Solving the Deficit Crisis (1 Viewer)

[Thales750]

In this thread I hope to discuss possible solutions to the problem. I shall personally not engage in a discussion about the ineptness of Congress . I will instead put forth a small plan for fixing this problem.

For many years I have bean studying economics; what I believe, is that are many myths perpetuated by many people that are beholden to a particular group or another. This has muddied the water considerably and now here is my proposal.

First all income regardless of how it is acquired should be required to contribute a certain amount to the Social Security / Medicare program, for the sake of argument I think that the rate should be 5% for any income above the current cut off rate. The current maximum income that is required to contribute is $106,800.

This will in effect bring the rate that the very top is paying, in line with that, which is paid by the middle class.

Second we should substantially raise the highest tax rate, which is collected by the wealthiest. We should than give strong incentives to that group to reduce that rate by investments in America, not in foreign economies. It’s not that we need to punish the rich or even try to redistribute wealth which is problematic. In that, even if all the richest’s wealth was redistributed, it would have virtually no effect on the dept. No the dept will only be reduced by growing the economy.

It’s not the money they would be paying in taxes, it’s the money they would invest in order to avoid paying those higher rates, that would increase the size of the economy.

Another non tax related condition is starting to show, and that is the devalued dollar, in spite of all that has been said about this, it will actually help us in the long run. First our dept as a percentage of the GDP will decline; secondly it will make American goods more competitive in the world economy.

In the short term it will have the effect of making energy and imports go up in cost, but eventually this will encourage domestic energy production and will make American oil exploration and services companies more competitive around the globe.

And last we should do away with all tax incentives to dismantle American industry and ship the facilities overseas.

These are some of my thoughts, I welcome your input but I would ask that unlike our leaders, we will take an open minded view of these problems. After all, as has been made all too obvious lately; we must do something, because our government is not going to do it without our guidance.

 

[Galaxiom]

Good luck because with the country actually run by the rich it isn't likely to happen.

I do agree that the US tax regime is a big part of the problem.

They should also look at why two percent of the population is in jail. Got be be something fundamentally wrong there.

 

[Thales750]

As we see it's harder to offer a solution than to simply criticize. The purpose of this thread is to share ideas.

You all are pretty smart, you build databases, that is one of the most mentally challenging careers. So if we're not up to it.

Who else will be?

 

[scott-atkinson]

I can't speak for the American deficit, as I do not know enough about it or the policies that have driven it... however we are facing a similar issue in the UK, and out Government has adopted a very stringent round of Austerity measures...As a result of these measures GDP is stagnant, Consumer Spending is stagnant and in some quarters in decline... the recession is taking a lot longer to claw ourselves out of, and confidence in the Government and the economy is low...

So in my opinion, it will be extremely tough for any government to bring their country out of the red and into the black without upsetting somebody along the way... But I agree in one principal, the majority of the Rich people played a major contribution to getting us into this mess, it is only fair that they should be the minority who feel the most pain from the recovery...

 

[Galaxiom]

In Australia we put it off the pain for a while with a lot of government debt (though tiny by world standards) but retail is stagnating here now. People are nervous.

We have nearly all upgraded our TVs for digital. Our PCs and phones are good enough. Nobody trusts real estate as investment so building is depressed. Real estate is not moving. Most have decided to sit it out becuase they can't afford to sell or have already cut and run. Our current cars have four wheels that still go round.

Everyone is cutting costs and saving for a rainy day to keep the mortgage alive.

We are lucky because we have the world's biggest mine so we have reserves to regenerate wealth. When demand is up it also sitmulates our economy with both the need for expensive equipment and high wages.

However we are totally at the mercy of the demand for minerals and it is refelected in our currency. Demand goes up so does our dollar. Demand falls ditto.

It is hard to come up with a solution to a problem rooted in irresponsible lending across the planet for the past decade or more. Fortunately our prudential systems here are more prudent than most so losses on defaults have been relatively small. But there come a point where market forces push the prices too low and the faeces impinge upon the fan.

 

[Steve R.]

For many years I have bean studying economics; what I believe, is that are many myths perpetuated by many people that are beholden to a particular group or another. This has muddied the water considerably and now here is my proposal.

On significant problem with economics is that it comes in many "flavors", each of which is bastardized by the politicians to make political points. For example, the Republicans claim to want government out of private enterprise yet they also demand that government become involved in "incentivizing" business. In terms of solving the debt crises, the politician's need to speak truthfully and implement economic policies in a transparent manner. Hell will probably freeze over first.

Second we should substantially raise the highest tax rate, which is collected by the wealthiest. We should than give strong incentives to that group to reduce that rate by investments in America, not in foreign economies. It’s not that we need to punish the rich or even try to redistribute wealth which is problematic. In that, even if all the richest’s wealth was redistributed, it would have virtually no effect on the dept. No the dept will only be reduced by growing the economy.

You raise several issues.
1. There is NO such thing as a fair tax. Any tax imposed will hurt in varying degrees. For example, a flat tax will hurt the poor more than the rich. I've come to the conclusion that we simply need to get over the concept of having a fair tax.

2. Taxes are only one form of government revenue. Furthermore, taxation does not have to be based on income. I am tending towards eliminating the income tax in favor of a consumption (sales) tax. Many people would argue that a consumption tax will hurt the poor, which is understandable. But it would also eliminate a gazillion pages of tax regulations and having to spend hours filing a tax return.

3. Taxes can be broken down into three broad categories.
3a. Obtaining revenue to run the government. This is the fundamental purpose of taxation. Taxes in this category are a valid cost-of-business. Businesses need to get over objecting to paying taxes necessary to run the government.
3b. Transference of wealth - This is a big stumbling block to balancing the budget. Tax the rich to lower the tax burden of the poor, even to the point of providing free services; such as food stamps to the poor.
3c. Implementing policy to change behavior. In this case undesirable products, such as tobacco are taxed at a higher rate to discourage consummation. In other cases tax credits are given to encourage people to buy a green car.

Balancing the budget would require isolating the revenues/expenses for each of these categories. What is troublesome with the transference of wealth category is that we have an increasingly large bureaucracy that collects revenues from the States, does some abracadabra, and then gives it back to the States. This is highly wasteful. What is troublesome with implementing policy to change behavior is that it reeks of a planned economy. Ironically, I don't have an issue with implementing such policies.

And last we should do away with all tax incentives to dismantle American industry and ship the facilities overseas.

All tax incentives should be done away with. Don't forget that tax incentives decrease tax revenues which means that other have to pick-up the tab through higher taxes. (A concept that the Republicans do not seem to understand.) Of course, doing away with tax incentives would be inconsistent with my belief that tax policy can be used to guide change. So I will have to work on that a bit.

Another non tax related condition is starting to show, and that is the devalued dollar, in spite of all that has been said about this, it will actually help us in the long run. First our dept as a percentage of the GDP will decline; secondly it will make American goods more competitive in the world economy.

Devaluing the dollar is needed to spur economic growth. Actually, what we want is the other economies to achieve our standard of living so that they will buy our products. Unfortunately, devaluing the dollar is one of those inconvenient truths that the politicians will never never acknowledge.

 

[Jacob Mathai]

1. Add two percent sales tax to purchases.
2. Add five to ten cents tax to a gallon of gasoline.
3. Control costs of Medicare and Medicaid through some austerity measures.
4. Control the flow of illegals coming to this country.
5. Get away from "class warfare".
6. Vote for a new and capable leader in 2012 election.

 

[Adam Caramon]

1. Add two percent sales tax to purchases.
2. Add five to ten cents tax to a gallon of gasoline.
3. Control costs of Medicare and Medicaid through some austerity measures.

That means hurt the poor, hurt the poor, hurt the poor.

4. Control the flow of illegals coming to this country.

Excellent idea, but how? I'd suggest heavy fines on any companies found to be hiring illegals.

5. Get away from "class warfare".

Class warfare occurs due to huge differences in the quality of life between rich people and poor people. If the playing field was truly level, then there would be no need for class warfare, but we are not even close to there yet. If education was free and healthcare was free, than you could truly say that anyone can make something of themself if they apply themself.

6. Vote for a new and capable leader in 2012 election.

Another excellent idea. Let me know when you find a capable leader

 

[Steve R.]

Second we should substantially raise the highest tax rate, which is collected by the wealthiest.

I forgot in my prior response to speak of the relative value of money. That is $1 in the hands of a poor person is worth more than $1 in the hands of a rich person. The poor person needs that $1 to pay for groceries, whereas the rich person may use that $1 in an inefficient manner to buy something frivolous.

So if you believe in a progressive income tax, as a means of balancing the budget, this is one economic argument that you make.

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Those on the political "right" however will contend that it is rich who somehow create wealth through entrepreneurial activities, so taxing them more would be a drag on the economy and lead to less government revenue.

I tend not to support the above viewpoint. The poor person has to spend his $1, which enters the economy. The rich person, however, may choose not do anything with his $1. In fact there is no obligation on the part of the rich to even do anything to improve the economy.

This is one reason, the stimulus programs and tax cuts have not improved the economy. There is a lack of consumer demand. The private sector sees no benefit in investing in job growth.

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As for me, I am tending for a flat tax based on consumption as the general approach for balancing the budget. To trim costs, I would also suggest the elimination of federal government programs that collect money only to redistribute it. One example, the Department of Education. Along those lines - programs that guarantee loans such as housing programs and student loan programs should be eliminated.

 

[Steve R.]

That means hurt the poor, hurt the poor, hurt the poor.

Quite true. But there is no such thing as a fair tax. No matter what tax system is employed one special interest group or another is going to claim that they are somehow being singled out for destruction. That is one reason our current tax system is a byzantine mess.

The issue to providing sufficient revenue to fund government operations. We need a relatively simple tax code that will achieve that objective.

 

[Adam Caramon]

Quite true. But there is no such thing as a fair tax. No matter what tax system is employed one special interest group or another is going to claim that they are somehow being singled out for destruction. That is one reason our current tax system is a byzantine mess.

Agreed, the question is, who should not be targeted for more burdens? Those who already have a lot of burdens seems the obvious answer.

I think if all taxes were removed, and instead a simple national sales tax of say 50% went into affect, with basic necessities not taxed at all, we'd see an improvement in tax collection as well as slash a lot of government.

So, your house payment on your primary residence, no taxes. Your groceries, no taxes. Your water bill, medical care (which should be free anyway), electricity, etc. All of what the average family/individual pays as a cost of living, no taxes.

Gifts, luxuries, services, etc. would be assessed the 50% tax rate.

What this would do is make it where affording the basics would be much easier, but purchasing wants and desires would be more expensive.

It would still be a progressive tax system, as the rich would purchase more non-essentials and thus pay more taxes than a middle class family would. It would also close a lot of loop holes in the current tax code.

Simple and straight-forward. Helps the poor & middle class, so Democrats would like it. Shrinks the size of government, so conservatives would like it.

 

[Jacob Mathai]

In this context, watch for politicians' words.
1. Means-testing of Social security and Medicare benefits. This implies that those who have money need not be paid benefits. Politicians always want to look good with the common man (vote bank). They forget the fact that everyone contributed from their paychecks throughout their working years. If anyone wants to voluntarily decline benefits, that is fine.
2. Savings in the out years. Do not expect any savings now. The savings will come five or ten years from now. He or She hopes to be gone by that time.
3. Social Justice. This came from some churches (I do not want to mention names). The essence is that people get rich at the expense of others - Socialist thinking. For some reason, these churches do all their fund raising in capitalist countries for the benefit of poor countries. Then blame the donors for their arrogance. They teach that poverty is a virtue. I will not vote for any politician talking about social justice. They are more interested in wealth re-distribution, not wealth creation.

 

[Steve R.]

2. Savings in the out years. Do not expect any savings now. The savings will come five or ten years from now. He or She hopes to be gone by that time.

Not only will they gone, but how can a current Congress or President obligate a future, as yet unknown, Congress or President to a particular course of action? They can't. For that reason, 10 year budget proposals are a farce.

 

[Thales750]

Guys,

I had hoped to stimulate a conversation on remedies; absent of the failings of political theatre.

This conversation is typical of most that I hear. Politics, politics, politics; if all we can do is criticize and politicize, what possible hope do we have in our elected officials acting in a different manor?
I ask again, if you were faced with sitting on a board, tasked with leading the World away from the brink and back to prosperity, what would you do?
If we the intelligentsia cannot, then I strongly recommend that you learn how to farm and very soon.

 

[Galaxiom]

If we the intelligentsia cannot, then I strongly recommend that you learn how to farm and very soon.

I already have a farm.

 

[Thales750]

This winter I'm leaving Northern Virginia to build high yeild small farm in Texas.

We are going to grow food and energy.

 

[Steve R.]

This winter I'm leaving Northern Virginia to build high yeild small farm in Texas.

We are going to grow food and energy. (emphasis added)

I predict a high potential for failure. Of course, spring may arrive by the time you actually get ready.

 

[Steve R.]

I had hoped to stimulate a conversation on remedies; absent of the failings of political theatre.

The solution to the debt/budget crises does depend on your political/social leanings. In particular, the US government has exceeded its Constitutional authority for collecting revenue and implementing spending programs.

Even I have a degree of sympathy for those who claim entitlement programs are not authorized by the Constitution. Particularly egresses has been the passage of Obama care which seems to require citizens to buy medical insurance. This seems to be blatantly illegal.

But back to the "game". You asked how the debt/budget crises can be resolved. Fundamentally, we need to bring revenue in line with expenses. Of course making that statement fails to divulge how that would be done.

On the revenue side, eliminate the income tax and have a consumption tax. Revenue can also be derived from leasing Federal lands, leasing the airways to the cellphone companies, sin taxes, import duties, and usage fees (airports, roads, parks).

On the expense side:

1. Reduce military spending to meet the mission of national defense. Eliminate NATO, eliminate the European missile shield, bring the troops home. etc. Stop building expensive equipment, that if destroyed would bankrupt this country. Military equipment needs to be cheap and expendable.

2. Eliminate Federal program that collect money only to re-distribute it. That would include Housing and Urban Development, Education, and the Department of Energy.

3. Eliminate Federal loan guarantee programs related to housing, student loans, and businesses.

4. Do not allow the reconstruction of structures destroyed by natural disasters that are in flood plains or other hazardous areas. Do not allow the construction of protective structures.

5. Federal programs such as the Environmental Protection Agency, Department of Commerce, Department of Agriculture, Department of the Interior need to be kept. Yes kept.

6. Eliminate the various "wars" we have and the agencies conducting these "wars". That would be the Department of Homeland Security, the Drug Enforcement Administration, and the emergence of an agency to combat so-called "theft" of intellectual property. Basically, get rid of the growing police state.

7. Concerning entitlements. If revenues, after all the other cuts, are insufficient they will have to be downsized to. To varying degrees, entitlement programs over time have been aggrandized, these programs may be ripe for re-examination to restore them to their original intent.

8. To the maximum extent possible all subsidies should be eliminated.

9. Eliminate to the maximum extent feasible, the ability of Congress to fund useless local projects. Congress is increasingly micromanaging everything. This adds to deficit.

The above are just suggestions that are not based on any analysis of revenue versus expenses. The above suggestions are also a quick overview and can be considered incomplete. But it is a start. Have at it.

 

[Thales750]

On the revenue side, eliminate the income tax and have a consumption tax.

How exactly will that stimulate economic growth?

 

[Steve R.]

How exactly will that stimulate economic growth?

The simple answer. NO, it will not stimulate economic growth. Taxes are meant to provide the government with revenue for operating the government. The government also uses the money, like any business, to buy goods and services. So the economy uses tax revenues.

The more complicated answer. A flat consumption based tax will be more efficient than the existing morass of a byzantine tax code. Attempting to comply with the tax code means hiring unnecessary experts in the form of lawyers, accounts, internal revenue agents, and other administrative people to manage the tax system and compute tax obligations.

Get rid of this unnecessary administrative burden and the money saved could be used for a nice vacation. It would also lower the overall cost of operating the government. Thereby making a contribution to balancing the budget.

The money saved by having a more efficient tax structure can be used to buy more products and services. However, I would be reluctant to state that it would actually stimulate the economy.

I did a quick search to cherry pick some quotes Favoring A Flat Tax by Richard A. Epstein.

On the private side, a flat tax reduces the distortions that otherwise arise when two individuals receive different after-tax returns on their labor or investment. The flat tax also eliminates private incentives to concoct wasteful schemes to shift their income onto the ledger of their poorer relatives.

On the public side, the flat tax limits political discretion by making it harder for the government to single out "the rich" for special treatment. It also crimps government spending by denying any group the luxury of supporting government expenditures entirely at someone else's expense.

Summary of Steve Forbes' Flat Tax Plan

The flat tax would be simple. You could fill it out on a postcard. It would be honest. It would eliminate the principal source of political corruption in Washington. It would be fair. Millions of people would be off the federal income tax rolls.

There would be no tax on Social Security. No tax on pensions. No tax on personal savings. It would zero out capital gains taxes. It would set off a boom by letting people keep more of what they earn and by lowering barriers to risk taking.

...

Start by scrapping the tax code. Don't fiddle with it. Throw it out. Put as many IRS bureaucrats as possible into job retraining.

Replace it with a flat tax that is a tax cut -- a pro-growth, pro-family tax cut that lowers tax rates to 17 per cent across the board and expands exemptions for individuals and children so that a family of four would pay no taxes on the first $36,000 of income.

Seems that there is even a Wikipedia entry for Consumption tax. Pretty dry article, but a start. I need to review the whole concept in greater detail myself as I am not clearly distinguishing between the Flat fax and Consumption based tax.