Thursday, April 21, 2011

What To Do About America's Budget?

Getting ready to do a live interview on Capitol Hill with Rep. Frank Wolf (R-Va.)  That's congressman Steny Hoyer buttoning his coat, photo left.

Like many of you, I've wondered what can be done about our nation's deficit and debt problems.  I've also pondered what kind of future we face if congress and the president can't find a functional solution.

I don't believe America is so weak that this can't be fixed.

Yet, after everything that's been reported, written about, and discussed recently, the $3.8 trillion budget proposed by the president for 2011 includes the largest deficit--you and I would call it an overdraft--in U.S. history.  It is estimated at $1.6 trillion.

There is no use recriminating against the president, either party, or congress.  They are all responsible and the responsibility goes back a very long way.

I covered what appeared to be an honest attempt at tax reform during my Washington years, and looking back on it has taught me a great deal.

The idea was to fix everything by having one tax rate for everybody.  Then, to eliminate all the loopholes. I think I've written about this before.

It was called the Kemp-Roth "flat tax" and it seemed like a pretty good idea at the time. It reduced the percentage just about everyone would pay in taxes, but it ensured that everybody did pay something.

Except it didn't come out like that.  First of all one big lobby insisted you couldn't eliminate the deduction for home mortgage interest and with that, congress and its lobbyists were off to the races. Oil companies weighed in.  Yacht builders got in line.  And pretty soon only some of the deductions had been eliminated.

And then there was the "flat" part.  One rate wouldn't do, because some said that wasn't fair to those at the low end of the income scale.  A small percentage for the poor was more difficult than a larger percentage for the rich.

So there were going to be two tax rates.

And in a form something like this, the "flat" tax was approved and signed.

In just a few years, another percentage was added.  Now there were three different rates.

And gradually over the years, all sorts of deductions and regulations that favored this or that industry were voted back into the tax code.  Rates were tweaked and tweaked and tweaked again. Much of this was done in omnibus bills so it wasn't evident immediately.

Came the Dawn.

The unintended consequences of budget item being piled upon budget item being piled upon tax rates that increase and decrease depending upon which way the wind is blowing is so impracticable one wonders how anyone could imagine it wouldn't crash.

A first step, just to show America they are serious, would be for lawmakers and the president to give themselves a ten percent pay cut, effective immediately. The amount of savings would be symbolic, but it would be a start.

Then, I'm beginning to think only a constitutional convention could really reform the tax and budget process, but I'm aware that this is also a very risky proposition.

Of course, we could just keep doing the same thing over and over again expecting a different outcome.  But that, I believe, is the definition of insanity.

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Don Meuler said...

It is hard for me to listen to Boehner and others rail against the idea of the richest 2% of the population contributing a comparitively small portion of their income to help with the budget imbalance - decrying it with "No new taxes!" - when what it would actually be is revenue sharing. Is that so wrong?

Robin Chapman said...

And here's another challenge: they can increase taxes on the rich, anybody and everybody but if they don't get spending under control it won't matter. First they have to do something about the gargantuan budgets and their humongous increases. Then lets talk about taxes.

Don Meuler said...

True; one side wants more revenue, the other less spending - neither is a solution unto itself. A little bi-partisan cooperation here? Please?

Robin Chapman said...

At the root of this discussion in Washington is a fundamental issue: when an American earns money at a job or by investing, or by starting a company: who is it who has the right to control that income and decide what should be done with that money?

My father believed the money a person earned and saved should be his own, and that a government's role was to take from each of us in taxes the limited amount of money that was needed to serve its citizens with military protection, good roads and a safety net for those who needed it.

That idea not at all akin to the one held by the current administration, as articulated by the president when he said "I'm not here to give a bunch of money back to some rich guys" or something to that effect.

The money he is talking about is money earned by people and to "give back" means to return to its legal owners the money earned, minus a reasonable amount in taxes.

I know this has become an almost foreign concept, but we have to start thinking about it. So far, in the first years of the 21st century, no amount of taxes paid by the American taxpayer has ever been enough to feed our perpetually hungry Congress. And at some point we have to decide where all this is going to go.

If we each give 100% and then let the state take care of us? Is that what we want? Obviously, many of us don't think that is even a reasonable idea.

But it is strange to me, that we aren't even talking about this.
Are there no alternatives to government programs? Will our churches and charities and volunteers and donations not be willing to pick up any slack, especially when times are tough? Is it the government's role to do everything for us all our lives?

Sorry for the diatribe, but these are such important issues. I think this broader discussion needs to be part of the national dialogue.

peretzklein said...

Robin Chapman for U.S. Congress!

Robin Chapman said...

Wow, that would be out of the frying pan, into the fire!

Skywolf said...

I think it is important to remember that the ‘temporary’ tax cuts for Americans making over $250,000 (part of the Jobs and Growth Tax Relief Reconciliation Act of 2003), was signed into law by President Bush and scheduled to expire in 2010 (though extended by two years in a December compromise). So when President Obama said that he does not want to give money back to some rich guy, he was referring to his reluctance to extend the temporary Bush tax cuts beyond 2010. Nonetheless, the president clearly could have articulated that viewpoint better.

Moreover, I think all Americans - Democrats, Republicans and Independents alike - believe that the income someone earns is for him or her to decide over. After all, the United States is a democracy with a free market economy…and whether a George W. Bush or a Barack Obama is at the helm, it will remain that way. The issues are to what degree the Federal Government should tax that income and how that revenue should be spent. And quite frankly, compared to other industrialized nations, the tax rate differences between the two sides here in the United States are rather marginal (although the potential revenue collected or lost quite substantial).

But as stated, the solution of reducing the significant budget deficit and national debt lies in a fiscal dual approach: reducing spending and temporarily increasing the tax burden. There is no way around it as we are now talking about a budget deficit of $1.35 trillion and a national debt of $14.3 trillion. But with the upcoming 2012 elections, politicians of all stripes will probably not have the political courage or capital to make the needed tough decisions…because the American electorate will likely hold a tax increase against them come Election Day.

But President Obama’s 2012 budget plan and the Republican’s “The Path to Prosperity” plan, spearheaded by Rep. Paul Ryan, appear to be a beginning.

peretzklein said...

It would get you back in DC, and you could represent your district in CA; the best of both worlds.

Robin Chapman said...

Yes, and I hear they have the best benefits and health insurance in America!