A new way to fix debt crisis: Unchain Atlas

America's skyrocketing national debt forces us to make hard choices. Do we go bankrupt? Raise taxes? Make (politically impossible) entitlement cuts? Perhaps, instead, we should simply cut wasteful and costly government regulations.

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

There is another way, and it is readily suggested and documented at the site of the Americans for Tax Reform's Center for Fiscal Accountability.

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.

Let 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?

Walter Donway is a founding trustee of The Atlas Society and author of the book Touched by Its Rays.

17 comments from readers  

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Cause of worst economic crisis since the Great depression = lack of proper regulation of the American financial system.

Your solution to worst economic crisis since the Great depression = less regulation.

Outstanding column because it presents the problem, and then offers practical suggestions to solve the problem. Mr. Donway is right on target. (Now please, no one take my use of the word "target" as a suggestion to go out and shoot someone.)

I have been telling whoever will listen that the federal deficit is not the core problem. The economic deficit is the core problem and that will only be solved by real growth, which is hard and cannot be solved by government regulators.
Curt L
0 points
Great idea. However, we lost our virtue when we allowed the government to tax us for any other purpose than to provide our collective security as mandated by the constitution.

Even if we picked option three and it worked, we will never be America until be take some wrecking balls and pick axes to several blocks in Washington--its not just about money.

Thanks for the article.
Kind of pie in the sky. While I generally agree with the author that deregulation could make a major contribution to our economy, I feel that a total moritorium is unrealistic, and far less likely to gain public approval than trimming or eliminating unneeded agencies (The $60B Dept of Education has contributed absolutely nothing to the quality of public education).

The author states that environmental regulations are not needed because our environment has become far cleaner in the last 20 years. An opposing viewpoint would be that we are environmentally better off because of those very regulations. (I tend to agree that most environmental regulations are useless and place a heavy drain on our economy and our freedoms).

It seems to me that we need massive improvement in all areas.... and an awakening of the American people to the fact that asking government to provide everything results in a very mediocre (at best) quality of life, while freedom which rewards individual effort has been the factor that has led the USA to history's highest standard of living.

An oft overlooked and underappreciated fact is that the poor in this country enjoy a standard of living that exceeds the world average.

We simply need to wake up America to reality. Perhaps the upcoming "Atlas Shrugged" movie will contribute to that education.
Good idea if we want to reduce the deficit. Only problem is the underlying assumption that there is a "we."

Do producers share a "we" with the beneficiaries of the debt-driving entitlements? If one is on strike, working as little as possible, why would one want to work more, just to have half the money one makes pay for other people's entitlements?

Let the road be cleared.
Jeff O
0 points
I think you might be on the right track but you need to go to the beginning. Every regulation you refer to is a violation of property rights. Unless you are willing to dig in there you won't get very far. I don't know why fans of Atlas side-step this so much. I can only imagine what kind of world we would have now if Thomas Jefferson had been allowed to leave Property Rights in the Declaration of Independence. He wasn't, and we have lived with the consequences every day since. Reverse engineering of this type is hard, but it must be done. Fix the Constitution and these regulations that bother you so much will fall away like leaves on a maple tree in Autumn.
Nice try, Walter, but a little naive. You forget that complying with regulations also requires a person with a job. what about all the lawyers, accountants, government employees, office clerks, bookkeepers and office managers necessary to comply? Are you assuming that simply doing away with the regulations has no effect?

The bottom line is we simply can't afford 50% of our population not paying taxes. We can't afford a system where politicians can sell their votes to the masses to ensure reelection. We can't afford politicians voting in public sector pensions that aren't funded by the pensioners investments.

No, the bottom line is that we must "starve the beast !" There's too much history to not believe that a politician won't spend all of the additional revenue that's brought to him from any source. Past IS prologue. They will do that because, like the scorpion and the turtle, that's what they are and that's what they do and they can help themselves.

How about halving the time Congress is in session? Or using an example from the early Romans - One term for one year only and forbidden to hold office again for ten years?
I appreciate a certain thoughtfulness in the article that is not so ideologically bound. There is a perspective of "How do we get of this mess to give some breathing room to even consider the larger ideological perspectives that can make a long-term positive impact?" while offering a constructive, measured, interim solution.

I don't know enough about the numbers to begin to know if the total deregulation scenario, especially without reliable checks and balances to ensure Government doesn't spend away the newly generated revenue, will provide the revenues that retire the crippling debt. But the thrust seems a creative one.

My one thought is that selling the idea of massive, broad-based deregulation, which on the whole I agree with, may be a more gargantuan undertaking than the recommendation suggests. As with the idea of cutting Medicare, the public perception, I think, is that massive deregulation would bring about disaster - a raping by the big guys at the expense of everyone else.

While I don't agree with that view, I think the fear of massive deregulation is more deeply ingrained in the American psyche than maybe the recommendation accounts for. For example, I'm imagining a Republican Congress getting behind loosening up on Homeland Security (?). On a different front, the predictable fight between Democrats and Republicans on business and trade deregulation would be a massive one. I wonder what a poll of the public would be if this idea was suggested right now without any preconditioning for it? I'm guessing it would be a resounding "no" by a large majority.

I'm not saying don't go for it. I am saying selling it in will require significantly raising the bar on successfully educating and enrolling a public hostile to massive deregulation. The unfortunate trend is more and more regulation with a belief in the public that insufficient regulation (as with banks and mortgage lenders) is the reason we are in this mess.

Nevertheless, it may be possible to sell, as suggested, as the least ugly option. That's not a bad strategy if some smart people in Government (if it is permitted to suggest such a group exists) got together with both sides of the aisle and convinced the two big Parties that this is a solution worth selling as a cooperative, bipartisan effort that might save their political rear ends - both parties declaring together that the untouchable (SS, Medicare, etc.) will, through bipartisan efforts, remain intact.

Strategy seems the critical consideration. How do you pull it off? How do you sell to the 535 members of Congress who must cast their votes, and a President who has veto power. My thought isn't to suggest pessimism. It's to focus next on how to make it happen. Forgive me that I don't offer the solution. I don't have it. Fortunately there are more capable people who are operatives within the Parties who might. Pragmatically, strategically they are the people to enlist first to climb on the bandwagon and let them go at it.
I thought to add an additional thought to my previous comment, touching on the thought "I think the Tea Party might be able to sell this. What do you think?"

My thought is "no", the Tea Party is not the strategic path. Selling the idea requires selling the voting members of Congress. It is Congress that needs to pass the legislation to make such an idea a reality. The Tea Party does not have the sufficient ears of Congress and does not represent a sufficient voting block on its own to force legislation. If anything, if the Tea Party is the spearhead, opposition to it would more likely be magnified.

It could take a generation for any public groups on their own to somehow gather the resources and wherewithal to get the public to be clamoring for this kind of massive deregulation. Strategically, the persuasive effort is getting members of Congress and the President collaborating to sell the idea to their constituencies as a bipartisan breakthrough. Like it or not, the short path is behind the scenes - the Government itself generating the idea and cooperatively, across the aisles, selling it in through the already controlled media outlets that are the mouthpieces for both parties.

That might be a distasteful idea for ideological purists. But strategically, I suggest it offers a far greater possibility of making the recommendation an accomplished reality in some conceivable near term rather than simply an interesting but unrealized fantasy.

I don't hold out much hope for the idea getting through Congress at all, at least not at the massive scale of deregulation that would make a difference. But it's a creative idea that has more grounded reality as a possibility than cutting the massive, sacrosanct entitlements such as Medicare, if the right operatives can sell Congress to enroll the public, using the powerful counterpoint that the other cherished entitlements (Medicare, etc.) will remain intact (at least for now).
Wow! Why did it take so long for someone to come out and write this so succinctly? Let's get her done.
I do not concede that deregulation is "ugly" or a necessary evil. Regulation is a violation of rights. If I have the right to life, I have the right to produce the necessities of life without anyone looking over my shoulder, i.e., restricting my actions because I might violate rights. If I do violate a right, then and only then, after a trial and conviction can my actions be restricted and restitution taken from me. To restrict my actions in advance is to deny my right to life and judge me guilty until proven innocent.

I propose a Constitutional amendment that separates business and state. "Congress shall make no law abridging the freedom of business, nor shall the states." An immediate benefit would be the freeing up of banking by making the legal tender law unconstitutional and taking the control of money out of the hands of government.
(profile not found)
0 points
Thanks for addressing this important issue.

One way to do it would be to pass a constitutional "Sunset Amendment" calling for ALL laws to automatically sunset in 20 years unless reauthorized by supermajority of Congress. That would give Congress something to do (without increasing regulations) and would weed out the bad rules from the good.

I think it should include a clause calling for all new laws to stand unchanged for a minimum of five years so that bad laws can't be hastily rushed through and then rehashed under the pretext that "we can go back and fix it in the next session."

If we could pass such an Amendment to the Constitution, the government might again become the entity which provides its citizens with a safe and certain framework to do business long-term... instead of the opposite, as it stands today: a source of uncertainty and an obstacle to the long-term contract.
"Cause of worst economic crisis since the Great depression = lack of proper regulation of the American financial system. Your solution to the worst economic crisis since the Great depression = less regulation. Interesting..." -Richard Curtin, above

America has "missed the boat" on deregulation. Had the failing corporations and industries been allowed to fail instead of being saved by Uncle Sam, I would fully support Mr. Donway's argument. However, because that did not happen, I believe Americans will side with Mr. Curtin.
The only reason we are able to print unlimited money is because the $ is the "world's reserve currency." The International Monetary Fund is already looking at a new world currency because the US $ is so weak. Our debtors are going to come to collect soon.

If we don't deregulate our economy quickly our country is going to begin to collapse. And people like me who are educated, intelligent and unemployed are not going to have a chance to get back to a productive life/career.

If you think this Tea Party can do it--great. They need to get a leader in there who does more than tie the intellectual inheritance of this country to religion like Sarah Palin does. I mean a REAL leader. Which many people who do have this ability refuse to destroy their lives fighting with ignoramous politicians and leftist idealoges.

Maybe the Atlas Shrugged movie will help motivate the people of this country to get this done before it's too late...
I agree with you that government regulations are a major problem and should be repealed. However, there is almost no political support for this idea! Even most of the Republicans I know would only repeal a few regulations, and most Democrats want to add more. Anyone running for office in my area (SF Bay Area) on a platform to cut out most government regulations would be soundly defeated.
There are a lot of interesting points made in your piece, but this one stands out: "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."

So the gist of this statement seems to be "The quality of our air and water is better than it was 20 years ago, but this has nothing to do with existing EPA oversight or regulations, because they are completely ineffectual. So let's do away with them, thereby freeing up more capital for investment etc., and allow manufacturers to police themselves regarding the impact each has on the environmental relative to their own manufacturing processes. Does that sound about right?
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