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This is fun, but … November 14, 2010

Posted by WillardWhyte in Economy, Politics, U.S. Budget.
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…after going through it and saving the nation from deficits through 2030 with mouse-clicks that took about 15 minutes, I find myself wondering about all the ramifications.

My ratio of spending cuts to tax increases was 61-39, and it did not seem like I was taking food out of the mouthes of babies, leaving infirm seniors by the side of the road with just a bone to gnaw on, or leaving the nation wide open to attack — now or a quarter-century from now.

Earmarks, farm subsidies, a 10% reduction in federal workforce and a 250,000 whack to government contractors, reducing troop levels ion South Asia and cutting non-combat military compensation and capping Medicare growth and reducing SS benefits to high-income folks all seemed like areas that could take trims.

Workforce/contractor reductions of 10% would about equal what has taken place in the private sector, with productivity expected to absorb workload. It surely would provide ample incentive to managers to find wasted effort, if only by having to prioritize the most productive tasks and workers. This is always artificial, so I would allow a manager to be able to save a position if he/she were able to identify permanent/verifiable savings equal to 110% of the full cost of that position  in salary and benefits.

Capping Medicare growth to GDP+1% also seemed reasonable, if very difficult. As medical costs will go up with sheer volume more than that, it requires a heavy hand, and that hand would need to find the waste and fraud in a hurry. A good whistleblower program is needed here.

On the tax side, I returned estate tax to 2009 level, with $3.5 million exemption; cut cap gains to Clinton-era levels; kept Bush tax cuts for all but those above $250,000; jacked payroll taxes back up to cover 90% of income (level at original enactment); converted mortgage interest deduction to credit); and enacted bank tax as a disincentive for risk.

I opted against a carbon tax (prefer market approach with cap-trade); a sales tax; millionaire’s tax; and complete loophole reduction.

I opted against the Bowles-Simpson complete wipe-out of “loopholes” because I am a believer in using the tax code, as well as the checkbook, to attempt to steer investment toward things deemed in the national interest — like energy independence, reinvestment of profits into R&D, individual incentives for education. Markets today are extremely short-term in their vision and the government needs to “help” money look longer.

That said, the tax code needs to be overhauled with a “zero-based budgeting” approach — each clause amounting to a “tax expenditure” must be justified after an exhaustive, neutral cost-benefit audit fully identifying where the crutch applies and why.

With all this said, I’ll say I have no idea whether this little graphic exercise created by the Times is “neutral” or “spun” to identify things a “progressive” would target, and not highlight as an option things a “conservative” might want as an option.

And I’d also say that it all kind of assumes all else could be ignored, which I don’t agree with as an approach.

Still, it is quite thought-provoking and worth the time I think, if for no other reason than to get familiar with what really might be “saved” by the various options on this list.  Things like the estate tax don’t really help close the huge gap all that much and might very well motivate hardship-sales of  enterprises best left in family hands. Perhaps another method would be better — such as a ceding of a non-voting ownership stake to a blind trust, with repurchase options to owners or their designees. Perhaps Treasury could pool the combined stake and sell slices into the open market, giving Uncle Sam the cash and shifting the risk/gain to global investors.

It would be nice, maybe, if the Wall Street Journal or Bloomberg joined with the Times in this venture to extend the choices (and in a manner of thinking also vetting the entire deal for “bias”). And perhaps each option could link to pro-con essays or more detailed studies of the risk/reward for each, allowing folks to better understand the pain/gain each choice involves.

Sort of a joint venture in education and reason.

 

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