Discussion: Balancing the Budget

This is not going to be a deep, thoughtful post.  I’m more looking for discussion and people’s general thoughts about it.  It is engendered by reading some links jnc posted not long ago and by some comments by john on PL today.  (Hahahaha, john, you certainly got the point of my comment.  I usually bail when that one shows up.)


For a start, I think balancing the budget is the beginning point before moving on to tackle the deficit.  Given my leftist leanings, I would like to see that occur with the least disruption to the middle class and to the social safety net as possible – which for me means starting with cuts to defense, raising taxes on everybody (yup, my own self included) at least temporarily, finding some way to deal with rising healthcare costs.


What are your thoughts in general?

33 Responses

  1. For your amusement, Ross Perot’s 30 minute infomercials on the deficit, debt and balancing the budget are now 20 years old. The numbers in terms of total debt ($4.1 trillion) and health care spending as a percent of GDP are interesting to review in retrospect.



  2. That’s excellent, jnc. I had not thought about those in a long time, although I certainly remember them. That year, I honestly did not decide whether to vote for Clinton or Perot until I got to the polling place.

    I started with the first in the series. Through the first minute and half or a little longer, I was amazed at how that is exactly the conversation 20 years later. Makes one wonder where we would be today if he had won.


  3. All I would add is that ideally, we would project a balanced budget at something less than full employment – say, 7% unemployment, so that at full employment we would be in surplus and in recession we would be in deficit but over a business cycle we should be in balance.

    I really do understand that while it is empirically impossible to make these predictions with accuracy, the politics would always game the system as it always has. Still, better to have a goal of a balanced cyclical budget – perhaps even a surplus cyclical budget – then to have a Congress, R and/or D that actually loves to give something for nothing by either spending too much or taxing too little, always to the benefit of the fund raisers for the parties. A Congress, as we have seen, that cannot even get it together long enough to get all the committees in both houses to report out appropriations and have conferees to iron out the actual spending, but which passes omnibus after omnibus, with special bills for AG and Defense. A Congress that has known how to fix SS and Medicare for years but won’t do it [Medicaid, otoh, is a black hole and difficult for even smart people to figure out].

    I think it is well beyond “throw the bums out”. In fact, many of these men and women, R and D, were proven hard workers who made their committees hop to, in the past. Now we get “investigations”, but none of the hard work of trying to figure out appropriations. The system has changed, I think.

    Bottom line: I do not think we will get back to, say, McC exposing a bad Boeing contract, or Grassley and Harkin together finding billions of waste in the AG proposals just by electing new Grassleys and new Harkins. I am saying we will not get to balance as a true goal under this system of government, as it currently exists.

    Not if the Ds are elected. Not if the Rs are elected. Not if as mixed government they each treat the opposition as the enemy. We are in spoils system territory now. It was better when Newt was Speaker and Clinton was POTUS. But they couldn’t do it now.

    It’s bigger than the people involved.


  4. I think we’ll eventually have to institute a VAT.


  5. Based on how poorly Congress has so far allocated the public’s money, why would a VAT tax help alleviate deficit spending?


  6. I’ll take a stab at this. Most of my positions will be familiar:


    1. Complete overhaul/replacement of the current income tax system with a true flat tax. All existing FICA and income taxes including capital gains are rolled into one flat tax that applies to both individuals and corporations with no deductions (mortgage, employer health insurance, dependents, etc) or exemptions. The minimum income for filing is set to whatever level the IRS generates revenue from the tax, i.e. the tax collected has to exceed the collection costs. Capital gains and dividends are taxed at the same rate as earned income, and the combining of the FICA and income taxes effectively removes the cap on income for Social Security contributions. Everyone files individually based on their individual income so marital/civil union status has no effect on income. The exact rate in any given year is set at whatever is needed to balance the budget, after all other taxes are taken into consideration.

    2. Eliminate all tax exemptions for non-profit organizations. All non-profits/endowments/religious/charitable groups pay the same income taxes as any other individual or organization. This includes churches.

    3. National sales tax of say 5% is instituted on interstate commerce only which preempts any state attempts to tax it. I.e. you pay either the state sales tax on local transactions or the national sales tax on Internet transactions, but not both.

    4. Increase the gas tax by 5 cents per gallon a year for 5 years (25 cents per gallon total at the end of 5 years) with the revenue stream dedicated to transportation/infrastructure and authorize an “infrastructure bank” to provide better planning and implementation of long term transportation projects. As the current gas tax is 18.4 cents per gallon, this is will more than double the amount of money available for infrastructure projects, while having minimal economic impact overall given the current pricing levels and variances.


    1. Reduce the Defense budget to approximately $500 billion per year and provide the Department of Defense with unilateral discretion on what cuts to make to achieve this in terms of weapons systems and force reductions. As $500 billion is the amount that was spent around 2005-2006 when we were in the midst of both Iraq and Afghanistan, it should be sufficient.

    2. Convert Medicare and Medicaid into voucher programs to participate in the new exchanges as part of the ACA similar to the current low income subsidies. Vouchers for Medicare would be appropriately means tested. With the elimination of the employer tax deduction for insurance, this would effectively convert the entire United States health insurance system to an individual one ala Wyden-Bennet with varying levels of government subsidies based on income and age. Ezra Klein captures the jist of it:

    “Because the alternate Romney is still a Republican, he would also back Rep. Paul Ryan’s latest proposal for Medicare reforms and propose integrating Medicare exchanges with the Affordable Care Act’s insurance exchanges, enabling people to retain the same insurance throughout their lives, a change that would improve insurance markets and health outcomes by encouraging insurers to care about the long-term health of their customers.”


    3. Eliminate all direct business subsidies for farms, energy (oil and green), etc. Any federal spending for public benefits from things like green energy should be done as direct R&D that is then put into the public domain and available to any business for actual applications royalty free.

    Budget Process Reforms:

    1. Convert to a single bi-annual budget for each Congress so that the regular appropriation bills only have to be debated and voted on once per election cycle. Should there be a desire for fiscal stimulus in a given cycle, a deficit can be run in year one of the two year cycle to be made up in the second year. The overall cycle should produce a balanced budget every two years.

    2. Eliminate automatic spending for entitlements. All entitlement appropriations must be debated and voted on just like all other spending. If more money is appropriated than needed for any given budget cycle, it can be returned to the Treasury at the end of the fiscal year. Conversely, if not enough money is appropriated, a supplemental appropriation must be approved otherwise checks stop.

    3. Eliminate automatic COLA’s for entitlements. All COLA’s must be debated and voted on.

    4. Eliminate omnibus spending bills, by constitutional amendment if necessary. All spending bills must go through the regular order.

    5. Eliminate the filibuster on Motions to Proceed in the Senate as well as the parliamentary tactic of filling the amendment tree. Filibusters would still be allowed on Motions to End Debate.


  7. Interesting ideas. Mark, if you are correct, how do we get the system working again?

    jnc, I like a lot of your ideas, but not the flat tax and not the national sales tax because they are so regressive, but do think we need some major tax reform. I need to find out more about Brent’s suggested VAT (haven’t read mark’s link yet), but I think I would support that if it lowered other taxes. I’m also exceedingly leery of vouchers for health care, but I’m old enough that I’m probably not going to see that during my lifetime, or rather perhaps see it affect me, so I’m willing to leave those choices to folks who are younger.


  8. I think there are good ideas above but unfortunately the world we live in will not produce the desired framework for the changes. And this is wishful thinking.

    “Because the alternate Romney is still a Republican, he would also back Rep. Paul Ryan’s latest proposal for Medicare reforms and propose integrating Medicare exchanges with the Affordable Care Act’s insurance exchanges, enabling people to retain the same insurance throughout their lives, a change that would improve insurance markets and health outcomes by encouraging insurers to care about the long-term health of their customers.”

    In my opinion the single best thing we could do right now is figure out some way to help get people back to work and somehow speed up the housing recovery. Neither Obama nor Romney will be able to usher through the kinds of changes we need at the upper levels of government, so I think we need to focus on continuing the lowering of medical costs in the health care system and focus our attention on the Senate and House races.

    When was the last time we had an actual budget? 2009 right………………that says a lot IMO.


  9. Can we agree that Congress should demonstrate some fiscal responsibility before fundamentally changing the tax structure? Or, is there a consensus that government spending is ok, as well as it’s rate of increase and that the problem isn’t on the spending side but the taxing side?

    There isn’t a “wrong” answer, just a philosophical difference I guess. I think government does far too much and spends far too much and I would want to see a sustained reduction not just in the rate of increase of government spending, but a substantial reduction in year over year spending before a fundamental change is the tax code.


  10. “Troll McWingnut or George, whichever, on July 22, 2012 at 9:26 am said:

    Can we agree that Congress should demonstrate some fiscal responsibility before fundamentally changing the tax structure?”

    That’s a high bar to clear and a bit of a chicken and egg situation. Changing the tax structure is a necessary step to help promote fiscal responsibility. Arguing for programs on the basis of deficit finance or only raising taxes on other people is the source of fiscal irresponsibility.


  11. “okiegirl, on July 22, 2012 at 6:15 am said:

    jnc, I like a lot of your ideas, but not the flat tax and not the national sales tax because they are so regressive, but do think we need some major tax reform.”

    I’d argue that the flat tax is by definition neither progressive nor regressive, but neutral. It may be theoretically more regressive than the current structure, but in the case of someone like say Mitt Romney it would actually be more progressive than the current system.

    With regards to the national sales tax, that’s meant to address arguments that tax free Internet transactions are giving Internet retailers like Amazon an unfair advantage over brick and mortar stores, while at the same time preempting state attempts to tax interstate transactions due to the complexity involved in complying with the myriad of state and local sales taxes and also because the Federal government needs the money more.


    • jnc and okie, my link was to an Economist assertion that the tax structure we have is almost flat. That is because of payroll taxes at the bottom and capital gains and dividends taxes at the top. It makes the thrust of JNC’s argument far more compelling than even I imagined, and I was already sympathetic to it, although not entirely in agreement with it. In short, I think JNC’s system would be better than the current one, but I think VAT plus very small automated cash transfer tax in lieu of personal income tax would be better.

      George, reforming tax is, as jnc says, part of the problem, and handling expenditures is the other part; they are interrelated, but arguing one must come first is a waste of time. Both must be done, in a rational world.

      LMS, you echo my fear that there is no will to do either. As I wrote months ago, the 26 or so Rs and Ds who voted to implement Bowles-Simpson, facing both problems at once [regardless if it is your choice solution it is the only one out there addressing both ends of the problem with even a glimmer of support], deserve to be named and reelected by landslides. The others all think they can cut someone else’s budget or raise someone else’s taxes or do neither. Or vote according to their funding.


  12. FYI – this recent Bloomberg article informed my thinking on eliminating the tax exemptions for churches and other non-profits. The other data point was how Warren Buffett and George Soros founded their own non-profit organizations that they control specifically to donate money & stock to reduce their taxation levels.



  13. To the author of the Economist article: I see what you did there.

    In the Economist article, it seems that the author is trying to redefine “flat” to share income / tax rate. (the top 20% of incomes pay 20% of the income taxes) Most flat tax proponents take “flat” to mean everyone pays the same rate. It appears the Left is tying to take control of the definitions, so “progressive” is now “flat”, and “flat” will be labeled “regressive.”

    The Right better take note and push back or else the definition of flat / progressive / regressive will change to suit the Left.


  14. Dems will have to give in on extending the tax rates and both sides will have to agree to some kind of extension on the budget cuts until the new year. Nothing will be solved by this Congress under any circumstances


  15. From the linked Economist article:

    “MY COLLEAGUE suggests that America’s wealthy already pay at least their fair share of the cost for the public goods they depend on to prosper.”

    This is absolutely true. Transfer payments and entitlements aren’t public goods the same way that roads and schools are.


  16. but arguing one must come first is a waste of time. Both must be done, in a rational world.

    Especially when there is little to no trust between the negotiators. For whatever reason this Congress and the last one decided not to brook any compromise and the rest of us be damned. I’m not a fan of all the parts of Simpson/Bowles but at least it’s an effort to get to both spending and revenue via some changes to the tax structure and puts an effort into entitlements, even though I believe there are better ways to get there.

    One thing I have trouble with regarding a flat tax is that it does seem to hurt the lower rungs of the middle class disproportionately which is perhaps why the left is trying to redefine a “flat” tax as having some progressivity to it.


  17. Thanks to all, I’m off shortly to read the links posted (got sidetracked today).

    lms, and Mark to some extent as well, I get the difficulty of a will to get any of this done as things stand right now. But I do want to clarify my own thinking about specific policies because I don’t think we can operate at complete stalemate forever. So this post intentionally omitted more practical aspects of the question, especially the immediate issue of getting the economy moving along better in the short term as lms rightly points out.

    Brent, you may have done so before and I missed it, but what is your argument against a progressive tax?

    And troll, I don’t perceive most on the left as thinking it is only a revenue/tax problem. Most of us also see the spending side of the problem. Actually, spending has been a problem habit for both sides.

    Can we do any of this to any good end if we ignore rising healthcare costs for the time being? Would it do any good (if the will were there) to tackle tax reform before we address healthcare costs?

    Off to educate myself a bit. . . .


  18. The UK spends a bit shy of 10% of GDP on health care. Roughly 80% of that is through the NHS, the remainder being private expenditures. The US spends about 18% of GDP on health care, roughly a 50/50 split. The 9% difference in GDP comes to about $1.4 trillion. That, ladies and germs, is our deficit. And it is sucking the energy (education, S&T funding) from the room.

    Fiddling with the tax code is fun and games, but is more about political values than anything else. Personally, I’d go with treating capital gains as ordinary income after indexing. Being married to a freelancer (and knowing many more), there will always be complexity to the system. What is a business expense is often a matter of sophistry.



    • BB, assume arguendo that PPACA will work as intended by Baucus.

      It only addresses insurance cost on the private side. At its most bloated, insurance on the private side runs 30% above medical cost, but will now run only 15% above medical cost. That means we have addressed 15% of 9% of GDP, or 1.35% of GDP.

      While not a fan of PPACA, I am one who thinks it could be a little better than what we had, because of some of the pilot programs [clinics, more aid for med students] and the limitation of overhead and profit accepted by the insurers in cosideration for the broadening of their market, and the removal of the pre-existing condition exclusion, and the guarantee of insurability, and the implementation of medical information exchange. Could be a little better, or not.

      The possibility of UHC leading to concerted efforts to fight black hole costs is there. Apparently, Romneycare did not reduce costs for two or three years, but now it has, since 2009. Or so I have read. So I won’t pre-judge.

      But it will be a long time before we train enough medical help, have enough clinics, deal with end of life costs, clean up the repeated malpractice of offending hospitals and doctors, and complete the implementation of medical information exchange, all of which are prerequisite to actually lowering health care cost.

      Frankly, I used to think the private market would and could accomplish all of this. I don’t know why it didn’t.



  19. The 10 year Treasury dropped to a new all time low of 1.43% in early Asian trading.

    There is a day of reckoning coming on these interest rates, that will inevitably dwarf the fiscal cliff. Should we somehow make it out alive of the end of the year and or should Europe solve their problems, then the race will be on to see how fast the interest rate will double.

    Whatever grudging and difficult agreement might be reached at the end of the year may swiftly come unraveled sometime in the new year as interest rates return to historically nomal levels and more cuts or revenue increases are required. Then the Fed will have to raise interest rates soemtimes early in 2014 to boot.


    • The upturn in employment and in recovery would have to precede the interest rise, unless the pressure came from competitive rates elsewhere grabbing available safe haven deposits.

      I don’t see the competing safe havens as many: Australia and Canada. Don, do you?


  20. Mark – I got into comic books when I was in college, having not done so when I was in high school as I thought it would make me look juvenile. Shame that. I would have bought the original Jane Grey/Phoenix of the X-men. I did manage to get onto a few good ones that are probably worth a bit. Frank Miller’s work on Daredevil and Dark Knight. Alan Moore for Miracleman and the Killing Joke (a one-off Batman graphic novel that helped to redefine the Joker). Alan Moore also wrote the Watchmen series. Adapting the series into a single movie was problematic.

    The point of my long digression. There is a scene at the end when the schemes of the anti-hero (Adrian Veidt aka Ozymandis) to end war and save humanity have worked out, albeit at a terrible cost. He turns to another character (Dr. Manhattan, yes it’s a cheesy name and deliberately so) and says it all worked out in the end. Manhattan replies: “In the end? Nothing ends, Adrian. Nothing ever ends.”

    ACA is just the beginning. Not of some liberal takeover of the universe (bwaah hah hah hah hah). No. Our economy is unbalanced at this point. At 18% of GDP for health care, the mammals (BIC*) will eat our eggs. There needs to be a more rational distribution of resources and that will be the heart of political discussion over the next decade.


    *BRIC is a good concept, but Russia should not be included. It’s a petro-kleptrocracy at this point.


  21. I’ve said it before, there is only one way to control entitlement spending, first, means test SS. Second, Medicare recipients should be given the cash equivalent of what is spent on average per recipient, to spend however they see fit. Then, we reduce that cash amount every year (while proportionally reducing the Medicare tax on non-recipients) and phase it out completely.


    • Medicaid is the black hole which will suck in the planet, not SS or Medicare, which both have relatively cheap fixes.

      Taking health care costs as a whole, regardless of how they are funded, e.g.; out-of-pocket, local taxes, private insurance, federal taxes, and reducing them by half is the trick I thought the private market could perform. Why did it not? For example, why do we have too few doctors?


  22. To me, “control” does not equal “eliminate.” I do not want to phase out Medicare completely.


  23. …along with the seniors.



  24. Robert Samuelson has an interesting idea regarding Medicaid. Swap out the Federal interest in education and transportation and hand it over to the states and then take over Medicaid. It might work.


  25. Brent’s on vacation this week so I guess this will be our open thread for the day unless someone else has something interesting to begin a new post or a morning report. I haven’t checked stocks yet but my husband told me futures are way down.

    EDIT: note that a TRES FAUX MORNING REPORT is posted.


  26. Feel better Nova…………….summer colds are the worst.


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