Balancing the Federal Budget

(See here) a Washington Post piece written by Lori Montgomery that reports President Bush is submitting to Congress a budget proposal which he says will balance the Federal budget by 2012.

Please note that President Bush's proposal comes with a steep price tag for the American middle class. While it would continue all tax cuts enacted since he took office, it would continue to allow the Alternative Minimum Tax (the AMT) to expand to affect millions of additional households which means these middle class households will no longer benefit from what little tax relief there was for them in his administration's tax cuts.

George Dubyah Bush's proposal will continue tax cuts for the wealthy on the backs of tax increases for the middle class in the form of increased revenues from the AMT. Once again, the Dubyah administration exposes itself as being servant to the wealthy at the expense of "Joe Average".

Please note the concluding paragraph of the article which quotes Senator Kent Conrad. Let me quote it for you:
"With their track record, everything they present is going to be viewed skeptically. Because they've been deceptive year after year after year," said Senate Budget Committee Chairman Kent Conrad (D-N.D.). "Every projection shows the cost of making all the tax cuts permanent explodes at the very time the baby boomers start to retire," driving "the deficit and the growth of the debt to the moon."

Now let me expose a bias I have. I have found Senator Conrad's pronouncements on everything related to the Federal budget and the Federal deficit so filled with truth, from what I know, that I tend to take anything he has to say about the subject as probably being truthful. Senator Conrad seems to be able to perform magic with a calculator and does not seek to deceive anyone with what his calculator shows. Senator Conrad has shown a willingness to apply common sense to the issue and point out the truth even when the truth is painful. Senator Conrad has a fine track record when it comes to fiscal issues, and I am trusting that, once again, he is telling us the awful, painful, truth.

Now what do the Republicans have to say about it? Let me quote House Representative John A Boehner from the piece:
"Raising taxes . . . won't help balance the budget -- it will slow the economic growth that is creating the new jobs of tomorrow and increasing revenue to the federal government," House Minority Leader John A. Boehner (R-Ohio) wrote in an essay distributed yesterday by his office. "Keeping our economy strong and promoting fiscal responsibility will get the job done. Raising taxes won't."

Those in the pocket of the wealthy keep pointing to how cutting taxes encourages economic growth. There is some truth to this. Of course I would quibble that more important then just cutting taxes, more impact could be obtained by targeting the tax cuts towards those areas where they will have the most effect. Beyond that, I will state that Republican claims that the answer to every deficit spending problem is just another round of tax cuts is bullshit. To prove my point: Let's just reduce taxes to zero. If we follow Republican logic, this will lead to the most economic activity and thus yield a balanced budget. Defies common sense doesn't it? How can you balance the budget without ANY revenue? Now apply this same common sense to all of the Republican arguments on economics. (It is my belief common sense should have some weight in the analysis.)

Tax cuts to the wealthy do not seem to have done anything to prevent good paying manufacturing jobs from going outside the borders of our nation. Tax cuts for the wealthy have only placed more money in the hands of the wealthy to invest in moving the jobs outside America and to buy more products manufactured outside America. If the goal is to only stimulate the economy through more consumption of goods manufactured in China, this result can be obtained just as reasonably by putting the money into the hands of consumers who are not themselves wealthy (namely, the lower and middle class).

I am in favor of starting to balance the federal budget by rolling back the Dubyah tax cuts. In a nod to fairness, I would propose coming up with a permanent solution to the AMT problem. Perhaps eliminating the AMT altogether is required, however I would be satisfied with restoring the effects of the AMT back to its original intent.

How would I go about solving the Social Security problem? Well, the wealthy seem to love "flat taxes" and the "Fair Tax". The simplest solution, that would go a long way towards solving the problem, would be eliminating the cap on wages subject to the SSI payroll tax. In fact I would make all "income", not just wages, subject to the tax. Please note that, since much of my own income is shielded from payroll taxes by my having formed an S-corp, this would result in my own tax burden being increased by thousands of dollars each year.

However, I am intrigued by the arguments of the "Fair Tax" crowd. I would suggest that perhaps we could completely replace the SSI payroll tax with a national sales tax. My adoption would not result in what I think is their goal, however, which would be a shifting of the tax burden to the middle class from the upper class. My proposals would result in the upper class paying more resulting in increased revenues and the lower and middle classes not paying more (except for upper middle class already earning more then the current wage cap).

If this step was not enough to "save" Social Security, then some sacrifice would be required. If not enough revenue would be generated to continue current levels of Social Security benefits to the elderly throughout the Baby Boom bulge, then benefit payments would have to be decreased. It is my understanding that even with no change, benefits could continue to be paid at a rate of 70 cents to the dollar. However with my changes, such a drastic decrease would not be necessary. If benefits must be cut, let the cuts start now, let all seniors share equally in the sacrifice, not just those born at the end of the generation.

Besides, with modest cuts now (and increased revenue) the total cuts necessary might not need to be as drastic. The Baby Boom bulge is not going to last forever. It is going to only be a difficult point that society needs to weather. If changes result to the federal budget that achieve paying down the debt now, the federal credit rating should be good enough that investors will be willing to invest in federal treasury bills during "the storm" of the bulge. Like all storms, this too will pass. Investors will realize that once the bulge passes and elderly Baby Boomers start dieing off, ample revenue will remain to return their principal without a need for hyper inflationary increases in money supply by the federal government.

Once we get beyond what to do about Social Security, and have proven even this difficult problem can be resolved, perhaps we can then tackle what to do about the looming health care problem. Perhaps what Republicans preach is not really just all bullshit. Perhaps by relieving corporate interests of the need to provide health care benefits, we could grow the economy to provide health care for all while still providing decent paying jobs for most (if not everyone). Relieving manufacturers from the need to factor in the costs of health care into the costs of the widgets they produce should make American made widgets more competitive in the global market place. This would seem to offer some opportunities. The costs of health care should be born by those who actually live in America, not by those who manufacture something that just happens to be made in America. I am still open to arguments about what to do about health care. Some of the Republican proposals, particularly that one made by George Dubyah Bush in his 2007 State of the Union address, are very appealing. However even his proposal is extremely rough and needs to have some polish applied to it.


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