Can't Buy Me Love

How Do We Reduce The Deficit?

Whether you listen to right or left leaning media, you tend to get a fairly skewed idea as to how to balance the budget.  The left would have you believe the rich could bail us out if only they would pony up all that money they are using lighting cigars, buying gold-plated private jets, and plotting how to steal candy from babies.  The right would tell you that if we cut taxes the economic growth rates will be so tremendous that the government will be overrun with funds.

History has shown us that if you raise or cut tax rates you do NOT have a significant effect on the revenue stream to the government.  I will refer you to my favorite blog on the subject if you want more proof: http://blogs.marketwatch.com/fundmastery/2010/07/02/does-hiking-tax-rates-raise-more-revenue/

Therefore, the real trick to avoid becoming the next Greece is simple, where to cut... 

If you have never read (or heard of) the Bowles-Simpson Deficit Reduction plan (link below), I think it is worthwhile to give it a read and spend some time to understand it. This plan was created by a bi-partisan commission requested by President Obama (who then has widely ignored its findings).  I know this plan is old news as it came out in 2010, but if you are anything like me, it takes hearing about something 10 or 20 times before I actually go look into it myself (just ask the old lady).  This plan is the best resource I am aware of to get an idea of real tangible actions that can be taken to curb debt across the spectrum.

Even if you don’t give a wink about politics, you (and your kids) pay for this government and you should have some understanding of where the opportunities lie to improve the massive debt burden that, if left unchecked, will certainly leave us crippled in the not so distant future (exploding borrowing costs, massive austerity measures, crushing depression).  I urge you to think about it when you are deciding how to vote and when you are talking to others.

The focuses on 5 major things to reduce the debt burden:
1) Cut Discretionary Spending / Gov’t Revenues
- Cap both as % of GDP over long term
2) Reduce Individual Tax Rates / Eliminates loopholes
- Makes tax system MORE progressive
- Capital Gains / Div taxed as ordinary income
3) Reduce Corp Tax Rates / Eliminates Loopholes
4) Reform Healthcare
- Increase individual deductibles
5) Reform Soc Sec
- Increase max taxable income
- Raise the retirement age to 70 System


My personal views would be well right of those proposed in this plan:
- Spending/revenue levels should both be lower than proposed in the long term
- Taxing dividends is double taxation, should be eliminated
- Corporate rates should be far lower, if not zero
- Flatter tax rates
- I like Paul Ryan’s Medicare plan better (Private solution, premium support)
- Soc Sec should go to price indexing instead of wage indexing

While obviously I don’t endorse the whole thing, I compare it to current policy and would take it in a heartbeat. Why didn’t it pass? Simple, it raises taxes and reduces benefits, that is a born loser for politicians.  But it gives a very good ideas on changes that could be made (even in pieces) to help the deficit and spur growth. Enjoy.

http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf

While we gear up for a very important election in 2012, I urge you to think about government spending that actually benefits you and you family, and decide what you can sacrifice to reduce the burden on society.  Any middle class guy with a job can call for higher taxes on the rich and less benefits for the poor, but get real, you know the choices that are going to save this country are going to rely on people who figure out how to lean on themselves more and the government less. 

For example, I am happy to work until I am 70 take a lower benefit and pay higher medicare premiums if it means me and my kids have the chance to create, invest, and produce while alieviating the burden of crushing debt dangling over our heads.