 annually during the 1970's. Being in business for myself, I have paid as much as 18% into Soc. Sec. alone. My mother-in-law lived on Soc. Sec. for 36 years and I estimate that she collected well over $300,000. She retired in 1972 so you know she did not make a large salary prior to retiring. If I take Soc. Sec. at normal retirement age, I will get back what I have put into it in less then 5 years. Then my check is covered by someone else's contributions which I don't think is fair. Are you aware of 20 somethings today collecting Soc. Sec. checks for disabilities. I know several of them. These were not in the original program either. The numbers don't work and the system is broken. On the other hand, my husband has paid the max. in for over 6 years, but he needs to live until well into his 90's to recoup what he paid in.

    ObamaCare (as it has been dubbed) "borrowed" $700-$800 billion from Medicare and put it in Medicaid to fund his new program. Hidden in this " healthcare program" is a clause that limits how much liability the gov't. sets on each person. It states that the recipient pays the first $12,000. then the gov't. pays up to $96,xxx.00. You don't get much for $96,000. when it comes to medicine. If this is such a great program, why has Congress and their families been forever exempted?

    Are you aware that this "health care bill" also gives the gov't. the right to make electronic withdraws from your bank accounts.

    Want to save money? Cut the amount of people working in the White House.

    No "retirement package" for the President--you don't retire after serving only 4 or 8 years. Look up Harry Truman and how he lived out his retirement from the presidency.

    Congresspersons should not collect retirement after serving one term (that would amount to $60,000.00 per year per person.)

    Senators and Congressmen/women should be paid by their respective states so that they truly work for that state and not the Federal gov.

    Reform the tax code to simplify it--like everyone pays 5%-10% of income. Those earning low wages then have "skin in the game" and they should then feel that they are contributing to the success of their country instead of weighing it down.

    Stop giving billions in foreign aid to countries that work against the U.S.

  • Report this Comment On December 08, 2012, at 8:09 PM, TMFDarwood11 wrote:

    I really think it's simple. There are a lot of ways to do it. I could give a dozen different scenarios, but here is one, which is sure to upset everyone:

    1. Encourage saving with a realistic benefit package. In other words, if you want to live well in retirement, you will have to save for it, and SS will be a supplement. If you choose to use SS and Medicaid as your primary packages, well, you can expect to live on beans in a small place with third class medical care (no heart or kidney transplants, no free motorized scooters or incontinent supplies delivered to your door at taxpayer expense, etc.)..

    2. Everyone below FRA who has any income pays income tax, EVERYONE. If you are below 66 you will pay the minimum percentage or higher on your combined income from wages, capital gains, dividends, etc. including SS for self employed per federal income tax tables. No longer escape taxes and SS.

    3. Raise the retirement age (FRA) for any SS retirement benefits to 66. No more early retirement at 62, unless you are willing to pay your own way until 66.

    4. Eliminate earned income credit.

    5. No cap on SS or Medicare taxes. You pay on every dollar earned by any means, or stolen.

    6. Lower the benefit for Medicare and raise the premiums to cover the costs. The average benefit per year is about $9200. A lifetime benefit limit makes sense. If you want unlimited coverage above a specific figure, you should pay a higher premium to get that benefit.

    7. All government workers get benefits at a commensurate to national private worker averages.

    8. Politicians who retire or quit get the same benefit package as every one else. No free health or dental care forever, no limos, etc. As a "public servant" you agreed to serve, not to use public office to collect.

    9. Eliminate all double dipping for public employees of all stripes.

  • Report this Comment On December 08, 2012, at 8:57 PM, herky46q wrote:

    A good start would be a spending freeze across all areas of government spending.

  • Report this Comment On December 08, 2012, at 9:04 PM, Foolish08 wrote:

    1. SS and Medicare and a necessity for our older generation who did not get the chance to invest in IRA's or 401K's. If they did recieve a pension it based on a much lower wage base than our current workers. It must remain strong and solvent. So why the payroll 2% reduction to SS which is in financial trouble already (paid for with more governtment debt) So first step is to eliminate the payroll tax reduction and review the studies that have already been done to implement a plan that keeps the program solvent and self funded.

    2. Reduce government waste - government does not pay a premium price for goods or services.

    3. Equity in the ranks -- equal pay and benefits for government employees verses private sector. Most companies do comparisons with others to keep them average.

    4. IRS -- enforce tax rules and collect unpaid taxes. That is why they are their. The uncollected revenue is maybe on the list, but I don't believe it is.

    5. Corporate taxes: They are getting a break already by the numbers. I believe MF put out an article that shows the corporate revenue today is much lower than in past years. How can a GE not pay any federal taxes? Overhaul the corporate tax system and minimize Wall Street control over our economy.

    6. Everyone who lives in the US recieves services, so therefore should pay some tax and should never get back more than they paid in.

    7. Develop straight tax system. There is enough information in our current database to determine what tax rates are needed to balance the budget and fund all of our petty needs.

    At the end of the day, we need our elected representatives to start running the business without outside forces impact what they do -- the right thing. Let's ensure that the next generations have a world to live in that is safe with better opportunities than we have today.

    We are the richest country in the world with young mouths that are hungry, homeless veterans, people without health care, etc., etc., etc. Let's get it right.

  • Report this Comment On December 08, 2012, at 9:10 PM, missbaysdaddy wrote:

    Foreign Aid gone no more until be are debt free.

    EPA gone shut down put in the control of each state to keep the environment fit to live in and or around

    IRS gone and a flat tax across the board for businesses and individuals of 15 percent of gross income. Individuals that make less than $24,000.00 per year are exempt from paying income taxes. Everyone will get the first $24,000.00 tax free including businesses. They will still pay taxes on items they purchase in the form of sales taxes. Reduce the staff of the IRS by 75% and those people that were let go will now be working for the Department that searches out fraud. Each person will be assigned cases of suspected fraud to research and if fraud is found stop it on the spot. After one year on the job if you have not found any fraud this is not the job for you and your pink slip will be along shortly. The remaining IRS personnel that are left will keep track of the flat rate taxes owed to the Government.

    FEMA gone and half of their budget will be divided among each of the 50 states based on population in that state. The National Guard will be assigned to help out during any and all disasters within their state.

    Federal Reserve gone and we go back onto a gold and silver standard to back our money supply.

    Post Office will only deliver mail 3 days a week. Monday, Wednesday and Friday. You need your mail on Tuesday, Thursday or Saturday you go to your local post office and ask for it. All mail employees will work 3 12 hour days and one 4 hour shift where ever needed. All vehicles owned by the Post Office will be switched over to run on Compressed Natural Gas and the Gas supply can come directly from Government Land so the cost will be as low as possible.

    Social Security anyone 50 and over no change. People 49 and down will have the full retirement age increased to 70 with the minimum age to start drawing set at 65 not 62. All money collected for SS will be put into a National Trust Fund and used only to pay SS benefits.

    Dump Obama Care and let Medicare continue to take care of people.

    Medicaid check every case for fraud and look for ways to reduce spending. I know of cases that could be done better and for much less money.

    Food Stamps can only be used for the basic needs to keep people fed. No alcohol, no cigarettes, no Tabaco of any kind.

    Stop the drug wars overnight by making all drugs legal by prescription run it like a business just like alcohol.

    Secure our borders and deport all illegals.

    It is time to get our country back on its feet and self sufficient.

  • Report this Comment On December 08, 2012, at 9:27 PM, NOTvuffett wrote:

    These are the numbers that concern me:

    I looked up the current population of the US as about 314 million people for use in these calculations. Morgan reports federal spending for the ending fiscal year as $3.8 trillion. Dividing by 314 million yields about $12,102 for every man woman and child.

    Similarly, revenues of $2.47 trillion divided by population works out to about $7866 per person. So this gives a deficit of about $1.33 trillion, or about $4236 per person for the 2012 fiscal year.

    Deficits for the foreseeable future are projected to be $1 trillion+. The per person loan per year to maintain these deficits would be about ($1 trillion/314 million) = $3185.

    Morgan lists net interest as $225 billion for 2012 which works out to about $717 per person per year and would continue to grow as debt is continually added. There is also just about zero chance of interest rates remaining at the low rates where they are now.

    I don't have the exact figure in front of me, but I believe that the total federal debt is about $16.3 trillion. That would work out to about $51,911 per person. The GDP figure I looked up was about $15.1 trillion. This figure may be a little dated, but it is in the $15-16 trillion range, so we are already at 100% debt to GDP ratio, not far behind the "basket cases" of Europe.

    It is not possible to just tax our way out of this mess. Govt. budgeting should be like household or business budgets. We need to look at available resources, prioritize our needs and allocate funds accordingly. And I am not trying to imply that we can fix this mess without revenue increases, but it is foolishness (the bad kind) to think it can be done solely on the backs of the rich.

    Just for the sake of completeness, I am not some wild-eyed ideologue that believes the nation should never take on debt. Here is a famous quote that I agree with:

    "A national debt, if it is not excessive, will be to us a national blessing."

    Alexander Hamilton

    The only problem is that we are way past excessive.

  • Report this Comment On December 08, 2012, at 9:34 PM, TMFMorgan wrote:

    <<Deficits for the foreseeable future are projected to be $1 trillion+.>>

    According to who? I'm not a fan of budget forecasts (they're always wrong), but here's the current OMB deficit forecast:

    2013: $901 billion

    2014: $667 billion

    2015: $609 billion

    2016: $648 billion

    2017: $612 billion

  • Report this Comment On December 08, 2012, at 10:04 PM, NOTvuffett wrote:

    Morgan, I am no fan of budget forecasts either, and I am always suspicious of the OMB numbers even though they are supposed to act on a non-partisan basis.

    You will note that if deficit (actual) for 2012 is $1.33 trillion and (projected) for 2013 is $901 billion, that is almost exactly a predicted drop of one third. Similarly, the projection for 2014 is almost exactly 3/4 of the 2013 projection. The rest of the numbers are devoid of any meaning, just projected signal noise basically, lol.

    It would be interesting to see the OMB's methodology. Anyway, I guess we'll know at the end of this fiscal year.

  • Report this Comment On December 08, 2012, at 10:29 PM, LLIHOTZ wrote:

    I previously mentioned that I thought "income security" indicated payments for the unemployed. So while these folks sit home getting further depressed, at least they don't lose everything because they are not working. But instead of this, if there was a stimulus for infrastructure rebuilding which is sorely needed, eg, the electric grid failures in NYC, Boston, San Diego let us know we are at capacity; roads crumbling and bridges collapsing (highway bridge in Missouri in 2007 is the most well known); renovating the ancient rail system, it's time to act. Rather than doling out unemployment, wouldn't it be better to put people back to work doing something the US really needs to be done, then they'll be paying taxes again, increasing Fed and state revenue, filling back up the "income security", social security, state/local taxes and Medicare coffers.

  • Report this Comment On December 08, 2012, at 11:49 PM, JBKirtley wrote:

    All I know is this:

    In my household, we do not base our spending plan on a percentage of our employer's earnings. We base it on net pay. So we have 3 rules and 7 bits of wisdom which guide us.

    1. The first rule of budgeting is to avoid spending more than you have.

    2. Never forget rule number one.

    3. Spend for necessities, debts, and wants. In that order.

    4. Make do, do with less, or do without if need be.

    5. On any given day it will not hurt just about anyone to lose 20 pounds, 20 bucks, or 20 minutes. Adjust your attitude accordingly.

    6. Doing more with less is not the same as doing without more.

    7. The pay of an honest job is honorable.

    8. Six days shall you work and on the seventh you shall rest. If it ain't dark, the day ain't over.

    9. "Can't" never could do nothing.

    10. Never worry about your station in life, someone on the train is always willing to tell you where to get off.

    So, with these things in mind, I suggest these rules and bits of wisdom for our government.

    1. Base your budgets on revenue collected instead of percentages of GDP projected.

    2. Earmark a consistent percentage of revenue for debt retirement until the debt is paid Then do not borrow or print one more cent.

    3. Accept that there is no such thing as a debt ceiling there is only a budgetary limit.

    4. Understand that feeding starving children is a necessity, feeding starving artists is not.

    5. When many people say they can't, they really mean they don't want to.

    6. What good is greasing the squeaking wheel if all the other tires go flat?

    7. Give and take is compromise. Give and give is charity. Take and take is robbery.

    8. Only cattle know why they stampede. Same goes for voters.

    9. A day mucking stalls makes the hayloft smell sweeter.

    10. "We the people..." isn't just for the winners. Govern accordingly.

  • Report this Comment On December 09, 2012, at 12:25 AM, SkepikI wrote:

    So how many of the above "we have a revenue problem" and "the uninformed want to cut my great program" purveyors would want to increase taxes if it were to be pushed into a pile on the mall and set afire? Likely none that would admit to said program. Much of the discussion presumes the money is spent wisely, honestly and does not go back to "people" mostly wholesale, when in fact, a "bite" of graft, corruption, waste and outright cronyism happens somewhere between DC and YOU! Most budgets can be cut 5-10% with no serious deficiency except somehow, YOUR federal government. Does that not make you wonder, just a little bit? In the past 10 years many lean, efficient and productive businesses and individual citizens have managed to cut 10, 20 or more % of their budgets and stayed "in business" ONLY your government of the people, cant manage this...are you not curious about this even a little bit?

    Those who think this is a "Revenue Problem" need to experience Frugality first hand again, and perhaps that means another serious economic decline. I cant see another road as long as the agenda is centered on revenue. No more money down the ratholes... I say lets cut out the middle man and go after the rats as the bottom of the holes.

  • Report this Comment On December 09, 2012, at 2:12 AM, NOTvuffett wrote:

    I think the biggest problem is that govt. doesn't have the same feedback mechanisms that make business work. If, in my business, I misallocate resources, misappropriate funds, assume unsustainable debts and neglect the needs of the customers that I claim to service, I wouldn't be in business very long, and rightly so. In govt. these just seem a rite of passage to the "old boy's club".

    So many people here have made so many good points, it is impossible to do an exhaustive review of all points and give credit to those that first suggested them in the thread. Even those that made points that I fundamentally disagree with I think are worthy of debate. Every point here is worthy of debate, probably each enough for its own thread, but this is an impractical forum for that. This is what our legislators should be doing, having an honest and substantive debate instead of trying to influence public opinion via a media soundbite, or using political brinkmanship to roll over the adversary.

  • Report this Comment On December 09, 2012, at 2:51 AM, snapperreef wrote:

    There is no way to say certain items will not be cut. Yet I still think veteran's benefit should not be cut because of the service and prices they have paid to keep us free. And of course, interest has to be paid.

    As for what to cut that's left, I'm pretty much in agreement with rd80 and rrr3511. Those items at the bottom of the list are mostly pork projects. Having farmed for a living, I'd say cut all of the Ag aid. Of course this means the good farmers get bigger and the bad ones go broke. We have to realize that some people will suffer.

    Then we must cut the other programs equally across the board and be ready to control rioters and unpeaceful demonstrators.

    Seeing the latest news where a family of four must make >6

    $60k per yr to have after tax income of avg welfare recipient tells me how insane we have become. but making the cuts of rd80 and rrr3511 and then cutting the rest by 5-19% across board will do it.

  • Report this Comment On December 09, 2012, at 3:25 AM, Aquila7 wrote:

    Simple no one gets paid until budget balanced!

    No senator, no congressman, no bureaucrat of any kind gets paid, no cars , no jets no travel, no expenses. Nothing they do do exist until balanced budget! No parties nothing!

    The government a joke, unfunded ott the book liabilities $80 trillion dollars, whole government been smoke & mirrors for last 4 years!

    Public unions abolished, no payments to illegals, no paying people to have kids they can't afford, stop schools from being dinners serving 3 meals a day

    Stop electing idiots , require journalists to know something before they slant news

  • Report this Comment On December 09, 2012, at 10:25 AM, skeptic94 wrote:

    First, the US Central Bank needs to be nationalized. The system of having a private bank money cartel owning and running the US gov't is rediculous. This would eliminate 2 - 3 Billion in interest the Gov't pay the banks for using money the Gov't already owns. The commissions the Gov't pays banks for the Monthly Treasury bond purchases could also be eliminated, as anyone else can buy bonds commission free directly from the US Treasury.

    Then, eliminate the programs that are not the responsibility of Gov't, that are not purposed to defending the country.

    The fiscal cliff and deficit would both be fixed.

  • Report this Comment On December 09, 2012, at 10:27 AM, hudsondusters wrote:

    Cut all spending 15% across the board. Raise revenue 15% (yes taxes too, so 28% rate goes to 32.2, etc). That leaves a small deficit and ultimately growth (after an initial dip), will make up the difference and you can start increasing spending a little and cutting taxes a little again.

    Next problem.

    And yes, I would probably lower some deductions, cap them, but not all at once,pase some in. The mortgage interest deduction set a high cap, but don't eliminate that all now, as that would hit the housing recovery, which would really derail the recovery.

    In any event, this way, across the board increases in taxes and cutting in spending means the pain is borne equally by al interest groups, none would bear all of it and will keep some of their gravy.

    Something like this will happen anyway, but with a lot more horsetrading, and some lobbies will do better than others.

  • Report this Comment On December 09, 2012, at 10:33 AM, WhoisjohngaltMN wrote:

    Freeze spending at current levels. Phase out over 5-10 years all deductions so everyone makes decisions based on economic reasons and not tax write offs

  • Report this Comment On December 09, 2012, at 10:55 AM, Turfscape wrote:

    Boy, reading through all the comments has opened my eyes...I hadn't realized that solving the country's issues was so very simple. Many on this forum look to have bright careers in front of them on talk radio!

  • Report this Comment On December 09, 2012, at 1:06 PM, SkepikI wrote:

    IT IS simple! its just hard..... less outgo, less waste less fraud, less sending money to various groups via DC while taking a 10-25% cut of the money for "management" (I use the term loosely) OR just as simple but hard, take a 10% cut across EVERYTHING, particularly people, salary and benefits, then after a year raise those who have done more with less.... Several other strategies would work if WE THE PEOPLE just had the courage to implement them. And that takes yelling a lot at those who we put in control and electing those who will make it work. So far we are not ready to do this (at least about 50.8% of us are not) This means it will take a good deal more pain before we are...maybe another recession, maybe something worse.... I dont welcome it, but needs must. Secure for heavy weather ahead...

  • Report this Comment On December 09, 2012, at 5:41 PM, moonbuffer wrote:

    Why is there a cap on wage payments into social security?

    For 2012, the maximum taxable earnings amount for Social Security taxes is $110,100.

    These fat cats with 3 million paychecks are taxed at almost nothing as a percentage of their wages!!

    Take off this limit---raise the medicare tax to 2% for employer and employee---problem solved.

  • Report this Comment On December 09, 2012, at 7:22 PM, johndoe1400 wrote:

    Why not just raise Federal Sales tax - with a higher rate for luxury items ?

  • Report this Comment On December 09, 2012, at 8:21 PM, Quantemonics wrote:

    I don't agree with everything in tonight's article above, but there is more truth in it, than mainstream media is reporting.

    I can of figured this out about a year ago, that our democracy may not be up to the challeges ahead. Similar sentiment is spreading across the nation after the November election results.

    Of course I vote Libertarian, cause neither of the two main parties that created this mess have a clue how to actually fix things.

  • Report this Comment On December 09, 2012, at 8:34 PM, cswoosley wrote:

    Yes, remove the Social Security wage payments cap. Remove popular deductions for high income brackets (perhaps raise the income brackets to a higher amt than 250k-- seeking compromise). Raise the age on Social Security to 67 for those 40 and under. Gradually phase in some defense cuts that address inefficiencies, outmoded systems...ha! I think Americans want to hold our senators & congressional reps accountable for days off, etc...a review of their perks, etc. could be a good move for that reason. I think the wealthy, & itemizers in general, are adept at driving down effective tax rates, so, addressing deductions is needed...not that that brings in big money. It's but a part of the pie & perhaps another key symbolic move.

  • Report this Comment On December 09, 2012, at 8:53 PM, Quantemonics wrote:

    EVERY socialist-based society in history has FAILED. The whole idea that government knows best to feed the poor and disadvantaged has shown ZERO success in surviving long in the history books.

    Social security itself is an experiment begun first in Germany several generations ago, and has not entirely proven itself yet as sustainable long-term in any nation.

    65% of all U.S. government function and spending is now related to transferring income and wealth from one group that works to another that does not. Eventually our society will implode, perhaps in a violent revolution or civil war, as the burden on the those working becomes TOO GREAT. We may have already reached that threshold in late-2012.

    Higher taxes in 2013 may lead to the same problems as those in Europe for workers, mainly incentive for a larger barter economy and tax evasion. You cannot squeeze blood from a turnip. When you add up all the taxes for the average American, including sales tax, property tax, state and federal income taxes, the 15% paid for Social Security and Medicare on behalf of each $1 of earned income, gasoline and cigarette taxes, and soon taxes on taxes, the typical worker in America is already shelling out 40%-50% in total in taxes on income.

    While it may be true that "federal" income tax burdens as a whole may be lower now than a decade ago or two decades ago for some groups in the tax base, other taxes and madated fees have not slowed their growth trend. Total tax burdens in 2013 will surely set another record, and we need a further unhealthy 50% INCREASE in federal income tax "rates" on EVERYBODY to seriously start to reign in the deficit in coming years. (For example, moving rates from 28% to 42% for the high end.)

    The problem with doing such is it will implode the real world economy and business activity and consumer spending, pushing U.S. into greater economic calamity and even bigger socioeconomic problems.

    The FED believes HYPERINFLATION is the only way out of this debt mess, disregarding the short-sighted insanity of money printing ever greater PONZI amounts into infinity would impose the biggest effective "tax" on the working classes and poor than any other potential outcome from here.

    I have been screaming for several years, that we are shooting ourselves in the head following BEN's "experiment" of massive deficit stimulus spending funded by the FED's PONZI Treasury buying scam with no credible ending. In 6-12 months EVERYONE will AGREE with my analysis and be calling for BEN's incarceration for financial terrorism against the American people and this once great republic.

    A natural, economically necessary, and healthy Depression has morphed into a likely lethal combination of debt and money printing for American democracy and free market capitalism. BEN and Hitler have more than one thing in common, besides trying out experiments in insanity on mankind, both were also TIME Magazine Man of the Year. The more things change, the more they don't.

  • Report this Comment On December 09, 2012, at 10:11 PM, devoish wrote:

    "If our standard for minimum wages had kept pace with overall income growth in the American economy, it would now be $21.16 per hour.

    Yes, had the US income distribution and US standards of decency remained exactly what it was in 1968, the minimum wage would now be $21.16 per hour." -

    If the increased earnings for the 83,000,000 Americans who would get a raise if they had kept the minimum wage earners portion of income that a minimum wage earner had in 1968 the increased tax on the increased income of the poorest Americans would add $1,841,777,676,000

    in taxes collected on income up to the top of the 15% tax bracket.

    The portion of additional income that would be taxed at 25% would add $167,597,340,000

    The actual taxes collected would be increased by because I did not include the increased earning of the 25% of Americans making less than full time minimum wage income.

    The actual taxes collected would also be reduced because I did not take any deductions.

    And I would decrease the benefit to executives of simply raising prices to take the higher incomes of the poorest Americans away by raising prices and increasing personal salaries by progressively increasing tax rates up to 70% on the highest incomes.

    And after the budget is balanced and productive employees are paid, I would still cut the crap out of defense spending and tax investment income at the same rate as working income.

    I would also tax corporate/business income, not profits and eliminate the vast majority of corporate tax breaks.

    A minimum wage increase and increased top income tax would just about solve every single deficit problem in the USA.

    Best wishes,


  • Report this Comment On December 09, 2012, at 10:17 PM, devoish wrote:

    I wish I had time to rewrite that.

    Basically, if minimum wage was as good as it was in 1968, more than 60% of us would get raises, and the increased taxes collected within the 15% and 25% brackets would more than close the deficit.

    If the minimum wage had been indexed to earnings and increased regularly since 1968, there would be no deficit at all.

    Best wishes,


  • Report this Comment On December 10, 2012, at 7:42 AM, ladybug57 wrote:

    I am 73 and still work. If the money the government deducted from my pay, as well as what my employers paid, had been invested, even in a bank account, I would be sipped champagne on a sunny beach. The government stole my money, by raiding the social security funds for their run away spending. The politicians have not balanced the budget in years and it is coming to roost.

  • Report this Comment On December 10, 2012, at 9:15 AM, devoish wrote:


    Make no doubt about this. Under our current laws, when the Government puts money into the economy prices go up. Your SSI was not in the economy. If it had been in your hands to spend, instead of deducted, gasoline would be 15% higher, food would be 15% higher and the financial industry would be "price discovering" 15% more income at your expense. Unless you are in the top 15-20% of incomes you would not have a penny more in your hands, or SS retirement benefits. Benefits which will outperform the vast majority of 401K's.

    It is a "systemic" failure. not a lack of hard working efficient employees that is the problem.

    Best wishes,


  • Report this Comment On December 10, 2012, at 10:05 AM, TMFMorgan wrote:

    <<If the money the government deducted from my pay, as well as what my employers paid, had been invested, even in a bank account, I would be sipped champagne on a sunny beach.>>

    Here's a quote from David Leonhardt:

    "Two married 66-year-olds with roughly average earnings over their lives will end up paying about $110,000 in dedicated Medicare taxes through the payroll tax, including the portion their employers pay. They can expect to receive about $340,000 in benefits. Two average-earning 56-year-olds will pay about $140,000 and get back about $430,000 in benefits."

    It's actually a damn good investment (at someone else's expense)

  • Report this Comment On December 10, 2012, at 2:14 PM, Brent2223 wrote:

    "Any final budget deal will probably attempt to cover a 10-year period, but that's more formality than substance."

    That's why it won't be fixed - this is bigger than a 10 year problem, and switching gears every 4 years or less is not solving anything.

    Get a 30 or 50 year plan to eliminate the deficit and stick with it. Then we'll see what needs to happen with the other lines.

    First rule in budgeting, look at your fixed costs, and then see what's left to play with. Until debt reduction is properly considered a fixed cost it will always fall to the bottom of the priority list.

  • Report this Comment On December 10, 2012, at 2:54 PM, EDJMCPS wrote:

    What is sad is that this is only part of the problem. Every State in the union is under water with there pensions, and State and city budgets are out of control. Detroit now wants a city bailout. More will be coming. Add to that the amount of people on the government payroll, on wellfare and receiving government subsudies has now passed the number of people in the private sector. The private sector can only support so much and with it shrinking and the governmnet growing it is a no win situation. Eventually the system will gring to a halt. So sad to see this but the numbers are there and they are not be reversed.

  • Report this Comment On December 10, 2012, at 3:07 PM, artheen wrote:

    1. Some form of consumption tax should go a long way in curbing wasteful expenditure at the household level in terms of water, gas, electricity, clothing & food.

    2. Slight Increase in the percentage of Income Tax Audits for small business.

    3. Increase in monitoring SS/Medicare/Medicaid Fraud.

  • Report this Comment On December 10, 2012, at 3:25 PM, EDJMCPS wrote:

    I want to add some figures to my above comment. A report published by the Joint Economic Committee for Republicans 9/26/12 has the total of unfunded pension obligation among States at 2.8 Trillion. Add that to the Federal debt. As an example ILLINOIS has 66 billion in its pension fund and an obligation of $233 billion, it is under funded by 71%. The very best State North Carolina is underfunded by 37.1%, this is the best. The other 48 States fall inbetween the 71% & the 37.1%. People who work for the private sector and pay taxes vs, the government employess, government pensioner,and welfare recipients who are paid by the private sector taxes are also in jepordy.

    California has 139 people on the government side for every 100 on the private sector side. Illinois has 103 on the government side for every 100 in the private sector.You can go State by State with this. Remember even though the government side pays taxes, all that tax money has to be forked over by the private sector first before they can pay there part. Now add that this one small part (State Pensions) to the Federal Budget. States & City governments are in just as bad shape. At some point there will be tipping of the scales and private sector will be unable to function and all activity will stop. They just won't be able to carry the burden with the bulk of the population on the government side in one form or another.

  • Report this Comment On December 10, 2012, at 3:47 PM, rebecca1452 wrote:

    Social Security is not part of the Federal budget. The money has its own fund funded by all of us who have paid into it. So as far as I am concerned, it shouldn't be considered in this mess. As for all of us baby boomers who are now retiring, it was us who poured money into Social Security for the last 40 years so that the government could take it and use it for anything they wanted to. Do you realize that if all of that money was were it should be, in the Social Security Fund, the fund would have money for years and years.

  • Report this Comment On December 10, 2012, at 4:12 PM, EDJMCPS wrote:

    The State Pensions are not part of Social Security. Teachers and other people who work for the government are under a separate system. If you are getting a government pension you do not get Social Security or pay into it. My Mother-in law has a State Pension from her years in the school system. She does not receive Social Security. It is a diferent deal. Many States have regularly skipped or underfunded contributions to there pension plans. Even States with balanced budget mandates have done this. A number of these pensions will be completely out of money by 2018. As with Illinois the money is allocated for the pensions by the state officials, who then seem to want to use it for other agenda's. As my Mother in Law tells me, when her pension dries up she is dead in the water. The States as with the cities will be turning to the Feds for a bailout. Our Tax money again saving those who don't operate correctly. Detroit has done this. After all if the Feds can bail out GM they can bail out Detroit. The requests are starting. Social Security is a whole different issue and has nothing to do with this.

  • Report this Comment On December 10, 2012, at 4:25 PM, TMFMorgan wrote:

    <<Social Security is not part of the Federal budget. The money has its own fund funded by all of us who have paid into it>>

    Sort of. When SS ran a surplus the money went into the general fund. When payroll taxes are cut (as they have been for the last two years) the remainder comes out of the general fund. There is virtually no segregation.

    And if you want to pretend entitlements are not part of the budget, great! Then we basically have no long-term budget problems. That was easy.

  • Report this Comment On December 10, 2012, at 5:06 PM, hbofbyu wrote:

    25 years ago Joseph Tainter wrote about the collapse of complex systems. The premise being the complexity cannot be added to indefinitely.

    Technology, intricate programs, additional bureaucracies and even social structures cannot not be sustained past a certain point. Past civilizations did not collapse despite their sophistication, they collapsed because of it.

    Our tax code, and budgetary process are at that point (and probably Wall Street). There may be too much information, algorithms, special interest, loopholes, and lobbyists.

    The sooner we get it to a breaking point the sooner we can reform and simplify. Painful but necessary.

  • Report this Comment On December 10, 2012, at 5:23 PM, Turfscape wrote:

    >>And if you want to pretend entitlements are not part of the budget, great! Then we basically have no long-term budget problems. That was easy.<<

    Thank goodness! I've always said there has to be an easy answer somewhere...we're just not looking hard enough.

  • Report this Comment On December 10, 2012, at 5:59 PM, Melaschasm wrote:

    An 8 year spending freeze would be a good place to start. Since some things must increase, such as interest on the debt, the difference will mostly come out of defense spending.

  • Report this Comment On December 10, 2012, at 6:22 PM, hbofbyu wrote:


    It would be interesting to get your opinion on this regarding the fundamental problem of our economy:

  • Report this Comment On December 10, 2012, at 7:19 PM, heavyhitter777 wrote:

    I would accept the fiscal cliff because it affects everyone, and I believe the solution must affect everyone. It can't be manipulated by politicians, and it does what is necessary, that is to reduce spending across the board and increase taxes on everyone. These are two things politicians are always hesitant to do, which is why we're in this mess.

  • Report this Comment On December 10, 2012, at 9:09 PM, spsslrss wrote:

    Freeze current spending levels and increase tax revenues by 4% a year (by growth in the economy and/or increased tax rates) and the deficit is cut to 0 in ten years.

    Or, increase spending levels 2% per year and increase revenue by 4% (by growth in the economy and/or increased tax rates) and the deficit is cut to 0 in 22.5 years.

    If there are cuts to programs that can be agreed upon that would decrease the time it would take to get the deficit to zero.

    Similarly if there are tax revenues increases that can be agreed to that would also decrease the time it would take to get the defecit to zero.

  • Report this Comment On December 10, 2012, at 9:13 PM, drchemy wrote:

    Go over the cliff. It is obvious we cannot afford the bush tax cuts. Defense spending should be cut to what it was in real dollars in the Clinton administration. However much we are short after that should be cut uniformly on a percentage basis from all other programs.

  • Report this Comment On December 11, 2012, at 8:55 AM, ezdoesit101 wrote:

    I have a giant headache, already.

  • Report this Comment On December 11, 2012, at 3:16 PM, eldetorre wrote:

    This is simple:

    1- There is a good amount of defense spending that the defense department didn't even want. Just cut out what the Pentagon doesn't want. It's all pork.

    2- Turn social security into the direct equivalent of a defined contribution system. You get out what was contributed plus interest period. No one gets more. Wealthy people only get their portion of the contribution not the employers portion. Unemployment payments beyond your UI contribution get deducted from your SS "savings"

    3-Rescind all interest payments to banks that used bailout funds to purchase government debt.

    4-Forget consumption tax, no easy way to make it progressive. Flat WEALTH&Property tax. Disallow proprietary lease arrangements to hide assets. All assets including securities included. Securities held long term should receive tax breaks.

    5-Means test medicare. Extend look back period for medicaid to 20 years. Too many wealthy people transfer assets to family and get public benefits.

    6-Don't end income support. Most people work for their benefits, most that don't are basically incapable.

    7-Consolidate government functions. Why is the IRS and SS separate? So much functionality overlaps.

  • Report this Comment On December 11, 2012, at 3:17 PM, astewboy2 wrote:

    Raise the retirement age gradually on Social Security and maybe on Medicare, increase the cap for FICA, change the indexing on which Social Security is based, add copays and deductibles to encourage less ER visits and more cost-effective care in Medicaid (this is what private insurance is doing to most workers right now), hammer out whatever tax plan they're cooking right now, with a simplified tax code and some higher rates on the "rich", and trim the fat in defense. Honestly, defense is one of the biggest areas in our budget, we shouldn't have to take on all the world's problems (which George W was in favor of before 9/11), and now we can't afford it. I'm a Republican, btw. I think that we are making the wrong comparison often times, we aren't headed for Greece (well, maybe we are), but we're more like the British Empire coming into the 20th century, a power that better watch itself or it's going to lose it. The Brits lost it, we can, too. Can't be all things to all people.

  • Report this Comment On December 11, 2012, at 4:29 PM, eldetorre wrote:

    In an age of high unemployment raising the retirement age does not make sense. Furthermore if SS is converted to a strict defined contribution"savings" system it won't matter much when one retires since there would be a built in limit to benefits paid.

  • Report this Comment On December 11, 2012, at 4:57 PM, KISS0755 wrote:

    I like to "Keep It Simple". All we need is what I call "voluntary taxation". IE: Look at all of the states that have supplemented their budgets in one way or another through a Lottery! A simple, 'pick six of 36' (no bonus ball or anything) with a minimum payout (or maybe even ONLY one payout level) of $1M, free of Federal taxes (you already contributed) would sell 50 - 100 million tickets a week. Even if you drew 5 winners, you still pocket 45 - 95 M$... Of course there are startup and maintenance costs, but I have yet to see a state that has not found it profitable...

    So it would initially benefit Social Security. Once that budget was met, the remainder would be split: 50% directed to the deficit, no questions, no options. The remaining 50% would be allowed into the General Fund. When (IF) the deficit happened tp be gone, well it can all go into the General Fund. Or better yet, be allocated equally (not by population) amongst all 50 states. After all, Government exists for the benefit of the governed (at least in the US of A).

    Now, I'm sure there will be many replies as to why this can't happen, and it's illegal, etc. But Barack Obama can do most anything he wants. It's called "Executive Privilege".

  • Report this Comment On December 11, 2012, at 5:41 PM, devoish wrote:

    eldetorre- good answers.

  • Report this Comment On December 11, 2012, at 10:39 PM, osufan1969 wrote:

    As a minimum, cut all budgets by about 2 percent with no more automatic yearly increases. Implement a schedule for reducing the debt limit. There should also be a minimum tax on income for everyone and businesses with income over $25,000 regardless of the amount of deductions anyone has.

    This would allow almost no one or no company to avoid paying any taxes. The minimum tax rate could increase as total income raises. Obviously, if you owe more then the minimum for your tax bracket, you would pay the higher amount. This would allow everyone to pay their fair share. This will not solve everything but will be a start.

  • Report this Comment On December 11, 2012, at 11:44 PM, Riverdoctor88 wrote:

    Your fiscal cliff is easy to fix. Pay off your debt.

    The good ol' US of A needs to institute a Value Added Tax (VAT) just like every other sensible country in the world. This is a consumption tax that does not hurt the poor, but taxes all equally on the basis of what you purchase. Buy that new speed boat - pay tax. Buy food for the family - don't pay.

    Canada added a Goods and Services Tax (GST) in 1986 at a rate of 7%. This replaced the 13% manufacturers tax and brought in more revenue to the government coffers than before. GST is added on top of (State) Sales taxes on all services and non-essential goods. Food, drugs, baby diapers and other necessities that everyone uses are zero rated - so it affects the poor very little.

    When Canada's debt and deficit was excessive in the mid 90's, the GST went to pay it off, dollar for dollar. Once it was paid down and we had surplus budgets, the tax rate was cut back to 5% to maintain status quo and service the deficit. Now that we have run up the debt again after the '08 recession, GST can be increased to fight debt back down to a manageable level. This is a tax that doesn't kill jobs or hurt the poor, but it does get you when you buy that new iPad.

    To Canadians, Americans don't seem to pay enough taxes across the board - that's why we love shopping in the US !

    Grow up, pay your fair share and bring in a VAT.

    River Doctor

  • Report this Comment On December 12, 2012, at 1:42 PM, foolishlycuriose wrote:

    How about employing Ron Paul's litmus test otherwise known as the Constitution as a starting point? I seem to recall learning that the Constitution IS the law of the land and that it clearly states what the federal government rights and obligations actually are vs. what our elected officials insist they be. By doing so, the fiscal cliff virtually disappears leaving the Fed, a private bank by the way, holding its worthless promissory notes and our country with a clean balance sheet. Then simply follow many of the suggestions already mentioned such as don't spend more than you take in. Common sense really.

  • Report this Comment On December 12, 2012, at 4:50 PM, DJDynamicNC wrote:

    The problem with common sense is that it's far more common than it is sense.

  • Report this Comment On December 13, 2012, at 2:48 AM, foolishlycuriose wrote:

    Here are a few less commonly understood but nevertheless true sentiments about the control of our monetary and fiscal policies both of which have are a part of our debt crisis affectionately known as the 'fiscal cliff':

    "Government spending is always a “tax” burden on the American people and is never equally or fairly distributed. The poor and low-middle income workers always suffer the most from the deceitful tax of inflation and borrowing." -Congressman Ron Paul

    "Give me control of a nation's money and I care not who makes it's laws"

    —Mayer Amschel Bauer Rothschild (the first 'godfather' of the banking cartel)

    "When you or I write a check there must be sufficient funds in out account to cover the check,

    but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money." — Putting it simply, Boston Federal Reserve Bank

    "We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it". — Congressman Louis T. McFadden in 1932 (Rep. Pa)

    "Some people think the Federal Reserve Banks are the United States government's institutions.

    They are not government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign swindlers" — Congressional Record 12595-12603 — Louis T. McFadden, Chairman of the Committee on Banking and Currency (12 years) June 10, 1932

    "Every Congressman, every Senator knows precisely what causes inflation...but can't, [won't]

    support the drastic reforms to stop it [repeal of the Federal Reserve Act] because it could cost him his job." — Robert A. Heinlein, Expanded Universe

    "It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." — Henry Ford

    The year was 1913, Woodrow Wilson was President, and a small group of men broke numerous laws to create the Federal Reserve Banking system but were never prosecuted let alone charged.. Nearly 100 years later, our country is or rather has been bankrupted by succeeding generations of corrupt government officials working on behalf of their banking masters..

    Simply put - until or unless 'the Fed' is dealt with there can be no sustainable solution to the growing deficit let alone the budget imbalance.

  • Report this Comment On December 13, 2012, at 5:37 PM, dsurdyka wrote:

    Social Security revenue should be left alone and benefits reduced through higher age of retirement and making it more difficult to get SSI disability. I see many patients who are on SSI for diseases like alcoholism even when they have stopped drinking.

    The revenues and expenditures in the social security program should be balanced. Same thing for medicare, medicare tax should cover medicare expenditures, period. Medicaid is a joke, huge outlays with most of the money getting wasted in administration. Medicaid needs major reform. I would also allow means testing for Medicare with increased out of pocket for those who can afford to pay. I can afford to pay even though I don't like it.

    Bullets or Butter? Is the strategic value of the Iraq and afghan wars worth the cost? I don't think so. In fact, we keep meddling in all these revolutions that replace repressive governments that at least pretend to hold down the terrorists and help the rebels(terrorists) install theocracies that outwardly hate the USA. Sadam is gone, an outright evil bastard but he was holding down Iran, now what? We can't make countries democratic by helping rebels that want to replace secular repressive governments with American hating theocracies. Who are we kidding? Ourselves.

    Who says free markets mean that the gov't has to ail out companies and guys who lost billions still get million dollar bonuses, it's ridicolous. That's not capitalism. I don't think banks should be allowed increased risk so they can make more money if they don't have to pay the piper when it fails. Just plain stupid. If these institutions threaten our economy and therefore, our security,then they have to be regulated unless they can be allowed to go bankrupt when they fail. Any business that requires tax payers to cover the losses should be repaying the losses with interest.

  • Report this Comment On December 13, 2012, at 8:59 PM, TMFDarwood11 wrote:


    I've always considered charging simple interest for bailouts as robbing the taxpayer.

    Tax money provided for bailouts of any kind is money that isn't used elsewhere. I view that as an opportunity lost.

    For example, we have a space program that is in a shambles. Money is a factor. Yet, we can "provide" hundreds of billions to bail out financial companies, Fannie, Freddie and even FHA.

    Providing this funding removes it from other services. I view providing such funding to companies as "opportunity money" and I think the terms should be onerous, just as if provided by a venture capitalist.

    I've been involved in a business for decades. When looking at the expenditure of capital, I always looked at the goals of the company, and the benefits to be derived by the money "spent" in various ways. I successfully grew the business and avoided mortgaging the company's future. But there was no "golden parachute" funded by others, no "revolving door" with a "wink-wink" to my failures, and no one ready and willing to bail me out.

    I had a ton of "skin in the game" and that is what is missing in the current system.

    Even the politicians, who make most of these decisions are insulated from the consequences of their actions. Generous perks, a revolving door in Washington, and so on results in little personal risk for the politician. That's one of the reasons there is such low accountability to the taxpayer in Washington.

    Check out the net worth of those people. It's amazing. As an example, former Pres. Bill Clinton, who was nearly broke a few years ago, is today worth about $80 million.

  • Report this Comment On December 14, 2012, at 12:01 PM, ilware wrote:

    Increase every tax bracket rate by 1.0%

    Return the original SS rate of 6%

    Eliminate Health Insurance Deduction Completely

    Cap total deductions allowed at $75k

    Gradually increase Medicare Eligibility Age to match Retirement Age.

    Gradually increase Retirement Age to 68

    Reduce the "Bonus Rate" to 2.5% per year for delaying retirement beyond normal retirement age

    Limit by law the federal budget not to exceed 20% of the GDP of the previous year.

    Go to "Zero Based Budgeting", no automatic annaul increases.

    This should spread the pain to about everyone, everyone would now have skin in the game and congress would be limited on what they could spend. Hopefully, that would stop the hole from getting any deeper and we could start filling it in.

  • Report this Comment On December 14, 2012, at 12:03 PM, crm14210 wrote:

    I heard a joke recently - "what's more addictive then crack cocaine.....A government subsidy. Once givith; good luck taketh away.

    I'm a democrat yet fiscally conservative. I'm of the mind that Americans are all willing to pitch in provided we share equally. We are one of the lowest taxed developed countries in the world. This means there is room for revenue growth particularly at the top end (not right that Buffet pays a lower tax % than his secretary) and I think energy should be taxed higher for a lot of very good reasons (scarity, environment, etc.)

    On the cost side we need to reduce spending. Keynesian economic theory has been in vogue since FDR but like most situations it has gone to excess. I believe in the "keep it simple stupid" theory so my thought would be to reduce all areas of spending equally so everyone share equitably.

    Now I'm not naive to think we could digest all this in one bite; it would put us in a deep depression. So I'll leave you with one simple suggestion to significantly reduce the amount of one line item - interest. Is it time to drop a "zero" from our national debt? Think about it.

  • Report this Comment On December 14, 2012, at 12:26 PM, Truth2Power wrote:

    Okay: implement universal health care, combining Medicare, Medicaid, and the VA Hospital System into one comprehensive single-payer system. Allow the government to negotiate prices for pharmaceuticals with the drug companies. Take the money the citizenry has been paying to private health insurers/drug companies and pay it directly to the government, which can then eliminate a lot of the repetition and waste caused by having multiple healthcare entities keeping identical records and each requiring its own list of bureaucratic paperwork.

    Hey, I didn't say it would be popular (or, some would argue, Constitutional), but it would certainly help eliminate the deficit!

    If you don't like that, how about this: instead of RAISING the Medicare age, LOWER it to 60. Suddenly the "oldest and sickest" people on private insurer rolls are gone, resulting in lower per-person costs. Also, these same people become the youngest and healthiest Medicare patients, also resulting in lower per-person costs. Figure out some way for companies to pay the government for the cheaper healthcare their older working employees are now receiving. Everyone benefits.

  • Report this Comment On December 14, 2012, at 12:28 PM, mjktruck wrote:

    The answer is very simple. Everyone needs to participate in the solution. Increase all revenue by 2% a year; cut all expenses by 2% a year. Across the board; not exceptions. The budget is balanced in Year 10. The only people to directly lose their jobs are the lobbyists, who will have nothing to do, and the Fed folks, who will nothing to manipulate.

  • Report this Comment On December 14, 2012, at 12:29 PM, Truth2Power wrote:

    By the way, trivia question: who was the only President to COMPLETELY pay off the national debt?

    Answer: Andrew Jackson, who paid it all off in 1835. However, a recession in 1837 required its return (also under Jackson).

    Aside from that roughly-two-year period, we've ALWAYS had a national debt. I imagine we always WILL have a national debt.

  • Report this Comment On December 14, 2012, at 12:36 PM, ericandmisti wrote:

    The budget problem is easy to fix, it is getting people to be willing to cut anything that is difficult. Here we go.

    Income security (i.e. welfare) currently $580 billion. Reduce it by $480 billion to $100 billion (still an incredible amount of money which could pay out $15K per family for 6.6 million families. There is no reason we should have that many families who are totally unable to help themselves). The only people I believe should receive money for doing nothing are the totally disabled (i.e. blind, quadrapelegic, etc.). It is absurd to pay for housing, cars, computers and cell phones for healthy, irresponsible 20 year olds to sit at home.

    Medicaid $360 billion. Cut to $100 billion. Again, it is not up to the government to take care of everyone. We need individual responsibility. That is what this country was founded on. I am not looking for the government to take care of me.

    Take $50 billion out of education and training, $20 billion out of Commerce and housing.

    Social Security and Medicaire need to be brought into balance. The current numbers $778 billion SS and $484 billion Medicaire total $1.262 trillion. Payroll taxes total $841 billion or a $421 billion deficit per year. It is only going to get worse and needs to be addressed. The system was never set up so that people actually pay in enough to cover what they get back. As family size has gone down and lifespan up, the numbers just don't work. Reduce the benefits and increase retirement age. It isn't that I like the idea (I also hope to get SS some day), but I feel giving more money to the government through higher taxes so they can try to fix SS isn't going to work. Government is inefficient and I will be better off keeping my money and worrying about my own retirement.

    Including SS changes that would be over $1 trillion per year in cuts. Presto, problem solved and no taxes increased. I also firmly believe that there are 10s or 100s of billions in just inefficiency built into programs so that you could for example cut a departments budget by 20% without actually losing any of the services it provides if you made the department run smoothly. It takes more people and costs more money for the government to do anything than it would a private company.

    Just my thoughts. For the record, I don't think we have responsible people in charge or at the voting booths, so my expectation is that we continue to print money at a reckless pace until the house of cards collapses when no one wants worthless dollars anymore.


  • Report this Comment On December 14, 2012, at 12:50 PM, BacchusJr wrote:

    Why are very few people talking about the corporate tax rates? The Supreme Court has upheld the notion that corporations are to be considered individuals in the aspect that they can make unlimited campaign contributions. With that in mind shouldn't they be taxed at the same rates as individuals? They have been given the same rights as us so shouldn't they be taxed as we are?

    They have bought this entire corrupt government system and nothing will change until we wake up and use our votes to take the system back, or until the whole system collapses under the unsustainable debt and deficits (this is by far the more likely scenario).

    This doesn't solve the whole debt crisis but it is one aspect that needs to be added to the overall discussion but won't because, guess what the media is bought and paid for too.

  • Report this Comment On December 14, 2012, at 12:53 PM, bluecowrie wrote:

    Raise early retirement age to65 and full retirement to 70. Raise Medicare age to 70 and change Medicade to provide basic medical care only (since when did medical care become a right?)

    Tax employee benefits as income.

    Eliminate the Departments of Education and Labor. The cost is great and the benefits small.

    Eliminate project killing regulations such as Section 404 of the Clean Water Act.

    To sum up, modify "entitlements", cut government and eliminate tax loopholes.

  • Report this Comment On December 14, 2012, at 12:57 PM, EconoMick wrote:

    I'd zero out the budgets for Agriculture, Energy, Space/science/technology, Community Development, Resources/Environment, Transportation, Education/training. Also cut defense by 1.3% of GDP, Income Security by 1% of GDP, and Medicare and Medicaid by 0.5% of GDP each. If I calculated that correctly that would mean 18% of GDP would still be spent by the Feds.

    I'd also zero out all taxes except user fees for national resources such as Nat'l Parks and Nat'l forests. Then place a tax equivalent to 10% of GDP on all sources of energy consumed on the basis of potential btu's of each source. Existing wind, solar, and hydroelectric plants would be exempt but not future plants. I'd also place a tax equivalent to 10% of GDP on all waste products whether they're dumped in the air, water. or land. (That is, air pollutants, water pollutants or solid waste.) This tax would be based on weight, toxicity, and time required to become non-hazardous.

    That would leave the Feds spending 18% of GDP with Revenues of 20% of GDP. The 2% surplus would be used to repay the national debt down to no more than 28% of GDP. This would reduce the cost of servicing the debt. Monies saved thereby could then be used to restore cuts to Medicare, Medicaid, Income security, and defense.

    After the debt is paid down to 28% of GDP, the surplus could be used to acquire non-voting stock of domestic companies that pay a dividend of not less than 3% of market value. Income resulting from this stock could also be used to supplement spending or reduce taxes.

    That's the plan Stan. This can be fleshed out with more detail. Comments?

  • Report this Comment On December 14, 2012, at 1:00 PM, warzinski wrote:

    Corporations don't pay taxes, the taxes get passed along to the consumer.

    Step 1 to fixing the deficit is quit using baseline budgeting where everything goes up ~9% each year. A lot of the solutions here would work, but you can't get elected by saying you're getting rid of Santa Claus.

  • Report this Comment On December 14, 2012, at 1:05 PM, MaximDagamov wrote:

    Having read many of these comments, I have to say I am not sanguine about the prospects for any meaningful solution -- if these are the ideas of people interested enough in economic theory and the markets to invest in same, we are in deep trouble. -- The level of ignorance about the government and socio-economic theory is much too high. And if those who study the market here can't understand these things, how on earth can Congress?

  • Report this Comment On December 14, 2012, at 1:36 PM, HARBURN2 wrote:

    There is no short term solution. Nobody has the answer to get us out of debt. The fiscal cliff was the government's idea some while ago, but it now appears they are unwilling to follow through.

    We could become a tax haven. Then the rest of the world would put their money in our banks and prosperity would return.

    B.H. FairTax.

  • Report this Comment On December 14, 2012, at 3:19 PM, src12 wrote:

    Federal government is suppose to be limited thus not trampling all over our liberties and freedom.

    Restrict their budget to 10% GDP and 90% of that spent on defense of this great nation.

    Then allow the States to fund those corrupt and self destructive programs that breed weakness and fear like Social "Security" if they want too.

    Next problem?

  • Report this Comment On December 14, 2012, at 4:17 PM, ChrisBern wrote:

    Since everyone has their pet projects they can't stand to see erased, just cut them all equally across the board. For example, if you cut every one of the spending line items by 30-35% and cut each of the deductible line items by 30-35% (e.g. only allow 65% of an item to be deductible), then you would have a balanced budget with a more reasonably-sized government, and everyone is treated fairly.

    Note that this would throw the economy into a severe recession for as many as 5-10 years. But better to take a painful pill now while it's relatively small, versus taking a lethal pill 30 years from now when things have spiraled out of control.

  • Report this Comment On December 14, 2012, at 4:57 PM, rwbehan wrote:


    I dislike shouting and exclamation points, but you are doing a great disservice listing Social Security at the top of the spending list. Doing so is terribly misleading.

    Social Security has nothing whatsoever to do with the federal budget for the executive branch of government. It is a totally separate program, a trust fund that does NOT go through the Congressional process of appropriations, as does everything else in your list above. Furthermore it is totally self-supporting, and will be for decades in the future.

    To claim an "entitlement crisis" in the case of Social Security is simply untrue; it leads directly into the hands (including Alan Simpson's) of those who wish to privatize the program. Wall Street and the financial industry--including the Motley Fool empire--would benefit beyond measure from doing so.


    Shame on you, Fool.

  • Report this Comment On December 14, 2012, at 5:01 PM, TMFMorgan wrote:

    ^ To repeat: If you want to pretend entitlements are not part of the budget, great. Then we have no long-term fiscal problems whatsoever. Problem solved!!

    <<Furthermore it is totally self-supporting, and will be for decades in the future.>>

    No, it's not. Example: After payroll taxes were cut for the last two years, $200 billion was taken out of the government general fund and put into Social Security. The segregation you're thinking of is nothing more than a formality.

  • Report this Comment On December 14, 2012, at 5:49 PM, davidj1357 wrote:

    The fiscal cliff negotiation is not, or at least it shouldn't be, about fixing the ills of the US budget. It should be about avoiding the artificial austerity bomb put in place last year over the idiocy over the debt limit. Current law provides that the Bush tax cuts which was extended for two years under duress have failed to provide the growth projected when enacted, expire at the end of the year. The economy is still trying to recover from the financial crisis and needs stimulus which will put money in the hands of middle class Americans who will spend it. Republicans insisted on much of that stimulus come through tax cuts and thus the payroll tax holiday which is also set to expire at the end of the year. Hence, the austerity bomb. To diffuse it we need to let the Bush cuts expire for upper incomes because it is not an effective stimulus; temporarily extend for middle class Americans because they will spend it; temporarily extend payroll tax holiday for same reason; commit to comprehensive tax reform and plans to slow growth of health care costs, the biggest threat to budget sustainability.

  • Report this Comment On December 14, 2012, at 9:10 PM, olRoger wrote:

    Let's stop special rate for capital gains and instead calculate inflation adjusted rate. This applies to any long term gain (property). Just because it was held for a year and a day does not make it magic. There does not need to be incentive for long term gains. The reasons are there. Short gains are for gamblers.

    If one thinks incentives are need for long term investment, then don't tax regular savings held more that one year. (Why tax savings at all since long term inflation wipes it out).

  • Report this Comment On December 14, 2012, at 10:12 PM, Richnut2 wrote:

    If I were President, I could solve both the deficit and the jobs problems in ONE DAY. Just declare an emergency and require that our international trade be balanced (zero trade deficit) with all countries or group of countries. Here's the facts and why it works:

    1. With respect to our debt: The US has a negative trade imbalance of about $600 Billion a year. This has been going on for 14 years. 600 Billion x 14 years is 8 to 9 Trillion Dollars.This is most of the increase in our debt over this period of time.

    2. With respect to jobs: The mean value of jobs in the US is $25,000/yr. $600 Billion divded by 25K equals 24 Million jobs.

    So demand a balance of trade -- lets stop all this other nonsense and solve the real problem!!

  • Report this Comment On December 14, 2012, at 10:33 PM, Quantemonics wrote:

    Refresher course on "How to Fix America," written 3 years ago...

  • Report this Comment On December 14, 2012, at 10:39 PM, NOTvuffett wrote:

    Since the inception of the Fed in 1913, a dollar today would only be worth about a nickle back then in purchasing power. It is like compound interest, it is an exponential function. Although the rate of inflation is variable between years, we can calculate an average annual rate of inflation. To do this, we merely need to solve for x in the equation .05 = x^99.

    So, x comes out near .97, which would mean an average annual inflation rate of 3%. Why should you be forced to pay 'capital gains' on inflation? If you bought a stock or a house or whatever and it performed poorly over a 20 year period, so that the value in inflated dollars was constant, you would owe no tax, but you would have lost around 45% of your purchasing power on that investment.

    If on another hand, under the same situation but with the proviso that the poor performing investment was just able to maintain constant purchasing power, a sell at that point would be subject to significant 'capital gains'. Of course, this would mean a significant net loss in purchasing power.

    I think you can see where I am going with this... a minimal or modest gain in purchasing power can result in a net loss also.

    So what are your options? Hit a home-run every time? Never sell?

    I wouldn't mind so much treating capital gains like ordinary income for tax purposes if it was indexed to inflation. (although I think it should have preferential treatment since the bulk of these investments came from ordinary income subject to regular tax rates).

  • Report this Comment On December 15, 2012, at 12:10 AM, trevorwallace62 wrote:

    Wow some big numbers.

    However, and please correct me if I am wrong, my sum would be as follows:(in Billions)

    Income = $2,470

    Outgoings = $2,470

    Debt = $0

    = living paycheck to paycheck.

    Why do government officials find this so hard?

    Maybe the U.S.A need to cut HBO, Dining out every night, and feeding ungrateful neighbors, the American people had to make such cuts.

    Now, If I want to drive a Porsche or donate a lot to charity, I need to find a source of income. Or should I just go to AdvanceAmerica and act rich?

    My kids can pick up the bill.

    Your thoughts are appreciated.

  • Report this Comment On December 15, 2012, at 6:53 AM, HighGrowth wrote:

    1) Delay announcing an agreement until last minute, so that panicked investors sell off and generate mountains of capital gains income and pay hefty taxes in the near term. This will also suppress markets so that hefty gains will again be realized when normality returns over the next 2 years if markets are not artificially manipulated in this way.

    2) Announce a compromise package with some tax hikes, some spending cuts, phased in increasingly over the years to come in harmony with economic growth.

  • Report this Comment On December 15, 2012, at 10:32 AM, Davis102 wrote:

    The Federal Government is highly inefficient and greatly disposed to waste. We had leaders in the past who understood that. We have too few today who do. As for cutting spending:

    - Social Security includes more than payments to retirees, such as payments to children. Cut those payments entirely.

    - Cut cost of Congress and Executive Branch each 30% and let them each figure out what to cut from their respective budgets...too many czars and staffers.

    - Cut all Energy expenditures except for adding to Strategic Petroleum Reserve.

    - Restructure or eliminate all agencies not funded annually by Congress (latest example: Consumer Finance Protection Board, which ought to be eliminated before it goes ahead and issues more regulations).

    - Buried among the numbers are real estate costs of the federal government, which are outrageously high because (a) the Feds pay far higher than market for leased space, (b) dispose of it at ridiculously low prices, and (c) have far more space than is needed so much is sitting idle. Get some professional (i.e., private industry) assistance to cut those costs dramatically.

  • Report this Comment On December 15, 2012, at 11:26 AM, Darwingirl wrote:

    There are numerous national and multinational corporations "who" have no incentive to keep their money in the US. Like Starbucks in the UK, there are plenty of ways of funneling revenue offshore to avoid paying taxes. As part of dealing with the approaching fiscal cliff, we should create a tax rate that is competitive in the international market to incentivise these corporations to bring their money BACK into the US. Otherwise, revenue from the bottom up will continue to bleed out of the US economy.

  • Report this Comment On December 16, 2012, at 10:58 AM, halley12 wrote:

    Where to start, how about we all admit we need to help, ie. feel some pain.

    Since the goverment already subsidizes mortgage interest by holding rates at 3.5% and less, lets give up the mortgage deduction. If you put a cap on it people will find away around it. If you want a cap limit it to $1000 a year maximum.

    Put the SS withhold back to what it was before they lowered to 6.2%.

    Cut defense spending 15%. Stop telling the news outlets what we have and how it works. It is okay to have a secret. They can continue research and development, however, they need to quite selling it and sharing it with other countries. The American people should own it. The fact we share it means we have to keep spending to improve it. You get my point.

    This is my one mean one. Eliminate the Charitable Deduction. Everyone says they would give anyway. I doubt it. To slow the amount given to charity would wake up the folks who continue to believe that making money is a bad thing and if you have to much it should be redistributed. This would force another fiscal cliff in this country and hopefully wake people up that you need to work. Maybe those that create jobs would use the money to create more jobs.

    We also need to stop the practice of paying peoples retirement based on the last three or five years of work. This is breaking every state. We give them 70% of the best years; no way to afford this.

    Have a good day and know nothing will happen just more of the same.

  • Report this Comment On December 16, 2012, at 11:59 AM, mtprx wrote:

    The so called "fiscal Cliff" can be fixed by one simple act. Get rid of this artificial debt ceiling! What's that you say, America will go bankrupt, not on your life. Anyone who knows anything about bankruptcy will tell you it's a measure of all assets against all liabilities. Deficit spending only considers what you make (taxes,fees, assessments etc) vs what you spend (a hell of a lot more). But let's concentrate on the fear that these and other statements lead us to feel.

    Any psychologist can tell you that to sneak something into the sub-conscious mind the conscious mind must be occupied. In this case we occupy our minds with fear (Uncertainty) and law makers, stock brokers, car salesman and others run by us unreasonable sales pitches that we seem to catch on to only after it is too late.

    In fixing this budget mess Defense is the only logical place to attack. Here's my thoughts on why. After 9/11 we were all afraid and UNCERTAIN about the future, so what did our government do, they spent under the guise of making us safer. We went to war pay as you go, no formal declaration of war, no line item on the budget to debate, no president making a case before congress for war funding. Also the small government republicans created the largest bureaucracy in the history of this nation, namely, the Dept of Homeland Security. Anyone care to guess how much was sent down this rat hole?

    These 2 facts alone should give everyone reason to question the debt ceiling and it's usefulness when Congress and the President can demand that we do such things without thinking of the true cost and the impact on an uncertain future. In the past almost all the previous generations were asked to sacrifice something during wartime, but with no formal declaration of war, no sacrifices were asked and none were given, we just spent and now here we are.

    Now everyone is to blame and like it or not everyone is going to sacrifice something whether they want to or not. Let the country go over the cliff and force Congress and The President to make some concrete changes that really put us on firmer footing (we hope) in this uncertain future we face.

  • Report this Comment On December 16, 2012, at 9:50 PM, Granddad100 wrote:

    Get rid of tax deductions for charitable donations. Contributions to religious organizations (churches, synagogues, etc.) should also go by the wayside. Why is the government subsidizing religion?

    Eliminate mortgage interest deductions for a second home. Also eliminate mortgage interest deductions for people earning over $250,000 annually.

    Don't pay social security benefits to people who don't need them (millionaires?).

    Make corporate sponsored health insurance a taxable benefit to their employees.

    Lower corporate income tax to make American companies more competitive. Make corporate taxes low enough so that American companies will bring money, that's overseas, back home. These reductions will increase jobs in America, and increase revenues from the newly employed.

    Eliminate foreign aid to countries that are not friendly to us.

  • Report this Comment On December 17, 2012, at 10:50 AM, NoOracleHere wrote:

    One thing to keep in mind is that a great deal of income is swept under the rug and never becomes "taxable" income. That's why I believe we only tax 15.8% of the GDP, when most of the tax brackets are much higher. So I would start by taking a look at income that people receive that never falls into a taxable income column. It goes way beyond deductions. It’s money made offshore. It’s money in the Cayman islands. It’s money that is spent by corporations pretax for questionable business purposes. Much of that can likely be taxed at one of the upper brackets.

    I would consider raising the retirement age for Soc. Security benefits to 66. Most comparable proposals I’ve seen have called for a 2-yr increase. But I believe they fail to take into account the double benefit of this measure – that it hits both the income and expense sides of the equation. One year less of benefits, and one year longer of payments. And the payments are more than just the payroll tax which hits Soc. Security directly; the payments are on the income tax side also. They fund the general budget for an additional year. Further, businesses may benefit from an additional year of very knowledgeable talent, which will bring a business benefit. It compounds from a modest adjustment on the part of people who can generally afford it, given their generally lengthened life spans.

    I would follow this by returning the tax rates to the pre-Bush rates. The tax rates under the Clinton administration were already at historical lows. The economy was prospering during those years, and the federal budget was very nearly balanced.

    I would restore the estate taxes. Estate taxes go after stored wealth which is a particular problem in our country. People think they can become rich and store up wealth for their descendents forever. This deprives us of much of the value that these people might create. Stored wealth is helpful for an individual, but what the country needs most is circulation – economic activity that creates value and stimulates jobs. One of the lessons I learned as a kid was that during the Great Depression, the wealth of the nation was in the hands of too few people. The trouble is, those few people are notably tight with their money. This is not a bad or immoral thing. It’s what we all strive for, to have enough financial security to provide for our families, and provide for ourselves in old age. But the upper crust wealthy make poor customers in the stores. Jobs are not created by adding a few more billions into billionaires’ pockets. Jobs are created by millions of customers in the stores with money in their pockets. Businesses today are flush with cash. Cash is not the problem. But businesses invest money only when they see opportunity. This opportunity comes, like I said, from customers in the stores with money in their pockets.

    Increase capital gains tax to 25%. Capital gains rewards the speculative economy and shelters much income at the highest levels of the economy. Speculation has the power to destroy the country. Speculation is the economy of bubbles. It works exponentially. It was the market crash of 1929, the housing bubble of 2004-2007, and the derivative crisis of 2008. Cool this economy and the productive/consumptive economy can nurture and grow.

    Defense cuts are an immediate measure. Dollar for dollar, defense spending is not very efficient spending economically, from the point of view of creating jobs. It gets spent once and goes to a very large corporation, and there it will sit once the goods are delivered, waiting for the next defense contract. Or it will be paid to top executives and shareholders and probably get taxed at 15%. Defense spending does not create value. Few benefit.

    Pork programs? I suppose there are a few bridges to nowhere. Go after these, but I don’t see this fixing the base problem.

    Jobs, jobs, jobs. Get people working and there’s a double benefit here too. Working people pay taxes and get off the dole. When it comes to spending cuts, I would be slower to cut the “entitlement programs”, much more interested in cutting the number of people that are on these programs (jobs). The lower income level people to whom these payments go make very good customers in the stores. These people will go out and spend. That’s not so much the economic problem in our country. It’s a symptom and budget problem, yes, but not really an economic problem. The health of our economy is determined by how efficiently money moves and value is created. When people spend, goods are exchanged, and people must work to replace what is missing from the empty shelves. Our country has no shortage of people who want to work and produce goods. So spending isn’t necessarily a bad thing. Since we have an unemployment problem, I would be cautious about cutting here. Later, maybe.

    I see two economies – the productive/consumptive and the speculative. They are intertwined, and inseparable. When they are in balance, and money is flowing, we are healthy. But the former is linear and the other exponential. It’s difficult to maintain this balance. The exponential can easily drain the linear. We must be very careful in our economic policies to maintain balance in our economy, and when we employ stimulative policies, to be sure we are stimulating the right kind of activity. With the right diagnosis of the problem, and this goes way beyond arguing about what’s the right size of a government, we can restore health to the system.

    That’s what I would do to balance the budget.

  • Report this Comment On December 17, 2012, at 4:33 PM, hogliner wrote:

    Principles are the place to start. So, here are the ones I propose:

    1) You can't spend money you don't have.

    2) A balanced approached must be applied over many years

    3) Everything must be on the table, then you choose based on priorities (need vs want).

    4) There are many ways to achieve a balanced budget.

    What stands out for me is that 2012 spending and revenue are significantly off averages for the preceding 50 year period. So first step, cut spending to 20.1% of GDP and raise revenue to 17.9% of GDP. Next, split the difference, so cut spending to 19% and increase revenue to 19% and you are in balance.

    Top spending Cuts:

    1) Freeze on government salaries and hiring (get the government you need and can afford)

    2) Cut defense spending to 3% of GDP which is NATO target (US spends as much as next 10 countries combined, and half of those are US allies, so don't pose a risk)

    3) Cut all departments which the private sector can handle (Commmerce, Energy, etc.) or that could be better handled by local government (Community development, Housing, Justice, etc.)

    Top revenue increases:

    1) National sales tax 5% (more you spend, more tax you pay)

    2) End Bush tax cuts (rich Americans aren't going anywhere) and tax all income including dividends and capital gains at same rate.(equal treatment of all income will reduce wealth inequality)

    3) Increase corporate taxes to OECD average

    (why go lower? US offers companies many other advantages not available elsewhere like rule of law, educated workforce, etc.)

    Top tax deductions to be dropped:

    1) Mortgage deductibility (make people responsible for buying homes they can really afford and reduce household debt levels)

    2) Employer paid health insurance (big tax break for wealthy)

    3) State and local bond interest (tax all interest income at same rate)

    Anyway you cut it, the US has to become more fiscally responsible. Either US citizens through their elected government will make the choices, or eventually foreign creditors in the bond markey will impose their will. The former is the best approach to take.

  • Report this Comment On December 19, 2012, at 9:31 AM, SteveOsborne100 wrote:

    Neither the "fiscal cliff" nor the deficit can be fixed. The government, perhaps, can be fixed.

    Correct taxation. ONLY individuals pay taxes and the tax system should force that to be recognized. (Businesses never, ever pay any taxes. They pass the costs to consumers, adding the extra costs they incur for accounting for the taxes they do not and cannot rationally pay.) Individuals should be directly responsible for all taxes and all levels of government should be required to account to taxpayers how much those individuals are paying in various taxes and fees every year. We might then appreciate the cost of government enough to force expenditures to be restrained.

    Apply full cost-benefit analyses to every penny any government spends. If every person in the administrative region (the entire U.S. for Washington DC) is not equivalently -- not necessarily equally -- benefitted, the cost is not an appropriate one for the federal government.

    Any time a new expenditure is justified, increase taxes to pay for it. We have to operate on a pay-as-we-go basis. If taxes become too high, the wrong people are governing or our expectations are too high. We should always have enough taxes to pay for all governance, pay some of the debt, and maintain a small reserve fund for true emergencies.

    Quit thinking short-term and start thinking national survival.

  • Report this Comment On January 12, 2013, at 10:31 AM, ETFsRule wrote:

    Morgan, I hope you will write a follow-up article because this one, while entertaining and well-writen, was very misguided.

    Deficits are highly cyclical and tax revenues rise and fall with the economy - showing a direct correlation with the unemployment rate.

    As an example, California has quietly fixed their budget problem, and they now have a surplus. ie:

    Did they accomplish this with spending cuts? Nope.

    Was it tax increases? Nope.

    As the economy improved, the deficit fixed itself.

    The same will be true for the federal budget. You need to look at the numbers in the right way to understand the cyclical nature of deficits - especially on the revenue side.

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