Let's talk about the budget

I likely did a second-level hijack of the Investment Opinion thread when I responded to someone’s thoughts on the debt ceiling and budget mess, and think that a separate thread on the debt ceiling and budget items might be fun. Okay, maybe “fun” isn’t the right word. Anyway, here are a few thoughts (all of which are prefaced with the statement that “I am pretty conservative”, so you’ll know where I am coming from):

1. The public debt issue in this country cannot be solved with spending cuts alone, with one reason being that benefits promised to current and soon-to-be social security recipients cannot be rescinded. This problem should be addressed by a combination of (1) benefit reductions for persons under age 45, and (2) tax increases on the FICA portion of payroll taxes. The goal is to have a self-sustaining, close-to-fully-funded, actuarially-sound system that is accounted for separately from the government’s general fund (the accounting was this way until, I believe, the Nixon years, when a “unified budget” was adopted so Congress could hide discretionary deficits behind social security surpluses).
And, before we libertarians go on about how “It’s not the role of govt to fund our retirement, and all people should do it entirely themselves”, just ask ourselves “What the hell are you going to do with a lot of homeless old people who didn’t save any money?”

2. A little (or a lot of) tax reform wouldn’t hurt, if it could be done in a rational manner (big “if”). As a for instance, hedge fund managers really shouldn’t be allowed to re-characterize earned income into capital gains, as is now allowed. The tax code and discretionary spending accounts are riddled with industry-specific subsidies, and state-specific subsidies that should be eliminated.

3. Re-evaluation of government budgets must be made. I can think of numerous examples. Remember when the Dept of Energy was created in the late 1970s with the goal of making the US energy-independent? Its success in meeting that objective is…nonexistent. The role of that dept needs to be completely re-thought and likely reduced substantially, or perhaps the department should be dissolved with its few intelligent functions being placed in other departments. Similarly, the Dept of Education needs a complete overhaul, and probably a sizeable reduction.

4. The big bugaboo is Medicare. It’s clear that (1) the growth in expense is unsustainable, (2) the government can no lomger hide the cost of medicare by shifting expenditures to the private sector (and there’s been a lot of that over the years), (3) you cannot raise taxes high enough on the “rich” (see next paragraph) to cover the program deficit, and (4) any solution will be unpopular. The only way to reduce the cost of the program is to reduce the cost of medical care, and that’s going to involve, among other things, some rationing of care and a rethinking of what is reasonable and necessary diagnosis and treatment. Is it really a good idea to spend hundreds of thousands of dollars in end-of-life situations? A lot of people say “I don’t care, so long as someone else – insurance company or government – is paying for it, but don’t ask me to contribute.” Anyone think that the kids would keep comatose-and-terminal dad alive for another two weeks (and another $20-50k) if they knew that the money was coming out of their inheritance?
The libertarian in me hates to say this, but it also should involve mandatory medical insurance or a corresponding tax payment. The fact is that there are a load of people out there who have the $ to buy medical insurance but who choose not to do so because "I can always go to Parkland", and those persons’ medical costs are paid by the rest of us. That should change.

4. Who are the “rich”? I think it’s an income of a lot more than $250k. Maybe, we should have a really graduated tax rate, such as 40% on income > $5M, 50% on income > $10M, and 60% on income > $25M. Oh wait! Cannot do that because those are the people who make big political contributions.

5. Let’s get those yahoos in Washington to stop talking in sound bites and start talking specifics, hopefully in a way that we can separate the accounting tricks from the real dollar savings/reductions. I’m sick of hearing about “the rich”, jet owners and oil companies; Christ, are the arguments of the President, Harry Reid and Nancy Pelosi so weak that they can only resort to demonizing industries and certain classes of people. I’m also sick of hearing that “We don’t have a revenue problem, we have a spending problem” – anybody with one eye and half a brain can look at the federal budget and know that wqe have both problems.

There’s a lot more, but maybe this will get the ball rolling. Jeez, I must be really frustrated or have absolutely nothing to do!!

I share your frustration. As I've said already, I too am pretty conservative... not Republican though.

Here are some more thoughts to add:

1. Definitely need tax reform. I'm for as flat a tax as possible without loopholes. I don't think the wealthy should pay a higher (or lower) tax rate, otherwise the money will just leave, as happened in England in the 70s. Nor do I think the lower income people should pay a lesser rate. This country already provides safety nets in other ways, so if you have income, you should pay the flat tax on it. It needs to be simple and universal or it won't work.

2. Companies pay a flat tax too. No more hiding income offshore like Google does. If there is revenue generated in this country, tax on that revenue is due here. Access to this market is critical to those companies so there is no need to be shy about demanding they pay their share.

3. Sometimes certain industries need growth incentives. If we need focus on certain developing industries that we want this country to be a leader in, then it should be possible to apply a lower corporate and personal flat tax rate. No, this is not another way for Exxonn to keep getting subsidies. It has to be tied to profitability so that once momentum is achieved, the tax rate goes back to the norm.

4. If you don't have an SSN and can't vote, you can't make a political contribution. In other words, corporate contributions are ended. This will help stop spending on special interests where it isn't needed.

5. Lobbyists should be eliminated. They direct spending to special interests.

6. I'm not for regulating anything about medicare except the cost of services. Billable items need to be regulated so people don't pay $50 for Q-tips, $200 for blood tests, etc, etc., etc.. The competitive system we have is pretty good. Regulate the pricing and see how it goes. I'm against most regulation, but when people need medical attention, they don't have a choice but to pay, and right now the system is taking advantage of that.

7. We need to cut military spending in half, or something like that. The level of spending now is historical based on the assumption that one of our foes might invade us at some point. Not going to happen. Any conflict with Russia or China, the only countries who could contemplate such foolishness, isn't going to be fought with soldiers or sailors, unfortunately. So let's scale back to an affordable level that recognizes the modern world we're living in and focus on making sure we have a military that is focusing on keeping the dictators under control and expanding our 'Seal Team 6' forces for precision attacks against terrorism.

8. This country has got to get in the mindset of balanced budgets and deficit reduction. It can't happen overnight and yes it will take both cuts and increased revenue. But we need to set a target for ourselves and then execute to achieve it. No more open-ended double talk. If Obama wants to get this under control, he should make this the modern day equivalent of the space race. He should rally the country around the idea of how critical it is to get to a balanced budget and to kill the debt. He should paint a picture of what that victory would look like, in terms of standard of living for Americans.

There... a few random thoughts off the top of my head. Look forward to seeing others thoughts.

L4L

Sorry, if you give them more money, they will spend it. It's why the Trust Funds of Social Security and Medicaire were robbed and filled with IOUs.

Money is Heroin to Congress. You have to stop them from spending it.
The "penny plan" is a great first step.

Budgets *automatically* grow in Washington, without anyone checking them. The "penny plan" says, take the 2011 budget, don't grow it, cut it by 1%, that's the budget for 2012. Do that for 6 years.

Yes, Social Security, Medicare and Medicaid can't be cut...supposedly. But they need to be. With the $2T being spent, you can't tell me there isn't $200B being "wasted" in one fashion or the other.

If you don't stop the spending, soon the Government will be so large it will consume so much of the capital that nothing will grow. Why has the Economy stalled for 2 yrs?.....Easy, The Federal Government "stole" (ok, borrowed) $3T that could have otherwise been used by the private sector.

TG6 - I don't disagree with what you're saying. The problem I have is that I don't trust the competency of either party to manage us out of this problem.

The Republicans, who have zero track record at balancing a budget (Reagan, Bush Sr, and especially Bush Jr), propose to solve the problem by balancing the budget through cuts that primarily affect the middle class without dealing with tax subsidies for oil, the Bush tax cuts, etc.. That has no credibility. None. It's very short-sighted and it's like injecting a cancer into our economy. Big business and the American middle class depend on each other. You can't have one without the other.

The Democrats, who are complaining about the Republicans, haven't given us a real plan. They're taking the position that we need both cuts and increased revenue (which I agree with for the time being) but there is no articulation or commitment to a plan to solve the larger problem. Pelosi and her gang have no more credibility with me than the Republicans. The Tea Party have a collective IQ of about 50. We're fucked. Lol. We might as well just hobby on and wait for our new Chinese owners to show up.

The problem with history is that people forget the details and only remember what the media pushes....Reagan made "a deal" with Tip O'Neil (sound familiar?) for $3 of cuts for $1 in new taxes. We got the taxes asn the old drunk Tipster "forgot" about his promised cuts.

That's why any "deal" now has to have the cuts NOW. Otherwise time passes and Congress forgets. The current House seems to want this...but Bamster and Hairyless Reid refuse to budge on any cuts.

Like I said, Money is Heroin. We need a new crop that is adicted to something else.

Did you see where Gabby Gifford showed up in the House to vote.Awesome moment. They were saying her vote might have been the one to put it through.

From what I've heard, our credit rating is going to drop. The rating powers that be, who happen to be part of the problem, said we needed to reduce the deficit by 4 trillion and substasntially cut entitlements to keep the AAA.

Did you see where Gabby Gifford showed up in the House to vote.Awesome moment. They were saying her vote might have been the one to put it through.

From what I've heard, our credit rating is going to drop. The rating powers that be, who happen to be part of the problem, said we needed to reduce the deficit by 4 trillion and substasntially cut entitlements to keep the AAA. Originally Posted by cookie man

Awesome to see Gabby Gifford in the house. Looks like that story is heading towards a much more positive ending than anyone imagined six months ago.

I've also heard about a pending downgrade and I'm not surprised. The deal that was approved is little more than the equivalent of a cheque cashing service on a corner in the hood. It's a joke. $900B in reductions OVER TEN YEARS applied to a $4T ANNUAL deficit. It's chump change. No entitlements eliminated, no loopholes closed, no subsidies taken away from the biggest company in the world. The hard work has yet to be done.

The bright spot is the defense cut. Can anyone explain to me why so many Republicans are against cuts to defense? After all, defense is a branch of the government...no? Are they paranoid or do they have investments in the suppliers that feed off of the massive teats of the defense industry?

Did you see that Putin has referred to America as a 'parasite on the global economy'?

Here's a link: http://www.reuters.com/article/2011/...77052R20110801

He's laughing at us because our Afghanistan debacle is going to eclipse theirs.