Tuesday, January 24, 2023

"Balance the Budget" or "Tax the Rich" are not solutions to the current budget crisis.

by Rod Williams, Jan. 22, 2022-  Fiscal responsibility, lower taxes, and smaller government are core tenets of the modern conservative movement. "Balance the budget," is a conservative battle cry. However, we have waited so late to balance the budget, that it is an almost impossible task, at least in the short run. One major problem is that interest on the debt and entitlements take a greater and greater share of the revenues. To see the difficulty in balancing the budget, look at the following chart prepared by Committee for a Responsible Federal Budget

Almost no one would advocate cutting, veterans benefits, social security, or medicare. Those are almost sacrosanct. People want their benefits.  

Does anyone think it is possible to cut social security? Social Security is the ultimate entitlement. People feel entitled to it. Many view it as a retirement plan rather than a Ponzi scheme transfer payment. Like a  Ponzi scheme, current beneficiaries are receiving funds from money being paid in by current investors. There is a trust fund that pays a portion of the money current recipients receive, but the trust fund is being drawn down. In 2034 the trust fund will run dry and unless Congress does not do something, retirees will start receiving a reduced benefit of 77% of their full benefit. 

While there are some who believe the world would be nice to us if we would just disarm and mind our own business, most realize the world is a dangerous place and we must have a strong military to protect our interests and insure our survival. Some believe we can retreat into fortress America and not meddle in foreign affairs. I am of the view we should be spending more on the military, not less. Russia wants to reestablish the Soviet empire. It is in our interest that Russia does not succeed in capturing Ukraine. 

China is threatening Taiwan and is building military bases on small rock outcroppings across the South China Sea. In addition, China's Belt and Road Initiative is developing ports and bases and railroads, and other infrastructure in over 60 countries around the world. 

We are also witnessing a turn toward authoritarianism, of both the right and the left, across the world. We cannot remain free and independent in a hostile world.  In my view, we should be modernizing and upgrading our military and doing more to give our allies the means to protect themselves. 

So, to balance the budget by the year 2032, if we exclude defense, veterans benefits, social security, and medicare, we would have to cut by 85% all other spending.  That is not going to happen. 

Some liberals would argue that we should simply raise taxes. They will usually advocate raising taxes "on the rich." Raising taxes could actually cause less growth and less future tax revenue.  It is not as if rich people are hiding their money under their mattresses. It is put to productive use by buildings new businesses, and new technologies, and new houses, and creating new jobs. Most informed liberals know this. When President Obama came into office he inherited a 35 percent marginal income tax for the top income bracket and a 15 percent capital gains income tax. He did not attempt to raise it. 

There is no easy solution. We cannot tax ourselves out of the current mess and we cannot cut spending sufficiently to balance the budget. Refusing to raise the debt limit would not solve the problem. That would cause the US to default on its debt. Raising the debt limit allows the government to borrow money to pay for the spending that has already been approved. I understand the desire to make a statement, but if the Republican House causes a government shutdown or a US credit default, it will end up costing more in the future and Republicans will pay at the ballot box. 

So what should be done? The solution does not fit on a bumper sticker or Facebook meme the way "Tax the Rich," or "Balance the Budget" does.  The Committee for a Responsible Federal Budget calls on Congress to adopt aggressive but achievable fiscal goals in its budgets and any fiscal deals. 

Too often, when fiscal reform is attempted it involves smoke and mirrors of fanciful projections of future savings. Congress needs to admit that there is clearly a problem. We have kicked the can down the road and for too long have allowed the budget to grow by borrowing money to pay for current expenditures. We may have reached the point to where that it is no longer sustainable. 

Our politics may be at a point to where only advocates of "Balance the Budget" or "Tax the Rich" can be elected. We may be, as Meryle Haggard sang, "rolling downhill like a snowball headed for hell."  I hope not. 

To read the Committee for a Responsible Federal Budget's analysis, follow the link.


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