|
US Federal Government
Please critique my plan to balance the US federal government's budget. Despite my cynicism regarding the extent of corporate influence at this level of government, I think even many Democrats agree this deficit spending is a crisis so I'm cautiously optimistic this might get addressed.
The American federal government has overspent by an average of $860 billion (2012 US$) in each of the past 12 years. That’s nearly 2/3rds of the entire federal debt (currently $16 trillion) accrued in the past decade! I really want to see Congress and President Obama work on balancing the federal budget. I’ve outlined the best ideas I’ve heard on how to do this below:
Primary Production/Capital Gains Tax Revenue Increases: $250 billion
A flat 75% tax rate on the operating income of all companies involved in primary production (e.g. mining, oil and natural gas extraction, modeled after the Norwegian system) in the U.S. would generate at least $100 billion in additional annual tax revenue. This estimate takes into consideration a considerable decrease in consumption of gasoline and other petroleum based products as the higher price of producing these goods equates to smaller quantities making it to market.
An increase from 15% to 35% in the capital gains tax rate would easily generate an additional $150 billion in annual taxes.
There are a myriad of economic benefits are associated raising the capital gains tax rate. For one, it would likely lower the average interest rate the federal government pays on its debt by drawing some investors away from the stock market and towards Treasury bills. This would increase demand for shares in government debt, which would lower the interest rate the government would have to offer to attract customers.
I was astonished to learn that reductions in the capital gains tax rate (lowered from 35% to 15% since 1980) have been by far the biggest contributor increases in economic inequality in the United States.
Income Tax Reform: $60 billion
We also need to reduce tax credits and deductions for the top income earners. The effective tax rate for the top 1% of income earners was 23% on a group income of roughly $400 billion. If we raised the effective tax rate from 23% to 25%, it would generate $40 billion in new annual tax revenue.
Income earners in the top 2-5% pay an effective tax rate of 21% on a group income of roughly $200 billion. If we raised the effective tax rate from 21% to 23%, it would generate an additional $20 billion in annual tax revenue.
These tax revenue projections assume these very well paid workers wouldn’t be discouraged from working as hard by 10% increases in their federal taxes. I think this can be done if this group can be persuaded to trust the federal government with a greater share of their income. This trust can best be earned by showing a commitment to reduce spending.
Tax revenue collected from top income earners will also increase as the economy continues to recover from the Great Recession.
Current Non Defense/Entitlement Programs Budget: $1,300 billion
Goal: save $15 billion (1.1% of total budget)
Unlike our latest Congress, I’d leave the IRS, FAA, EPA, and related regulatory programs out of budget reduction negotiations. The IRS and FAA generate at least as much in tax revenue and economic activity as they require for their operation – I’ve no idea why a thinking person would subjugate them to the proverbial axe.
The EPA disproportionately benefits the poor and unborn generations, groups that are vastly underrepresented by our current government, so I wouldn’t disrupt its operation either.
However, I would exclude agribusinesses from the federal crop insurance program, which cost almost $15 billion a year to run in 2012. The US Postal Service regularly runs operating deficits in the billions; I would also work to reduce government involvement in the postal industry.
Current Defense Budget: $650 billion
Goal: save $150 billion (by 2023)
This budget line is the toughest because a lot of this government spending supports low and middle class jobs in American communities. Then there are the strategic implications of a smaller military which I won’t pretend to understand. Still, I would follow the recommendation of the Budget Control Act of 2011 that proposed a gradual (over 8-10 years) reduction in funding for the Department of Defense that eventually reduced their budget by 23%.
Current Social Security Program Budget: $800 billion
Goal: save $60 billion
When it comes to Social Security, the biggest policy change that can be made to balance the budget is to increase the retirement age. It would be imprudent to critically reduce the size of the benefit checks for retirees as this program enables older workers an attractive alternative to participating in the work force, thus freeing up jobs for younger workers.
The current retirement age is 65 or 67 – depending on when you were born – and the average life expectancy is 78 (higher for women, lower for men). There’s also the option to enter early retirement at age 62 where you can claim 75% of the full benefits. Also, 30% of Social Security recipients are not retirees, but disabled persons and widowers.
If the retirement age for Baby Boomers were raised from 67 to 70 (I would leave the benefits for older retirees untouched as most of them have already exited the workforce), the average number of years a recipient could claim full retirement benefits would reduce from 11 to 8. Assuming life expectancy doesn’t change much and those in the 67-70 age group would still collect 75% of full benefits, expenditures still get reduced by $60 billion per year.
Current Medicare/Medica Budget: $700 billion
Goal: save $350 billion
Universal healthcare should be a benefit of being an American citizen. Unfortunately, American society seems adamant that they have their cake (and eat someone else’s too). The NHS in Great Britain is a fantastic model I would love to see the U.S. emulate. The per capita cost for healthcare in the UK is $2,500. In the U.S.: $6,000.
Despite the dramatic difference in cost, America and the UK are remarkably similar in their rates of obesity, alcohol, and cigarette consumption. The biggest difference is clearly in the efficiency with which the single payer system dispenses healthcare services.
American society needs to live healthier, but also accept that healthcare is a trillion dollar industry and that financial resources are not infinite. I do not find healthcare rationing to be as morally repugnant as burdening future generations with an unmanageable level of debt.
|