Now that President Obama has (finally!!) waded into the debt issue, we can see the outlines of how this battle will go. Republicans will want to cut everything but defense, and under no circumstances raise taxes, arguing that raising taxes will bring the economic recovery to a halt. And of course they will protect all the billions of federal handouts and tax exemptions to businesses. Democrats will deluge us with the specter of starving babies and homeless poor as a justification for continuing every possible transfer payment and welfare program, and will press to tax “the rich” to the maximum.
But there is no way we can continue to support massive transfer payments using borrowed money, no matter how "moral" or useful or effective they may be -- we simply can't afford them. And there is no way we can reduce the deficit without raising taxes -- on everyone, not just "the rich". "The rich", if we expropriated everything they own, would not provide enough cash alone to close the deficit or pay down the federal debt.
But there is no way we can continue to support massive transfer payments using borrowed money, no matter how "moral" or useful or effective they may be -- we simply can't afford them. And there is no way we can reduce the deficit without raising taxes -- on everyone, not just "the rich". "The rich", if we expropriated everything they own, would not provide enough cash alone to close the deficit or pay down the federal debt.
Both approaches are stupid, as most of their proponents probably well know, but they play well to their respective bases, and since in Washington getting re-elected and staying in power is far more important that doing what the nation really needs, they will stick to this strategy.
What does the nation really need, and what would smart statesmen do (if we had any real statesmen in Washington)? For a start I would suggest:
- Get us out of ALL our wars immediately. Wars are a wildly-expensive rat hole down which we are pouring trillions of dollars that should be spent in the US repairing and upgrading infrastructure, funding innovation, and improving the education of our young. Bombs and missiles keep defense contractors rich, but do absolutely nothing to increase the competitiveness or long-term health of our economy. This doesn’t mean we shouldn’t fund and maintain a strong military – the world is not a benign place. But we ought not to deploy that military except where truly critical national interests are involved.
- Drop ALL subsidies. Subsidies distort markets, as can be seen, for example, by what the corn ethanol subsidies have done to agriculture. Subsidies are just a politically-acceptable way for Congress to shovel federal money to favored businesses.
- Simplify the tax code and drop almost ALL tax exemptions. It is outrageous that companies that make billions in profits pay no taxes. Exemptions that truly encourage innovation, entrepreneurship or education might be worth keeping
- One way or another, immediately cut federal spending enough (by at least about $2 trillion per year) so that the debt is at least no longer increasing.
- Rethink Medicare from the ground up. It simply can’t continue as it is – it will bankrupt the nation. Minor tinkering won’t fix the problem. The whole system needs to be rethought from the ground up. The incentives – for doctors, for hospitals, for drug companies and for patients – are all wrong. There are insufficient market incentives to control the costs. In fact, in the current system there are almost no incentives to control costs.
- Reform the Senate. Congress failed to pass a budget in time despite being entirely controlled by the Democrats, and a dysfunctional Senate was the primary reason. The Senate is supposed to act more slowly and with more deliberation than the House, but the current paralysis is ridicules. Term limits for Senators would be a good start – say a two-term limit so this doesn’t become a lifetime occupation for politicians.
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