The American Budget

Doom-and-gloomers like to talk about the train wreck that America’s future financial situation will be. But I’m not as pessimistic. The financial details and problems, as I show below, aren’t so difficult to fix. The only hard part is mustering the political will to do it. Fortunately, necessity tends to make polls irrelevant so the changes will either come because we choose to do it, or because China decides to stop lending us money. Though, my hope is that the political will can be mustered before financial necessity makes cutting costs hasty, and thus costlier, than they really have to be.

The deficit is about $1.2T. As a percentage of GDP it is the highest its been since WWII.

It’s politically unpopular to talk about cutting defense spending. But it’s such a cow. We need to fight religious nut jobs smarter, not harder. And stop worrying about being prepared for world war 3, close most of our foreign bases, stop nation-building, stop paying our country’s most gifted and able young people to sit around in a desert on the other side of the world when they could be here at home designing and building dams and bridges, becoming doctors, engineers, farmers, teachers and entrepreneurs.

Instead of spending on our military as much as the next 20 countries combined, maybe we could just cut it down to, say, twice, what the next weakest country spends? That would move it from $663B to around $200B.

The good news about this budget crisis is that there’s plenty of room to increase the income tax. The marginal income tax rate for people making over $400k/year is 35%. During WWII, when the deficit was this high, the marginal tax rate for people making over $200k(1946 Dollars) was 91%. Just letting the “Bush Tax Cuts” expire for the top 2% of income earners, returning the tax rate on income over $375k/year to 39.1% (from 35% currently) in the US would net $100B/year. Imagine if we dared moving the income tax on income over $500k/year up into the 45% or 50% range, still nowhere near the 91% WWII rate. That is a lot of untapped tax-potential, should the country really need it.

There are estimates that legalizing marijuana could net the Federal Government somewhere between $30B – $100B/year, between excise and unreported income taxes, and savings on enforcement costs. Never mind the cost-saving, and life-saving alternatives to prohibition on other narcotics, which also reaches into the $100B-$200B/year range.

Raise the retirement age to 69 to keep SS solvent. Maybe offer 65 year-olds the option to take a lower benefit in order to retire at 65, or keep their regular benefit if they retire at 70.

Oh, and we spend $164B/year on interest on our national debt. I think we could stand to lower that payment a fair amount. Maybe a temporary high-tax on high-income earners for, say, 5 years, in order to pay off the national debt and lower the national annual interest payment permanently?

So, there are some fairly painless ways to at least cut the deficit in half from $1.2T to $600B. That’s without even touching Medicare or Medicaid, which I’m sure hold bounties of savings within their budgets. We spend three times more on health care per person, as a nation, than any other country.

The political problem though is the American people want to pay no taxes and they want zero spending cuts. You ask them if they want a smaller government, and they say yes. You ask them what they want to cut in order to accomplish that and they say NPR and foreign aid.

If you want a smaller government and lower taxes, you have to be serious about budget cuts. That means cutting defense, the cold war is over. Terrorists aren’t fought with hundred-billion-dollar aircraft carriers, or senseless wars against sovereign nations, they’re fought with small intelligence teams, special operatives and smarter foreign policy.

It means making social security viable. Imposing SS taxes on incomes over $100k, maybe raising the retirement age, and maybe disqualifying people with investment or pension income of over $100k or $200k/year from being able to collect SS, they don’t need it. SS is to prevent old people from being out in the streets begging for food, it’s not to give them extra money so they can go on cruises.

I don’t think balancing the budget is particularly hard, it’s just politically unpopular. Which is evident from the lack of current politicians who are willing to talk seriously about cutting costs. The Democratic President submits a budget to a Republican House that just nips at the edges, the Republican house scoffs at it, but instead of offering a serious alternative with real cuts and adjustments to defense and entitlement programs, they recommend cutting public television. It’s as if everyone wants to run for office, but nobody wants to govern.

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