The federal budget deficit for December came in at around $80 billion. This was the 27th month in a row that our government ran a budget deficit. As it regularly does, year after year, Congress is now considering raising the “debt ceiling” — the total debt the federal government is permitted to assume.
A poll today, however, reports that 70 percent of Americans oppose raising the debt ceiling, only 18 percent approve raising it, and 12 percent are perhaps honest enough to say they don’t know. But Timothy Geithner, the U.S. Secretary of the Treasury, said this week that failure to raise the debt ceiling would lead to “catastrophic consequences” — that is, the federal government might default on paying existing debt; the government can only meet payments on existing debt by taking on more debt.
Can We Really Expect to Cut Spending?
Republicans reportedly are gearing up to oppose raising the debt ceiling unless the Obama administration agrees to reduce long-term spending. The problem is that other recent polls leave no doubt at all that most Americans strongly oppose cutting the spending that is really breaking the budget.
Virtually every economist points to so-called “entitlements” and, overwhelmingly, to Medicare, as the budget buster and the not-so-long-term fiscal Armageddon. Only about 20 percent of those polled would want to see Medicare cut. Nor would they cut federal spending on education.
About half of Americans would countenance cuts in military spending, and in my opinion that should be done — certainly on the strategic side, where our naval and air power utterly dwarf those of any other country or group of countries and have no reasonable, foreseeable mission in the world. But the lion’s share of spending today is on the wars in Afghanistan and Iraq, where we spend $1 billion a day, monotonously, day after day.
But, while reductions of military spending would help, it would not solve the budget crisis, especially not in the long-term, because more than half of spending is built in, by law, to provide Medicare, Medicaid, and Social Security — which latter is paid entirely out of current funds, as there is nowhere that anyone’s payments are invested and waiting to support them — to everyone who qualifies.Can We Afford to Raise Taxes?
Besides reducing spending, especially on benefits like Medicare, there is increasing taxation — the other side of the equation that is always is mentioned. There may come a time, and soon, when this must be done. The State of Illinois recently voted a huge increase in income and corporate taxes, and the governor will sign the bill. Apparently, it is that or default on debt — exactly the dilemma that faces the federal government.
One problem with raising taxes is that every single tax increase in history has been spent, in its entirety, by the government, but has never made possible a balanced budget for long, and never any significant paying down of accumulated debt. Instead, spending has outrun taxing, incurring deficits and increasing the total national debt and the now-staggering interest payments on it.
Theoretically, it is possible to increase taxes enough to pay for all spending and even to begin to reduce the national debt. Such taxes would fall on a relatively small percentage of the population because about half of all Americans pay no federal income tax at all — though a larger percent contribute payroll taxes for Social Security and Medicare.
For many decades, now, the economic growth of the United States has been slowing down. There is far less investment in the economy by Americans; we have depended very heavily on investment by foreigners, who have been buying up American companies and American assets. Also, there is a long-term migration out of the country by companies, especially in manufacturing, to reduce their overall costs, including taxes, wages, and the regulatory burden.
The people and companies on whom very heavy new taxation would fall are the ones who still have the surplus income to invest. In particular, there can be no increase in taxation on the half of Americans who pay federal taxes without taxing small businesses, because many of them are owned by individuals and families and their earnings and profits are income to those families.
As most people know by now, some 80 percent of new jobs are provided by small businesses. But the decade from 2000 to 2010 was the first decade since WWII in which the United States added no new jobs; the net job increase was zero. In the current recession, it is small businesses that have experienced virtually no recovery — unlike large corporations that are able to find markets abroad.
The reason unemployment is so high, and so resistant to improvement, is that small business has to rely on selling to the domestic market and Americans are “de-leveraging” their balance sheets — reducing debt — after a decades-long credit expansion that ended in the financial crash and recession.
So here it is: Spending and debt are out of control. We don’t want to increase borrowing. We don’t want to impose taxes that would strangle any chance at creating new jobs. We don’t want to cut the benefits that are really busting the budget.
So we face an oncoming debt tsunami and are helpless, politically, to save ourselves?
A Third Way: Unchain Atlas by Cutting Regulations
is another way, and it is readily suggested and documented at the site of the Americans for Tax Reform's Center for
All you need to know is there, on one page, and it boils down to the value of massive de-regulation.
This is what you will read at the site:
1. Each and every year, compliance with government regulations (time, professional services, equipment) consumes about 17.7 percent of U.S. national income. If we translate that into the life of average working American, it means that Americans work 61 days each year for the income they spend on complying with regulation — either personally, or, to a much great extent, the additional amount they pay for goods and services because in the price is included the company’s or other provider’s costs of complying with regulations.
2. That cost of compliance does not include the economic impact of regulation in terms of limiting production or distorting economic choices. As the Center for Fiscal Accountability puts it: “These hidden costs stifle the growth of the economy because they introduce inefficiencies and distortions and reduce the economic reward left over for productive activity.” The best available estimate of that regulatory damage to the economy is $1 trillion a year.
3. Apart from these costs is the cost to government of enforcing the regulations, a cost that has gone up year after year as regulation has increased. The annual cost to government now is about $61 billion a year.
Here is the money we need to avoid debt catastrophe. The logic is quite simple: Don’t begin by slashing benefits. Don’t begin by instituting major new taxation. Begin by freeing up the economy, the American economic engine, to produce more wealth. For those of us familiar with the works of Ayn Rand: “Unchain Atlas.”
The wealth produced by an economy freed from the huge burden of regulation could be taxed at the same level as today but yield much, much more revenue. The cost of complying with regulation would become freed-up income to Americans to spend and so give a huge boost to small businesses. And the government budget itself could be reduced by closing the regulatory agencies and putting their talented staffs to work in the economy — producing, not hampering production.
What Regulations Could Be Cut?
You can read about the economic burden of compliance, in brief or
at length, at the site to which I refer. The Environmental Protection Agency
and Homeland Security are big offenders; but a moment’s consideration brings to
mind regulation in every area of life.
The Sarbanes-Oxley Act drives companies
to list their stocks abroad, and the effects of the huge financial regulation
package passed by the Obama administration are too new to estimate accurately.
But all anti-trust laws, relics of the Nineteenth Century, are unnecessary and
protect no one except less able competitors. Environmental laws consume
gigantic amounts of capital every year, even though United States air quality
and the water supply are hugely cleaner and better than they were 20 years ago.
Give it all a rest, a complete rest, for 10 years. Occupational Health and Safety regulations could be left to the trial lawyers, who already exact a staggering toll from hospitals and businesses. One idea is just to put regulations on hold for a full decade, creating a holiday from regulations and regulatory compliance.
We may lose some benefits of regulation, yes. But something has to give, and soon. We face a national emergency, a situation that has been building for decades and is hurtling toward crisis. We face huge unemployment. We are losing manufacturing abroad.
Republicans pose this to the American people: We can slash Medicare, education,
national parks. Or we can impose new taxes at a time when business has produced
no jobs, net, for a decade and unemployment is stubbornly at 9.5 percent
(official) and 15-20 percent (unofficial reality).
Or we can drastically deregulate the U.S economy, on a trial basis, for ten years to free up American productive power, give everyone more income immediately, and provide a huge boost to small businesses — on which the chief regulatory burden falls — who could begin to grow and hire again.
That’s the choice. It seems to me when the choice comes down to lose benefits, get taxed, or face your fears that somehow suspending regulations — most of which did not exist 20 years ago, or even 10 years ago — will bring about some undefined disaster — that deregulation might win the “least ugly” contest.
The Republicans could write an omnibus deregulation bill and spell out exactly what could be saved, what economic growth would do for tax revenues, and how deregulation would get the American jobs engine running after a decade-long stall.
I think the Tea Party might be able to sell this. What do you think?