cmaukonen's picture

    No Deficit of Ideas for Lowering the Deficit.

    Some people are not fond of Ted Rall but he might have someting here.

    Still, theoretical budget-balancing exercises help enlighten us about where our taxdollars really go. So let's roll up our sleeves and start some back-of-the-envelope slashing.

    The 2010 federal budget shows $3.6 trillion in spending and $2.4 trillion in revenues. Net deficit: $1.2 trillion. It's a doozy, too. It nearly 13 percent of GDP. It's the highest since 1943, during World War II.

    The goal, then, is to close a $1.2 trillion budget gap. Can we find at least $1.2 trillion in budget cuts? News flash: getting rid of the National Endowment for the Arts ($161 million in 2010, or about 0.01 percent of the deficit), ain't gonna do the trick.

    Any serious budget cutter has to start with defense. The reason is simple: it accounts for 54 percent of discretionary (i.e., optional) federal spending. It's the biggest piece of the pie by far.

    (Mainstream news reports usually state that defense accounts for 20 percent of federal outlays. But they're fudging the facts in order to pretty up the military-industrial complex. For example, they include budget items like Social Security that no one can do anything about--they're in a trust fund.)

    Of that 54 percent, 18 percent is debt service on old wars. There's nothing we can do about that--though that number should probably give us pause the next time a president wants to invade Panama or Grenada.

    Anyway, that leaves 36 percent, or $1.3 trillion to play with. $200 billion a year goes to Afghanistan and Iraq.

    Let's pull out. We're losing anyway.

    New Deficit: $1.0 trillion.

    In 2007 Chalmers Johnson wrote a book about the staggering costs of American imperialism. "The worldwide total of U.S. military personnel in 2005, including those based domestically, was 1,840,062 supported by an additional 473,306 Defense Department civil service employees and 203,328 local hires," he wrote. "Its overseas bases, according to the Pentagon, contained 32,327 barracks, hangars, hospitals, and other buildings, which it owns, and 16,527 more that it leased. The size of these holdings was recorded in the inventory as covering 687,347 acres overseas and 29,819,492 acres worldwide, making the Pentagon easily one of the world's largest landlords."

    We're broke. It's time to bring those 2.3 million men and women home. At an average cost of $140,000 per employee--crazy but true--we could save $322 billion annually.

    New Deficit: $676 billion.

    After Defense, the other big costs are Social Security, Medicare and Medicaid.

    The obvious place to start slashing is wealthy recipients. Why should Bill Gates, worth $58 billion, get Social Security or Medicare benefits? Dean Baker sums up the traditional liberal argument in favor of giving tax money to people who don't need it: "Social Security enjoys enormous bipartisan support because all workers pay into it and expect to benefit from it in retirement. Taking away the benefits that better-off workers earned would undoubtedly undermine their support for the program. This could set up a situation in which the program could be more easily attacked in the future."

    Yeah, well, whatever. We. Are. Broke. "Means testing"--for example, eliminating benefits for the approximately one percent of families over age 65 who earn over $100,000 a year--could save $150 billion a year.

    New deficit: $526 billion.

    Now let's talk about the other side of the equation: income. How can the U.S. government scare up some extra cash?

    Allowing the Bush tax cuts for the richest three percent of Americans to expire on schedule would bring in $70 billion a year. Seems like a no-brainer: anyone earning over $250,000 a year is doing awesome. Moreover, if Democrats don't insist on the expiration of at least some of those "temporary" tax cuts, what's the point of the deal they cut with the GOP back in 2001?

    New deficit: $456 billion.

    When it comes to revenues, you have to go where the money is: the wealthy. The rich have gotten richer, which is a big part of the reason we're in a Depression again. They're hogging all the goodies. The rest of us can't spend.

    Despite the miserable economy, there are still 2 million American households earning a whopping $250,000 or more per year. (Their average income is $435,000.) If we were to increase these super-rich Americans' marginal income tax rate from 35 to 50 percent--the same it was during the early 1980s under Reagan--we'd bring in an extra $131 billion a year. If we raised it back to 91 percent--the top rate during the boom years between 1950 to 1963--the Treasury would collect $487 billion.

    Budget SURPLUS: $31 billion.

    And we haven't started on corporate taxes.

    Hey, works for me. Of course any of these ideas would cause the republicans heasd to explode. Which might not be so bad and could be quite entertaining in and of it self.


    This reminds me of that movie, Dave, where a look-a-like (Kevin Kline) stands in for the deceased President and brings in his accountant buddy to balance the budget.

    Dave: According to the OMB, we have seventeen defense contractors who are delinquent in their contracts. Is this true, Frank?
    Director of OMB: Uh, I believe so, yes.
    Dave: So, even though they're late, we keep paying them on time?
    Director of OMB: Well, in a sense... yeah.

    Those numbers are pretty dazzling, c. Good job. Now to the hard part--getting it done. I don't know from number and don't even pretend to, but most of your fixes seem beyond reasonable.

    I see the fuss that might be made if you don't give the richies their SS--the very entitlements their guys in Washington are promising to eviscerate--but why then put a $106,800 income limit on FICA taxes? If you're a millionaire and you're wanting to collect some day, why should you only have to pay on 10% of your income when almost everyone else pays on 100% of theirs?

    Military expenses are the killers here, and closing bases, bringing home troops, etc., are the obvious fixes, but why have we given over so much of the daily operations to private contractors who can fiddle and fudge and do the mediocre and still get paid beyond even their wildest dreams? There's such a bugaboo about government employees and how ridiculously much they get paid, yet nobody seems to think there's a problem when it comes to paying private companies two or three times as much to do the work our own people could be doing as well or even better.

    The wisdom of letting the tax cuts for the rich expire shouldn't even be up for discussion.  The deadline is here and we can use that money!  They don't need it but they want it.  That's not good enough when we're in crisis mode.  Who do we have to talk to in order to get this done?

    This is good.  Thanks.

    Well there is a bit of a snag with the closing the bases and bringing the troops home. All these ex-soldiers become newly un-employed the minute they are mustered out.

    Bit of a sticky wicket there, what.

    Okay, just throwing this out there, but how about firing the private contractors and putting those newly unemployed soldiers back to work as civilian government workers? They could fan out all over the world and actually represent us for a change.  We already have their loyalty--something seriously lacking in those other guys, the ones who can only see dollar signs and never get beyond that.

    Might work. But what we actually need to do is to get back to actually making things which will require subsidies. What our biggest global competitors have been doing for years.

    the ones who can only see dollar signs and never get beyond that.

    Isn't that the case with any government contractors? I doubt most people who bid for any type of government contracts are doing it because of patriotism or to "serve" the country--they're looking for jobs and money. If they weren't, they'd be applying for a government job rather than bidding for a contract.

    Chalmers Johnson's argument is about empire wherein one of the down sides if you are into pumping the U.S. economy is that the foreign country gets some of the benefit of the economic stimulatiion of our military projects there.

    I recall that Rumsfeld wanted to close bases in Germany and bring them to the U.S., and kept pushing to do it, but after he resigned, the generals convinced Bush to put it off until 2012-2013. I remember reading about how local Germans were reacting--despite the regular protests by some against our presence there, most locals were freaking out about losing the "business," and were lobbying to keep us there I haven't kept up with what the Obama administration has done with that.

    But simply cutting defense because one is against our warmongering ways, without having a plan in place to immediately replace all the related civilian jobs means people losing work, no two ways about it.. Cmaukonen is correct to point this out. Closing a military base can kill an entire town as surely as closing an auto plant can, whether it's in Germany or Colorado. The "miliitary industrial complex," as people like to call it, provides lots of civilian work.

    This is actually why libertarian types who don't like Federal government spending of any kind can find some agreement with liberals who are anti-defense. But those types are not going to go along with replacing the Dept. of Defense with a CCC or a WPA or Federally-run health insurance or Feds building train systems or whatever.

    Are ye for big government or aren't ye? That's the question the deficit cutting of any kind gets you into. Not liking certain types of spending is a different matter.

    True and well said.  And I doubt anyone here underestimates what a long-term proposition that would be if there were political will even to start down that road on display.  Which there is not.

    It's not who you have to talk to, Ramona, it's who you have to (Orlando's favorite word.) They don't listen to talking, and you don't have enough money.

    I love this post!

    What's great is that you don't actually have to do anything beyond the military part.  Why?  Because the $1.2 trillion deficit is a function of the recession.  High unemployment has killed the tax base.  We can't grow fast enough to take out $1.2 trillion in deficits but if we can grow fast enough to close half that gap.  Big defense cuts get us halfway there, growth gets us the rest of the way and you can keep or even increase Social Security benefits.

    Agreed that situations such as this provide rare opportunities (in theory, if we weren't dealing with a GOP House that has the priorities it does) to look at things that should be cut because they are not good expeditures, but which are normally off the table.  I can also enjoy your post as mainly meant TIC to make a point, if that is your intent.

    Is the goal to reduce the deficit if that means reducing aggregate demand (consumption plus investment)?  Does reducing the deficit necessarily entail reducing aggregate demand (it is the latter, as I understand it, that the economists who make sense to me say is counterproductive in getting the economy moving again)?  Obviously some reductions of the deficit will have less contractionary effect than others.  Are there some that might actually have a stimulative effect? 

    Well... I guess interest payments on existing debt are a drag, right?  So cutting those expenditures would at least free up money for more productive purposes.

    ooh the deficit game!

    Here's my centrist proposal

    I don't think the goal should be closing the current deficit, it should be closing the long-run structural deficit - i.e. the deficit that there'd be when the economy is running at full capacity. which is probably something like

    800 billion

    And the goal shouldn't be closing it completely. As long as the debt grows at equal to, or less than, the sustainable growth rate of the economy, the debt/gdp ratio won't go up. So conservatively the sustainable growth rate is 2%, which is about 300 billion dollars a year. So the gap that ACTAULLY needs to be closed ismore like

    500 billion.

    That looks much easier. So hiking marginal rates on the rich at a rate - say 10% - that doesn't hamper growth can give around

    - 150 billion

    Then there is the low hanging fruit of tax evasion. The IRS estimates a sum equal to 30% of what the federal government actually collects in taxes, i.e. about 350 billion dollars in uncollected taxes. If you dedicate more resources to enforce tax law better, you should be able to recoup, say, a bit more than half of what is missing, i.e.

    - 200 billion dollars

    Then reinstate the old financial transactions tax of 0.25% that got repealed in the seventies

    - 100 billion dollars

    Then a Federal Bank solvency guarantee fee on the TBTF banks of 0.5% of assets

    - 50 billion dollars.

    And then...

    oh, I'm done.

    It just seems too easy, right? It's almost as if this whole idea of a deficit commission is an elaborate sham. Or a not so elaborate sham.


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