Reducing National Debt

Great Britain and Greece have launched full on national austerity programs.

Erskine Bowles and Alan Simpson, chairs of Obama's national debt reduction commission introduced the first post-election campaign reality into the debate on the debt. They're calling for the bottom line goal of bringing down spending eventually to 21% of GDP and is would achieve "nearly $4 trillion in deficit reduction through 2020," and would stabilize debt "by 2014 and reduces debt to 60% of GDP by 2024 and 40% by 2037."

DISCRETIONARY SPENDING

-Rolls discretionary spending back to FY2010 levels for FY2012

-requires 1% cut in discretionary budget authority every year from FY2013 though 2015 -Discretionary Budget Authority (BA) indexed to inflation from FY 2015 through FY2020 -Discretionary spending would be $204 billion (16%) below the President?s budget and $127 billion (10%) below the CBO baseline in 2015.

$100 billion in illustrative defense cuts by 2015:

-Apply the overhead savings Secretary Gates has promised to deficit reduction
-Freeze federal salaries, bonuses, and other compensation at the Department of Defense for three years
-Freeze noncombat military pay at 2011 levels for 3 years
-Double Secretary Gates? cuts to defense contracting
-Reduce procurement by 15 percent
-Reduce overseas bases by one-third
-Modernize Tricare, Defense health
-Replace military personnel performing commercial activities with civilians
-Reduce spending on Research, Development, Test & Evaluation by 10 percent
-Reduce spending on base support Reduce spending on facilities maintenance
-Consolidate the Department of Defense?s retail activities
-Integrate children of military personnel into local schools in the United States
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$100 billion in Illustrative domestic cuts

-Reduce Congressional & White House budgets by 15%
-Freeze federal salaries, bonuses, and other compensation at non-Defense agencies for three years
-Cut the federal workforce by 10% (2-for-3 replacement rate)
-Eliminate 250,000 non-defense service and staff augmentee contractors
-Reduce unnecessary printing costs
-Create a Cut-and-Invest Committee charged with trimming waste and targeting investment -Terminate low-priority Corps construction projects
-Slow the growth of foreign aid
-Eliminate a number of programs administered by the Rural Utility Service (formerly REA) -Eliminate all earmarks
-Eliminate funding for commercial spaceflight
-Sell excess federal property

TAX REFORM

3 tax reform options. Option 2 is "Wyden-Gregg Style Reform"

Individual Tax Reform

-Repeal AMT, PEP, and Pease
-Establish 3 rates ? 15%, 25% and 35%
-Triple standard deduction to $30,000 ($15,000 for individuals)
-Repeal state & local tax deduction, cafeteria plans, and miscellaneous itemized deductions -Limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000
-Limit charitable deduction with floor at 2% of AGI
-Cap income tax exclusion for employer-provided healthcare at the amount of the actuarial value of FEHBP standard option
-Modify and repeal several other tax expenditures
-Dedicate portion of savings to deficit reduction

Corporate Tax Reform

-Reduce corporate tax rate to 26%
-Permanently extend the research credit
-Eliminate and modify several business tax expenditures, including:

--Domestic production deduction
--LIFO method of accounting
--Energy tax preferences for the oil and gas industry
--Depreciation rules

-International tax reform including a territorial system

Other Taxes

-Gradually increase gas tax to fund transportation spending
--Raise gas tax gradually by 15¢ beginning in 2013
--Dedicate funds toward fully funding the transportation trust funds and therefore eliminating the need for further general fund bailouts

-Chained CPI: Because the current index overstates inflation, make technical correction to adopt chained CPI government-wide, including the tax code

MANDATORY BUDGET

Yo

 

Austerity measures aren't the answer to the question when interest rates are low and the economy is in the dumps due to lack of demand. Implementing them would simply be a form of 'anti-stimulus'--the unemployment rate would go up and taxes wouldn't be cut (since even in the best case scenario we would only be breaking even) leading to a drop in demand and recession.

The only reason to implement austerity measures is if the government can't borrow at low interest rates. That is not the case yet or in the near future. The best solution to the current debt problem is to get the economy firing on all cylinders (thereby bringing in more revenue) and looking for cuts/limitations/cost controls in the 5-10 year outlook of Medicare.

 

An understanding of the recession is somewhat built into the proposal - don't do the damage right away but ease into it as of 2015.

 

Seriously why wouldn't what Warren G. Harding did work now? What was so different about what he did then--on a fundamental level? I think it was within maybe 2 years that he cut federal spending by 50%. He also eased up on regulations that were strangling American businesses and lowered taxes. It was easier to get a job, people didn't have to pay the government as much, business could thrive, and the economy came back in one of the best rebounds in our country's history.

I'm not sure raising a bunch of taxes is a good idea right now. Keep them low, give American corporations a reason to produce in the United States rather than outsourcing to countries with more economic freedoms, and let up on small business regulations/paperwork. With more business freedom and more incentive to produce in the United States than elsewhere, jobs opportunities would increase, and more people would make more money, with which they would be paying income taxes. At the same time, with the Federal government tightening its belt--less spending plus more tax revenue would equal best possible situation. Why wouldn't that work? Obviously there are plenty of specifics that would need to be discussed, and it's not like it would all be about deregulation--but giving companies an incentive to produce in the US might be a start, so long as it doesn't involve ethics violations--I'm looking at you, Walmart.

EDIT: and then there's the whole matter about the role of the Fed and that maybe centralizing clearing-houses/giving so much monetary power to one entity might have been a mistake--an entity that can be quite good at turning cyclic recessions into depressions or otherwise extending them.

 

Asterix, you really have to get into specifics, though. For instance, if we went by current Republican demands (no cuts to Defense or Medicare), and kept our obligation to continue servicing the national debt, that would take up 47% of our total budget. So to replicate Warren Harding, you'd have to literally shut down every single other branch or function of the federal government. Entirely.

Does that make sense? You can't just say "why don't we cut a whole bunch of money" and not give specifics about what you want to cut. That's the whole reason it's difficult. You may as well say "Why don't we just solve the problem?" As it happens, there's a problem here.

 

We didn't have Social Security, Medicare, Medicaid then.
We didn't have a giant military budget back then.
We also weren't involved in two wars then, or in the middle of an unemployment crisis.

Also, ease regulations? When under-regulation got us into this economic crisis?

And yeah, Harding's plan worked so great, it was continued by Coolidge and Hoover... leading to the Great Depression. That "economic rebound" was hollow, just like the economic growth of the Bush years was hollow.

You mean poorer standards and worse conditions with more exploitation, with the people staying trapped in poverty?

Isn't that basic idea of
Step 1: Lower taxes ===> Step 2: ??? ===> Step 3: More tax revenue!
the justification that Bush gave for his tax cuts? Yeah, that really balanced the budget.

So what are the specifics?

I started the whole thread on "Bureacratic & Legal Reform" offering my specifics on how to completely restructure government so it's more efficient transparent accountable streamlined and simple, offering my specifics on how to make it a lot harder to just create any legislation in order to constrain further expansion, and went through the list and picked out a few specific programs that I could tell just through brief online research should probably be downscaled or terminated.

And that was just adding up a lot of little things! The biggest things we need to do are tweak SocialSecurity/Medicare/Medicaid to make them fiscally sound, and to evaluate and make smart cuts to the Defense Department budget.

 

Wocky is right, I need to be specific if I want to promote a better conversation about this. I was merely trying to start one--with the issue being, raise taxes or keep them the same?

And, I'm sad to hear that according to Wocky, Republicans will not support cuts to Defense spending, though I find that hard to believe. I'm sure many Republicans support cuts to defense spending in certain areas, but not all.

I think Harding is particularly relevant given how seemingly effective he was at combating a depression on his watch (which was arguably brought about because of the decisions of President Wilson--the costly war, for instance). Moreover, I don't believe it was hollow growth at all--and that a natural recession was going to follow, but was transformed into a depression by the relatively new Federal Reserve, which had taken the role of CHA's/clearinghouse associations--a depression that occurred on Hoover's watch (it's also worth noting that both Wilson and Hoover were members of the new progressive party and believed strongly in interventionism). In A Monetary History of the United States, 1867-1960, the section entitled The Great Contraction, Milton Friedman (Nobel Prize in Economics) and Anna Jacobson Schwartz discuss how the depression could have been avoided were it not for the Federal Reserve.

They argue that centralization made the recession worse (two summaries of their writing from an article below):

As a result of examining more closely the key years between 1929 and 1933, Friedman and Schwartz first concluded that the Great Depression was not the necessary and direct result of the stock-market crash of October 1929, which they attribute to a speculative investment bubble. (The popping of the ?bubble? may have been instigated by the Federal Reserve?s raising of the discount rate?the interest rate the Fed charges on loans to commercial banks?in August 1929. The cause of the speculative bubble that led to the crash is a somewhat controversial topic. Whereas Friedman and Schwartz accepted that the bubble was caused by investors, seemingly endorsing?at least partly?the Keynesian ?animal spirits? explanation, Austrian economists have argued otherwise.) In fact, they believed that the economy could have recovered rather rapidly if only the Fed?the central bank of the United States ?had not engaged in a series of disastrous policies in the aftermath of the crash.

...Friedman understood . . . that before the Federal Reserve Act financial panics in the US were mitigated by the actions of private commercial bank clearinghouses. Friedman and Schwartz?s view of the 1930's was that the Fed, having nationalized the roles of the clearinghouse associations [CHAs], particularly the lender-of-last-resort role, did less to mitigate the panic than the CHAs had done in earlier panics like 1907 and 1893. In that sense, the economy would have been better off if the Fed had not been created. This position is perfectly consistent with the position that, provided we take the Fed?s nationalization of the clearinghouse roles for granted, the Fed was guilty of not doing its job.

Thus the Fed?s failure in the early ?30s shows the dangers of excessive centralization of important market functions that were previously dispersed among multiple private institutions. Friedman?s bottom line remains intact: The Fed caused the Great Depression.

Here's an article featuring Ben Bernanke's thoughts on it:

After citing how Friedman and Schwartz documented the Fed's continual contraction of the money supply during the Depression and its aftermath ? and the subsequent abandonment of the gold standard by many nations in order to stop the devastating monetary contraction ? Bernanke adds:

? Before the creation of the Federal Reserve, Friedman and Schwartz noted, bank panics were typically handled by banks themselves ? for example, through urban consortiums of private banks called clearinghouses. If a run on one or more banks in a city began, the clearinghouse might declare a suspension of payments, meaning th

 

I'm roughly liking it. It feels like a step in right direction even though there's some stuff I have issue with. Gas tax increases being my biggest, but it seems relatively offset.

 

This sums it up nicely: The left hates the spending cuts, and the right hates the tax increases.

It comes from an opinion piece on the Fox News website: The Deficit Commission Is a Big, Fat Dud

 

Here's another deficit reduction interactive thingy.

Budget Puzzle: You Fix the Budget. It combines choices included in the outline from the Chairmen of Obama's budget commission with other options so that you can make your own tradeoffs between taxation and spending cuts to reduce the budget.

I think this should link to my cuts.

 

Speaking directly towards the defense cuts and to quote from the OP:

Freeze noncombat military pay at 2011 levels for 3 years-Whether this has a true impact or not will depend on where we are militarily. With the number of rotations and tours being conducted in Combat/Hazard Zones this is going to be hard to cut. You cannot operate in two theatres at the same time and talk about "non combat pay" when almost all of them deployed in those theatres are getting it. Yes, we drew down in Iraq, but still have 50K troops present.

-Double Secretary Gates? cuts to defense contracting
-Replace military personnel performing commercial activities with civilians -I'm going to take these two together because they are directly related. You cannot cut defense contracting then talk about replacing military jobs with civilians. They are going to be either A-Contractors or B-Government employees. The reason contracting is relied upon so heavily is while there is an upfront cost, there is not the long term cost of that contractors employees of health care, benefits, retirement etc as would be built into the cost of a Government Employee. So, either way I'm not seeing the savings here. As a footnote to the first paragraph, if those contractors are operating in the combat/hazard zones then those contractors or Government Employees are getting paid at a higher rate based on the location of the assignment.

I read the OP very quickly but one thing I did not see mentioned was a cutting of foreign spending. While I'm not a fan of the Isolationist Policy I really have to wonder what benefit we are getting out of the billions of dollars we are spending in other nations. Lets redirect some of that spending here at home.

 

I was slightly more aggressive.

I am a tax-and-cut Liberal.

 

And here is mine.
More on shrinking side of things.

 

Here's mine:

http://www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html?choices=hvxpdbrc

I did it 40% tax increases, 60% spending cuts, which I think is a good balance.

Ended up not needing a sales tax, and reduced the rates to the Bowles-Simpson recommendations while eliminating the loopholes. Eliminated farm subsides and earmarks. Big cuts to military and the federal workforce. Tort reform, which we should have included in the healthcare bill. Went with Obama's proposals on the Investment and Estate taxes, still lower than in the Clinton years. Allowed the Bush tax cuts on the wealthy to expire, and reformed payroll taxes to cover more people. I'd probably be crucified for just raising the eligibility ages for Social Security and Medicare to 70 though, and putting a cap on Medicare spending (probably the most important measure). Enacted the millionaire tax, carbon tax, bank tax, and reduced the mortage-interest deduction.

Have a question about the site, does it show you somewhere what your budget surplus is?

EDIT: Nevermind, figured it out, just have to do some subtraction. I created a $300+ billion surplus for 2015, and a $800+ billion surplus for 2030.

 

Mine

62% from tax increases
38% from spending cuts

I specifically avoided a Medicare spending cap, since it has rightly been pointed out that the Simpson-Bowles proposal to "create a process" and use "additional steps as necessary" isn't a plan at all, so much as wishful thinking. So I didn't feel it was fair to pick something that no one has any idea how to actually do. Other than that, I largely tried to preserve programs that I thought were value, and reasoned that return to Clinton era tax levels at many points weren't unbearable. Most spending cuts were to the military. Finally, the list is rounded out by a series of fiscally responsible progressive measures like a bank tax, new formula for Social Security inflation, etc.

 

Yes, I saw that point in the NYT piece's comment section, and that seems right to me.

 

I think you have to start at military/defense spending first, even without looking at the cost of the wars. But I'm not confident the Republicans in the House would ever go for it.

 

We're going to find out immediately whether the new Congress is serious about cutting the deficit. My sense is that the new Republican House majority would abandon any and all other principles, would promote ninth month abortions and allow gay marriages to be performed at sea by Navy admirals before they give up on protecting tax cuts for the rich.

 

If that was the case, album sales for the Village People's In the Navy would probably skyrocket, which would help reduce the deficit on its own. It's win-win.

 

Were the Bush Tax Cuts Good for Growth?

We already knew that every job created during the Bush administration has essentially been lost, but that the Bush tax cuts correlate with "the slowest average annual growth since World War II" even excluding the recession?

The question is a great one: what is the actual evidence that continuing the Bush era tax cuts will promote economic growth?

Shifting wealth to the rich and destroying the middle class's ability to consume without going deep into debt. That's the legacy of tax cuts.

 

The argument I have seen is that while you may get minimal bang for your buck with a tax cut for the rich, you risk derailing the recovery by raising taxes period. I don't want to take that risk.

 

First things first, supply side is like perpetual motion. The typical supply-sider believes that giving the rich a negative tax rate will spur growth and pay for itself.

The budget is easy to cut down to size. The first thing I'd do would be to end cost-plus contracting. The second thing I'd do would be to end subsidies for industries that clearly don't need them (e.g., fossil fuels, biotechnology; the latter double dips by getting soybean subsidies).

 

Cutting subsidies is easy in theory but damn near impossible in practice. All of those industries you listed are represented by lobbyists who work over their Congressional representatives to get their funding.

 

Then we should just brand them unpatriotic for putting their careers over the national interest.

 

Here's my cuts to taxes ratio in the NY Times piece:

74% cuts to 26% tax increases

No big surprise there.

But I was really surprised to see just what reducing troop levels around the world and capping medicare did. Those two things alone were huge.