By DAVID LEONHARDT
My column that’s running with The Times’s new interactive deficit puzzle offers some detail about the methodology behind the project. This post will provide much more detail. As the calculator says, we encourage readers to come up with their own deficit solution and post it online.
The starting point for our calculation is work done by Alan Auerbach and William Gale, two economists who are experts on the federal budget. Mr. Auerbach and Mr. Gale have written two recent papers that review what they call “the dismal prospects for the federal budget.” As an extension of that work, they built a spreadsheet for The Times that analyzed the savings that the government would need to achieve each year starting in 2015 to keep the deficit at 3 percent of gross domestic product. That’s the level that many economists consider sustainable for the deficit, because one year’s normal economic growth can pay off the previous year’s budget shortfall.
The Auerbach-Gale analysis set 2015 as the first year in which the deficit had to equal 3 percent of G.D.P., so that the government could continue to spend money and cut taxes in the next few years, while the hangover from the Great Recession lingers. The year 2015 was also the target for President Obama’s bipartisan deficit commission to cut the deficit to 3 percent of G.D.P.
The Auerbach-Gale analysis then assumed that the government made a series of continuing cuts to keep the deficit at 3 percent of G.D.P. Otherwise, the cost interest on the national debt would become onerous. In the Week in Review section on Sunday, we ask readers to come up with a package of cuts that would adequately reduce the deficit for the year 2030.
As the chart in the Week in Review says: “Why 2030? That’s when Boomers start to weigh heavily on the budget, and it’s the latest year for which experts have estimated costs for budget items.” The chart does not ask reader to pick the timetable for the cuts, but notes that they would be “implemented gradually over the next 20 years, some taking effect well before 2030 in order to keep the deficit, and thus interest payments on the national debt, at a manageable level between now and 2030.”
In the interactive version of the chart online, readers are asked to come up with a set of cuts that would sufficiently reduce the deficit for both 2015 and 2030. Some policies save more money in the near term than others, and some policies — particularly changes to Medicare and Social Security — have much more long-term savings. The country’s ultimate deficit solution will have to include a mix of medium- and long-term savings, which is why we set up the online graphic as we did.
Our baseline was current policy. That is, we assumed that existing policies would continue, even those, like the Bush tax cuts, that are scheduled to expire. But we then allowed readers to choose the reversal of any such policies as part of their deficit solution.
In all, the needed deficit savings for 2015 came to $418 billion. (All dollar figures in this project are adjusted for projected future inflation and expressed in terms of 2010 dollars.) The needed deficit savings for 2030 were $1.355 trillion.
To achieve these savings, readers are asked to choose a mix of tax increases and spending cuts. The details behind those policy options was the second major part of the project.
Our goal was to come up with a list that included the major options that are part of the current debate over the deficit — even if they are not considered politically feasible in the immediate future. As Mr. Gale notes, closing the deficit doesn’t seem to be politically feasible anytime soon.
The spending options are broken into four categories: domestic programs and foreign aid; the military; health care; and Social Security. A few of the options in domestic programs and foreign aid come from the proposal by Erskine Bowles and Alan Simpson, the chairmen of the deficit commission. The proposal to cut state aid comes from the Cato Institute.
For the military, the first five options — relating to the permanent structure of the military — come from the Sustainable Defense Task Force, a bipartisan group created by Congress that issued recommendations in June. Its report has much more detail on these options. The two options relating to the withdrawal of troops from Iraq and Afghanistan came from the Committee for a Responsible Federal Budget.
On health care and Social Security, these two Congressional Budget Office reports on budget options were a significant help, as were the offices of Medicare’s and Social Security’s chief actuaries. Outside economists also helped us calculate the projected savings — as they did on other options, too.
The tax options don’t fall as neatly into subcategories as the spending options do. The Tax Policy Center in Washington calculated the savings from policies relating to the Bush tax cuts, the estate tax and the capital-gains and dividends taxes. Several other options came from the Committee for a Responsible Federal Budget. Two of the tax-reform options come from the deficit commission. The savings from the bank tax matches the projected savings from a financial-transactions tax analyzed by the Economic Policy Institute.
More information on the national sales tax option is here and on the carbon tax (see Option 57) is here. You can also find more discussion of many options — both taxes and spending — in the Room for Debate feature in The Times’s online Opinion section.
In some cases, no savings estimate previously existed for the year 2030. To come up with an estimate in those cases, we typically looked at the trend of savings from 2010 to 2020, as a share of G.D.P., and then asked experts whether that trend was likely to continue. The ultimate estimate was a product of those conversations. In other cases, the Congressional Budget Office, the Medicare actuary, the Social Security actuary or the Committee for a Responsible Federal Budget did make an estimate for 2030.
Finally, we would like to thank the many economists and budget experts who helped us with this project. I’m especially grateful to those who patiently answered question after question, week after week: Mr. Auerbach; Maya MacGuineas, Jason Peuquet and colleagues at the Committee for a Responsible Federal Budget; Stuart Kantor, Bob Williams, Joseph Rosenberg, Jim Nunns and colleagues at the Tax Policy Center; Chris Edwards at Cato; Jonathan Gruber of M.I.T.; Michelle Bazie, Jim Horney and colleagues at the Center on Budget and Policy Priorities; Melissa Merson and colleagues at the Congressional Budget Office; Ken Baer at the Office of Management and Budget; Charles Knight and Carl Conetta at the Project on Defense Alternatives; and others who spoke off the record.
The Comments were awesome, take a gander
The starting point for our calculation is work done by Alan Auerbach and William Gale, two economists who are experts on the federal budget. Mr. Auerbach and Mr. Gale have written two recent papers that review what they call “the dismal prospects for the federal budget.” As an extension of that work, they built a spreadsheet for The Times that analyzed the savings that the government would need to achieve each year starting in 2015 to keep the deficit at 3 percent of gross domestic product. That’s the level that many economists consider sustainable for the deficit, because one year’s normal economic growth can pay off the previous year’s budget shortfall.
The Auerbach-Gale analysis set 2015 as the first year in which the deficit had to equal 3 percent of G.D.P., so that the government could continue to spend money and cut taxes in the next few years, while the hangover from the Great Recession lingers. The year 2015 was also the target for President Obama’s bipartisan deficit commission to cut the deficit to 3 percent of G.D.P.
The Auerbach-Gale analysis then assumed that the government made a series of continuing cuts to keep the deficit at 3 percent of G.D.P. Otherwise, the cost interest on the national debt would become onerous. In the Week in Review section on Sunday, we ask readers to come up with a package of cuts that would adequately reduce the deficit for the year 2030.
As the chart in the Week in Review says: “Why 2030? That’s when Boomers start to weigh heavily on the budget, and it’s the latest year for which experts have estimated costs for budget items.” The chart does not ask reader to pick the timetable for the cuts, but notes that they would be “implemented gradually over the next 20 years, some taking effect well before 2030 in order to keep the deficit, and thus interest payments on the national debt, at a manageable level between now and 2030.”
In the interactive version of the chart online, readers are asked to come up with a set of cuts that would sufficiently reduce the deficit for both 2015 and 2030. Some policies save more money in the near term than others, and some policies — particularly changes to Medicare and Social Security — have much more long-term savings. The country’s ultimate deficit solution will have to include a mix of medium- and long-term savings, which is why we set up the online graphic as we did.
Our baseline was current policy. That is, we assumed that existing policies would continue, even those, like the Bush tax cuts, that are scheduled to expire. But we then allowed readers to choose the reversal of any such policies as part of their deficit solution.
In all, the needed deficit savings for 2015 came to $418 billion. (All dollar figures in this project are adjusted for projected future inflation and expressed in terms of 2010 dollars.) The needed deficit savings for 2030 were $1.355 trillion.
To achieve these savings, readers are asked to choose a mix of tax increases and spending cuts. The details behind those policy options was the second major part of the project.
Our goal was to come up with a list that included the major options that are part of the current debate over the deficit — even if they are not considered politically feasible in the immediate future. As Mr. Gale notes, closing the deficit doesn’t seem to be politically feasible anytime soon.
The spending options are broken into four categories: domestic programs and foreign aid; the military; health care; and Social Security. A few of the options in domestic programs and foreign aid come from the proposal by Erskine Bowles and Alan Simpson, the chairmen of the deficit commission. The proposal to cut state aid comes from the Cato Institute.
For the military, the first five options — relating to the permanent structure of the military — come from the Sustainable Defense Task Force, a bipartisan group created by Congress that issued recommendations in June. Its report has much more detail on these options. The two options relating to the withdrawal of troops from Iraq and Afghanistan came from the Committee for a Responsible Federal Budget.
On health care and Social Security, these two Congressional Budget Office reports on budget options were a significant help, as were the offices of Medicare’s and Social Security’s chief actuaries. Outside economists also helped us calculate the projected savings — as they did on other options, too.
The tax options don’t fall as neatly into subcategories as the spending options do. The Tax Policy Center in Washington calculated the savings from policies relating to the Bush tax cuts, the estate tax and the capital-gains and dividends taxes. Several other options came from the Committee for a Responsible Federal Budget. Two of the tax-reform options come from the deficit commission. The savings from the bank tax matches the projected savings from a financial-transactions tax analyzed by the Economic Policy Institute.
More information on the national sales tax option is here and on the carbon tax (see Option 57) is here. You can also find more discussion of many options — both taxes and spending — in the Room for Debate feature in The Times’s online Opinion section.
In some cases, no savings estimate previously existed for the year 2030. To come up with an estimate in those cases, we typically looked at the trend of savings from 2010 to 2020, as a share of G.D.P., and then asked experts whether that trend was likely to continue. The ultimate estimate was a product of those conversations. In other cases, the Congressional Budget Office, the Medicare actuary, the Social Security actuary or the Committee for a Responsible Federal Budget did make an estimate for 2030.
Finally, we would like to thank the many economists and budget experts who helped us with this project. I’m especially grateful to those who patiently answered question after question, week after week: Mr. Auerbach; Maya MacGuineas, Jason Peuquet and colleagues at the Committee for a Responsible Federal Budget; Stuart Kantor, Bob Williams, Joseph Rosenberg, Jim Nunns and colleagues at the Tax Policy Center; Chris Edwards at Cato; Jonathan Gruber of M.I.T.; Michelle Bazie, Jim Horney and colleagues at the Center on Budget and Policy Priorities; Melissa Merson and colleagues at the Congressional Budget Office; Ken Baer at the Office of Management and Budget; Charles Knight and Carl Conetta at the Project on Defense Alternatives; and others who spoke off the record.
The Comments were awesome, take a gander
I solved the deficit problem in under 5 minutes choosing the cuts and changes below.
I did not need to change the SS retirement age, the Medicare age, cut aid to sates, penalize noncombat military compensation, tighten eligibility for disability, allow the government to further muck with CPI (which I contend is now TOO LOW, NOT too high), implement a national sales tax or a carbon tax!
But of course, I still stepped on a lot of political constituencies. :)
Yea! Vote for me!
--------------
Cut foreign aid in half
Eliminate earmarks
Eliminate farm subsidies
Cut pay of civilian federal workers by 5 percent
Reduce the federal workforce by 10 percent
Cut 250,000 government contractors
Reduce military to pre-Iraq War size and further reduce troops in Asia and Europe
Reduce Navy and Air Force fleets
Reduce the number of troops in Iraq and Afghanist to 30,000 by 2013
Enact medical malpractice reform
Reduce the tax break for employer-provided health insurance
Cap Medicare growth starting in 2013
Reduce Social Security benefits for those with high incomes
Return the estate tax to Clinton-era levels
Return rates to Clinton-era levels
Allow expiration for income above $250,000 a year
Payroll tax: Subject some incomes above $106,000 to tax
Millionaire's tax on income above $1 million
Eliminate loopholes, reduce rates (Bowles-Simpson plan)
Reduce mortgage-interest deduction by converting to credit
Bank Tax
--------------
Why hasn't the capital gains exclusion for a sale of a house that you have lived in for 2 of the past 5 years come up for discussion? This benefit only encourages the trading of houses and a subsequent rise in housing prices?
BTW: It would have been nice if the NY Times had given us the ability to save our choices and share them via a personal URL of some sort.
I did not need to change the SS retirement age, the Medicare age, cut aid to sates, penalize noncombat military compensation, tighten eligibility for disability, allow the government to further muck with CPI (which I contend is now TOO LOW, NOT too high), implement a national sales tax or a carbon tax!
But of course, I still stepped on a lot of political constituencies. :)
Yea! Vote for me!
--------------
Cut foreign aid in half
Eliminate earmarks
Eliminate farm subsidies
Cut pay of civilian federal workers by 5 percent
Reduce the federal workforce by 10 percent
Cut 250,000 government contractors
Reduce military to pre-Iraq War size and further reduce troops in Asia and Europe
Reduce Navy and Air Force fleets
Reduce the number of troops in Iraq and Afghanist to 30,000 by 2013
Enact medical malpractice reform
Reduce the tax break for employer-provided health insurance
Cap Medicare growth starting in 2013
Reduce Social Security benefits for those with high incomes
Return the estate tax to Clinton-era levels
Return rates to Clinton-era levels
Allow expiration for income above $250,000 a year
Payroll tax: Subject some incomes above $106,000 to tax
Millionaire's tax on income above $1 million
Eliminate loopholes, reduce rates (Bowles-Simpson plan)
Reduce mortgage-interest deduction by converting to credit
Bank Tax
--------------
Why hasn't the capital gains exclusion for a sale of a house that you have lived in for 2 of the past 5 years come up for discussion? This benefit only encourages the trading of houses and a subsequent rise in housing prices?
BTW: It would have been nice if the NY Times had given us the ability to save our choices and share them via a personal URL of some sort.
2.
Tom
Virginia
November 14th, 2010
10:40 pm
Thank you so much for creating this valuable tool that will help the electorate grasp the difficult choices that must be made in order to close the budget gap. One request/suggestion. Please give people sharing options other than twitter. Let people share their plans by email and facebook (each of which are far more popular than twitter). Also, you ought to remove the sharing links at the bottom of the page. I mistakenly assumed that those links would allow me to share my completed plan. Instead, it completely wiped out all of my work.
Fantastic project. Every member of Congress should be required to fill this out and make their choices public. But one question -- why doesn't the calculator allow ALL of the Bush tax cuts to expire, i.e., the cuts both above and below $250,000? That seems like a policy choice that should be on the table -- indeed, it's what will happen if Congress does nothing (as is its habit). Besides, what possible argument is there for allowing the tax cuts for income below $250,000 to expire, while leaving in place the tax cuts for income above $250,000?
It would also be powerful if you would allow people to "submit" their choices so that the NYT can report on the most popular paths that people took to balancing the budget.
The only thing missing from this great exercise are the brutal, personal ads that will run after one makes the tough decisions.
Or alternatively, the NYTimes could create a related graphic showing the voting blocs that are lost with each decision. This would give all of us a more realistic sense of just how tough these decisions are and create some sympathy (or at least understanding) for the dilemma faced by our representatives in Washington.
I am sure there are some creative readers who could create the ads.
Let's keep the discussion going.
Cheers
Or alternatively, the NYTimes could create a related graphic showing the voting blocs that are lost with each decision. This would give all of us a more realistic sense of just how tough these decisions are and create some sympathy (or at least understanding) for the dilemma faced by our representatives in Washington.
I am sure there are some creative readers who could create the ads.
Let's keep the discussion going.
Cheers
The puzzle is great because it allows people to see the real impact of choices, and it makes it apparent which have a lot of impact and which do not. What is disappointing is that some choices are really not there, for example we cant choose to let all the bush tax cuts expire, we have to choose between raising for over 250K or those under - clearly we can choose as a country to do both
There is also an option to eliminate the tax deduction for health care, but there are no alternatives to give a limited deduction (say the 5,000 that McCain proposed and Obama ridiculed him for - only to turn around to try and eliminate it all) which will fix a huge unfairness in the code the fact that people who are self employed get treated differently than those who work for a company. The government has no business dictating how people work, it just creates unnecessary friction. Similarly, while I love my mortgage deduction (but I will not give it up unless it is part of broader reform) the government has no right to say that owning versus renting is better, again people should choose what makes better sense for them (if anything they can give an allowance for housing, not certain type of housing)
In the end a simpler system with no deductions and lower rates (it can have several brackets for progressivity) will reduce the cost of compliance and reduce avoidance (that was the experience of many easter european countries, that raised more taxes after lowering rates)
We all have to pay a price - everyone needs to pay at least some taxes, the rich have to pay a bit more, the retired need to at least live with current benefits - we all need to retire a bit later, and we have to feel more of the cost of health insurance so we can make smart choices (because many pay it before getting their paychecks they do not feel it, and because the insurance/doctor system is not transparent with hundreds or thousands of procedure codes we never know what anything will cost so we can't decide if it is worth it or choose a cheaper alternative - however we do that routinely for many other things as complex as health care), and finally we have to restore a semblance of actuarial science to health insurance, those who do not live healthy lives and do not follow doctors directions for care should pay more as opposed to just consuming more care for the same price (so if you require a second operation because you did not do the post operative exercises or care you need to be responsible for that, similarly if you do not take your pills, or continue to smoke after told to stop, etc.)
There are no free lunches on this - as long as we all insist that someone else pays we will never solve this
There is also an option to eliminate the tax deduction for health care, but there are no alternatives to give a limited deduction (say the 5,000 that McCain proposed and Obama ridiculed him for - only to turn around to try and eliminate it all) which will fix a huge unfairness in the code the fact that people who are self employed get treated differently than those who work for a company. The government has no business dictating how people work, it just creates unnecessary friction. Similarly, while I love my mortgage deduction (but I will not give it up unless it is part of broader reform) the government has no right to say that owning versus renting is better, again people should choose what makes better sense for them (if anything they can give an allowance for housing, not certain type of housing)
In the end a simpler system with no deductions and lower rates (it can have several brackets for progressivity) will reduce the cost of compliance and reduce avoidance (that was the experience of many easter european countries, that raised more taxes after lowering rates)
We all have to pay a price - everyone needs to pay at least some taxes, the rich have to pay a bit more, the retired need to at least live with current benefits - we all need to retire a bit later, and we have to feel more of the cost of health insurance so we can make smart choices (because many pay it before getting their paychecks they do not feel it, and because the insurance/doctor system is not transparent with hundreds or thousands of procedure codes we never know what anything will cost so we can't decide if it is worth it or choose a cheaper alternative - however we do that routinely for many other things as complex as health care), and finally we have to restore a semblance of actuarial science to health insurance, those who do not live healthy lives and do not follow doctors directions for care should pay more as opposed to just consuming more care for the same price (so if you require a second operation because you did not do the post operative exercises or care you need to be responsible for that, similarly if you do not take your pills, or continue to smoke after told to stop, etc.)
There are no free lunches on this - as long as we all insist that someone else pays we will never solve this
The largest long-term deficit item is Medicare and the biggest problem with Medicare is large outlays very late in life. If we did have death panels and we really did pull the plug on grandma/grandpa, then the Medicare conundrum and the largest most intractable part of our projected long-term deficit problem would go away. There is absolutely no reason why the taxpayer should be stuck with a high-six-figure bill so that gramps can live another couple of months in agony. Disclosure: I'm 68, so this is not far away/theoretical on the personal level.
And of course it would help if we repealed Obamacare and started over again on health reform for those under 65. The projected savings from this bill will prove to be entirely illusory. We will never save a dime unless/until the for-profit insurance companies are elbowed out of the picture.
As for non-starters on the revenue side like a VAT, do you really think I'm going to pay that in addition to the 8.875% New York City tax? If I'm going to pay Europe-style taxes then I want European-level services, not the nothing/junk we have in this country! Don't like/agree with 'em but can surely/sorely relate to: "Taxed Enough Already. Honk if you hate the IRS."
And how about the new stealth tax that no one's talking about for 2011 on Medicare Part D that kicks in on income WAY below $200K? "If you like your current health plan you can keep it." Of course the premium may double over the next year or so...
And of course it would help if we repealed Obamacare and started over again on health reform for those under 65. The projected savings from this bill will prove to be entirely illusory. We will never save a dime unless/until the for-profit insurance companies are elbowed out of the picture.
As for non-starters on the revenue side like a VAT, do you really think I'm going to pay that in addition to the 8.875% New York City tax? If I'm going to pay Europe-style taxes then I want European-level services, not the nothing/junk we have in this country! Don't like/agree with 'em but can surely/sorely relate to: "Taxed Enough Already. Honk if you hate the IRS."
And how about the new stealth tax that no one's talking about for 2011 on Medicare Part D that kicks in on income WAY below $200K? "If you like your current health plan you can keep it." Of course the premium may double over the next year or so...
We can tinker with expnditures and taxes until the cows come home but it won't do any good.
Even if we confiscated every dollar from the rich, we'd still eventually run out of money.
The money people want/need will come from the government. The only way the government will have *enough* money is to revalue gold. Why do you think Alan Greenspan told congress to "Never sell the gold"?
When they revalue gold, I'll buy s condo.
Even if we confiscated every dollar from the rich, we'd still eventually run out of money.
The money people want/need will come from the government. The only way the government will have *enough* money is to revalue gold. Why do you think Alan Greenspan told congress to "Never sell the gold"?
When they revalue gold, I'll buy s condo.
The proposed Medicare growth cap is just a magic asterisk without a substantive explanation of how it would work.
The exercise nevertheless is useful, because it shows how easy the solution is, at least as a technical matter, even without the Medicare growth cap. (In fact, although not in this exercise, I expect substantial savings can be realized here. It's just that I won't use a magic asterisk.) My largest program cuts were from the military budget; as presented, they do not jeopardize our national security. I'd also eliminate ear marks and farm subsidies, and reduce government contractors.
I reject increasing the eligibility age for Medicare or Social Security, because increased longevity appears to be associated with higher income and less physically demanding work.
I'm willing to tighten enforcement of reasonable disability requirements and partially means-test social security payments, but changing the inflation index seems imprudent until we know how accurately any proposed new index tracks the actual expenditures of social security recipients.
The economy did well during the Clinton presidency, so I see no persuasive economic argument against returning to those tax levels.
Removing the cap on payroll taxes also seems a no brainer, as does (what one might call) Bowles-Simpson Plus.
In the real world, of course, unless Republicans are willing to put saving the country above their ideological commitments, nothing constructive will be done until the choice is between even more radical action and imminent disaster, and even then we can't count on avoiding disaster. This is not to say that there won't be a gnashing of teeth among Democrats, but from at least the time of the Clinton-Gore "lockbox," they seem to have been open to responsible solutions.
The exercise nevertheless is useful, because it shows how easy the solution is, at least as a technical matter, even without the Medicare growth cap. (In fact, although not in this exercise, I expect substantial savings can be realized here. It's just that I won't use a magic asterisk.) My largest program cuts were from the military budget; as presented, they do not jeopardize our national security. I'd also eliminate ear marks and farm subsidies, and reduce government contractors.
I reject increasing the eligibility age for Medicare or Social Security, because increased longevity appears to be associated with higher income and less physically demanding work.
I'm willing to tighten enforcement of reasonable disability requirements and partially means-test social security payments, but changing the inflation index seems imprudent until we know how accurately any proposed new index tracks the actual expenditures of social security recipients.
The economy did well during the Clinton presidency, so I see no persuasive economic argument against returning to those tax levels.
Removing the cap on payroll taxes also seems a no brainer, as does (what one might call) Bowles-Simpson Plus.
In the real world, of course, unless Republicans are willing to put saving the country above their ideological commitments, nothing constructive will be done until the choice is between even more radical action and imminent disaster, and even then we can't count on avoiding disaster. This is not to say that there won't be a gnashing of teeth among Democrats, but from at least the time of the Clinton-Gore "lockbox," they seem to have been open to responsible solutions.
The only way to end the Bush tax cuts for the rich is to let all the Bush tax cuts expire.
The Republicans will never go along with only letting the middle class keep the tax cuts. And President Obama will never again be in a position to single-handedly end the tax cuts for the rich. He must let all the Bush tax cuts expire.
There would be unintended consequences to extending the Bush tax cuts. Foremost would be the Republicans in Congress next year screaming to cut funding of the health care reform act (“Obamacare”). But they will also demand large cuts to Social Security and Medicare.
That is why ending the Bush tax cuts is not just the right thing to do economically, but politically as well. It should be a no-brainer.
What is the economic rationale for ending the tax cuts? The national debt is already $14 Trillion and growing rapidly. This debt is going to break the back of the United States. It will destroy us as a nation in a way that the former Soviet Union and China could only have dreamed.
There will be plenty of time later to reform our tax system. Any “revenue neutral” tax reform would be so much better if we raise the bar on revenue today.
There is a second and equally devastating element to our present political economy, namely, our allegiance to the false, orthodox theory of “free trade”. It founder, David Ricardo, died in 1823. That was a different world. But economics is not science, and economists pay no heed to observation. If they did, “free trade” would have died in America fifty years ago. It did not, and consequently, we have shipped tens of millions of job American jobs overseas. Is it any wonder why our students are now losing interest in education? Without a strong economy, there are not nearly enough jobs to go around, and we are left with an over-educated and depressed populace.
In summary, step 1 is for Obama to veto any extension of the Bush tax cuts. Step 2 is for Obama and Congress to bring back the industrial policies which built our former great economy in the first place.
The Republicans will never go along with only letting the middle class keep the tax cuts. And President Obama will never again be in a position to single-handedly end the tax cuts for the rich. He must let all the Bush tax cuts expire.
There would be unintended consequences to extending the Bush tax cuts. Foremost would be the Republicans in Congress next year screaming to cut funding of the health care reform act (“Obamacare”). But they will also demand large cuts to Social Security and Medicare.
That is why ending the Bush tax cuts is not just the right thing to do economically, but politically as well. It should be a no-brainer.
What is the economic rationale for ending the tax cuts? The national debt is already $14 Trillion and growing rapidly. This debt is going to break the back of the United States. It will destroy us as a nation in a way that the former Soviet Union and China could only have dreamed.
There will be plenty of time later to reform our tax system. Any “revenue neutral” tax reform would be so much better if we raise the bar on revenue today.
There is a second and equally devastating element to our present political economy, namely, our allegiance to the false, orthodox theory of “free trade”. It founder, David Ricardo, died in 1823. That was a different world. But economics is not science, and economists pay no heed to observation. If they did, “free trade” would have died in America fifty years ago. It did not, and consequently, we have shipped tens of millions of job American jobs overseas. Is it any wonder why our students are now losing interest in education? Without a strong economy, there are not nearly enough jobs to go around, and we are left with an over-educated and depressed populace.
In summary, step 1 is for Obama to veto any extension of the Bush tax cuts. Step 2 is for Obama and Congress to bring back the industrial policies which built our former great economy in the first place.
Great exercise.
The clear answer to the budget problem is:
cut government jobs
cut government subsidies to states
eliminate farm subsidies
eliminate earmarks
some reduction in defense spending
raising the eligibility age for Social Security and Medicare (absolutely essential)
taxing social security benefits above a certain level
(much as I hate to admit it) something roughly like Obama proposal for estate and income tax
"millionaire's" surtax
This contains policy anathemas for both left and right. However, we can't keep spending beyond our means. I only hope it is not too late.
Even though I find myself agreeing with Obama on the 2 tax issues, I'm still no fan. But income inequality has gotten out of hand (see Frank Rich, with whom I also usually strongly disagree).
The clear answer to the budget problem is:
cut government jobs
cut government subsidies to states
eliminate farm subsidies
eliminate earmarks
some reduction in defense spending
raising the eligibility age for Social Security and Medicare (absolutely essential)
taxing social security benefits above a certain level
(much as I hate to admit it) something roughly like Obama proposal for estate and income tax
"millionaire's" surtax
This contains policy anathemas for both left and right. However, we can't keep spending beyond our means. I only hope it is not too late.
Even though I find myself agreeing with Obama on the 2 tax issues, I'm still no fan. But income inequality has gotten out of hand (see Frank Rich, with whom I also usually strongly disagree).
Thank you! The interactive puzzle helps me better understand our options. Are there similar "puzzles" done by others?
What an impossibly myopic, mistaken view of the US balance sheet.
Consider the three major sources of funding you overlooked:
1) The War in Iraq was unfunded, created a 4 trillion dollar deficit, and primarily benefited oil companies who will be pumping billions of dollars of oil our of Iraq for years to come, but could not be doing this absent our soldiers' efforts which allowed for the securing of forward pumping contracts otherwise unobtainable.
Charge the oil companies for our services--you just "found" a couple trillion dollars.
2) The War in Afghanistan, made that country the world's leading grower of opium poppies, leading exporter of heroin. Billions of dollars annually, trillions of dollars in street value worldwide over the years.
Tax drug sales-- especially heroin. It is an enormous source of revenue, completely overlooked approaching a trillion in the near term.
3) Misdirected bailouts and subsidies.
We continue to subsidize trading houses by allowing them to handle the sales of US Treasuries and take a cut. We continue to allow dysfunctional banks 0% money from the Fed which they loan to stretched consumers at rates up to 30%. We ask no accounting of the 750 billion dollar TARP taxpayer money which was largely squandered amongst friends while factories failed for lack of funding from banks and millions of jobs disappeared.
Have the banks and trading houses disgorge the public funds they misused.
That's another trillion in revenue.
Budget problem solved.
Consider the three major sources of funding you overlooked:
1) The War in Iraq was unfunded, created a 4 trillion dollar deficit, and primarily benefited oil companies who will be pumping billions of dollars of oil our of Iraq for years to come, but could not be doing this absent our soldiers' efforts which allowed for the securing of forward pumping contracts otherwise unobtainable.
Charge the oil companies for our services--you just "found" a couple trillion dollars.
2) The War in Afghanistan, made that country the world's leading grower of opium poppies, leading exporter of heroin. Billions of dollars annually, trillions of dollars in street value worldwide over the years.
Tax drug sales-- especially heroin. It is an enormous source of revenue, completely overlooked approaching a trillion in the near term.
3) Misdirected bailouts and subsidies.
We continue to subsidize trading houses by allowing them to handle the sales of US Treasuries and take a cut. We continue to allow dysfunctional banks 0% money from the Fed which they loan to stretched consumers at rates up to 30%. We ask no accounting of the 750 billion dollar TARP taxpayer money which was largely squandered amongst friends while factories failed for lack of funding from banks and millions of jobs disappeared.
Have the banks and trading houses disgorge the public funds they misused.
That's another trillion in revenue.
Budget problem solved.
This is missing a few important options:
* Eliminate REAGAN era tax changes... return us to a 74% top rate for top income earners in the top 1% (or top .5%)
or
*Eliminate KENNEDY era tax cuts... returning us to the 91% top rate. If 91% seems like a lot, let me ask you this... wouldn't you impose a 91% tax on the billionaire hedge fund managers who gave themselves multibillion dollar bonuses using government TARP monies?
*tax all income, including capital gains for social security.
*tax capital gains at the same rate as income tax, and take out the taxes at the completion of any transaction.
allow us to add more tax brackets, and to adjust those not just by income level but by income percentile.
add more options for infrastructure and properly indicate the dividends paid.
same for research, development, and education funding.
then it would be much easier to balance the budget, which of course pays dividends of its own, such as forcing investors to look elsewhere besides treasury bonds.
* Eliminate REAGAN era tax changes... return us to a 74% top rate for top income earners in the top 1% (or top .5%)
or
*Eliminate KENNEDY era tax cuts... returning us to the 91% top rate. If 91% seems like a lot, let me ask you this... wouldn't you impose a 91% tax on the billionaire hedge fund managers who gave themselves multibillion dollar bonuses using government TARP monies?
*tax all income, including capital gains for social security.
*tax capital gains at the same rate as income tax, and take out the taxes at the completion of any transaction.
allow us to add more tax brackets, and to adjust those not just by income level but by income percentile.
add more options for infrastructure and properly indicate the dividends paid.
same for research, development, and education funding.
then it would be much easier to balance the budget, which of course pays dividends of its own, such as forcing investors to look elsewhere besides treasury bonds.
Great interactive feature 'You fix the deficit.' I loved playing with the numbers and options. It's so easy to fix the deficit :) Though, I wish that there were more options like the impact of legalizing and taxing soft drugs and prostitution. Another great option would be the ability to invest into research areas that will benefit the economy, e.g. alternative energy or thorium reactors. More specific options to choose the weapons programs to cut or increase funding would be great. Oh, and I want an option of pulling everyone out of Afghanistan/Iraq tomorrow. Those states will fail with our without us.
Finally, there should be an option to submit the budget proposal. It would be very interesting to see a comparison to other people's budget. Perhaps, on submitting the budget, there could be an option to check one's political attitude (Democrat, independent, Republican, Tea Party, anarchist).
While I am wishing, the NY Times should have an interactive 'game' like this every week. This is the day of social media, where people want to engage and not simply be talked to.
Finally, there should be an option to submit the budget proposal. It would be very interesting to see a comparison to other people's budget. Perhaps, on submitting the budget, there could be an option to check one's political attitude (Democrat, independent, Republican, Tea Party, anarchist).
While I am wishing, the NY Times should have an interactive 'game' like this every week. This is the day of social media, where people want to engage and not simply be talked to.
What about cutting welfare? And food stamps? We have 1/8 americans on food stamps. We should reduce that to half. How about education loans? We're currently giving loans to everyone regardless of academic ability. We should reserve that for the top 10%, regardless of ability to pay. Not everyone should attend college, just our brightest.
The calculator is very restrictive in the kinds of choices allowed. If you restrict
choices to the ones mentioned by the "deficit" commission of course one gets a pre-determined result.
For example: One can't specify higher income tax rates at the higher end or a much higher rate for capital gains. For a substantial portion of the 20th century such taxes were much higher and by most measures most Americans were better off.
The calculator does not allow on to experiment other kinds of spending cuts are not possible. Eg Reducing military procurement of high tech weapons by much more - the firepower of US weapons is much more than that of other countries. Note that even the "deficit" commission doesn't usually say how they will find the savings - eg restricting Medicare growth to GDP + 1% sounds fine but they never say how. The devil lies in the details. Are they going to restrict expensive care (eg more than 10% - and maybe much higher- of Medicare's budget pays for dialysis)? Are they going to pay doctors less?
choices to the ones mentioned by the "deficit" commission of course one gets a pre-determined result.
For example: One can't specify higher income tax rates at the higher end or a much higher rate for capital gains. For a substantial portion of the 20th century such taxes were much higher and by most measures most Americans were better off.
The calculator does not allow on to experiment other kinds of spending cuts are not possible. Eg Reducing military procurement of high tech weapons by much more - the firepower of US weapons is much more than that of other countries. Note that even the "deficit" commission doesn't usually say how they will find the savings - eg restricting Medicare growth to GDP + 1% sounds fine but they never say how. The devil lies in the details. Are they going to restrict expensive care (eg more than 10% - and maybe much higher- of Medicare's budget pays for dialysis)? Are they going to pay doctors less?
My thesis has been that if we passed effective ( I said effective ), legislation against money-laundering we would make a significant reduction in our deficit by addressing tax-evasion ( Madoffs etc. ) and reduce world poverty by the same extent. Reduce money-laundering by 50 percent and world poverty would reduce by 50 percent so would the drug trafficking. One simple provision of such a law would be that the US would not do business with banks that accept illicit deposits, here and abroad.
Hell, that was easy -- I cut defense spending and taxed the rich. Put up the interactive for curing cancer and I'll take care of that too. Then I'll take a nap.
Today's "Interactive: O.K.YOU fix the budget" misses a crucial opportunity to preserve Social Security benefits indefinitely: Remove the maximum salary cap altogether!
Social security has never been a "savings plan." Instead, it was set up to fund current benefits from current revenues to help those who most need [and otherwise qualify for] help.
That said, no income should be excluded on the false premise that one should contribute merely in proportion to expectation of [potential] future benefits.
Contributing a fixed percentage of total income to help those less fortunate is a price one might reasonably expect to pay for the opportunity and privilege of amassing great wealth.
Social security has never been a "savings plan." Instead, it was set up to fund current benefits from current revenues to help those who most need [and otherwise qualify for] help.
That said, no income should be excluded on the false premise that one should contribute merely in proportion to expectation of [potential] future benefits.
Contributing a fixed percentage of total income to help those less fortunate is a price one might reasonably expect to pay for the opportunity and privilege of amassing great wealth.
This needs a function to share with the president/congress!
Thank you for putting this together. I am sure that readers will be able to figure this out, and even if not politically feasible, are more informed about the issues.
The original template is a problem because it limits the choices to those of either centrist Democratic or current Republican plans. Let's start with giving all elected federal officials the same health ins. all fed employees get and it lasts only as long as they are in office. They have to be vested(say 2 terms) to get any pension and it is pro-rated. No special travel allowance unless it is authorized by committee work. There is much more but let's consider these cuts before we go to the middle class or the poor. Think Congress would vote for these?
That was very cool. Great to see actual numbers instead of rhetoric.
Of course I came up with a 'solution': http://t.co/MoIr7wu
A pretty progressive one of course - soak the rich, get out of Iraq and Afghanistan as much as possible, leave benefits alone. But the only choices I felt were ideologically motivated (i.e. would be good ideas even if they didn't save money) were the pulling out of Iraq/Afghanistan and the carbon tax.
The Bolwes-Simpson proposal is by contrast quite ideologically conservative. They seem to want to do all they can to give the already wealthy even more money and reduce that pesky Social Security thing people seem to love.
Of course none of this is actually realistic. My inclusion of cutting farm subsidies and cutting the mortgage deduction are particularly outlandish. And ultimately balancing the budget isn't the most important issue right now. Getting the economy back in shape is. After all nothing helps get revenue like a well functioning economy.
We should go back to Clinton-era or even Eisnehower levels of taxing and spending. Both were times when the rich paid a lot more in taxes. And were times of peace and prosperity.
Of course I came up with a 'solution': http://t.co/MoIr7wu
A pretty progressive one of course - soak the rich, get out of Iraq and Afghanistan as much as possible, leave benefits alone. But the only choices I felt were ideologically motivated (i.e. would be good ideas even if they didn't save money) were the pulling out of Iraq/Afghanistan and the carbon tax.
The Bolwes-Simpson proposal is by contrast quite ideologically conservative. They seem to want to do all they can to give the already wealthy even more money and reduce that pesky Social Security thing people seem to love.
Of course none of this is actually realistic. My inclusion of cutting farm subsidies and cutting the mortgage deduction are particularly outlandish. And ultimately balancing the budget isn't the most important issue right now. Getting the economy back in shape is. After all nothing helps get revenue like a well functioning economy.
We should go back to Clinton-era or even Eisnehower levels of taxing and spending. Both were times when the rich paid a lot more in taxes. And were times of peace and prosperity.
To some extent this is helpful, but it really doesn't distinguish three separate problems that need to be addressed differently (not that I expect that to happen).
1) Social Security. This is a non-problem that leads to huge deficit projections but can be fixed with a little tweaking (I'm not even sure if projections fail to include all the money that was supposed be be set aside in the trust fund for boomer retirements, which means the real shortfall is in the general budget that has been borrowing from the trust fund). Completely eliminating the cap on FICA would cover much of the deficit, and my proposal to do the rest of the job is to treat investment income as self-employment income (with compensatory income tax breaks to protect the middle class). Social Security is a progressive retirement program, but as it stands now, the progressive element stops at about $100,000 and the super rich contribute no more to subsidizing the program than those earning $100,000.
2) Health Care. This isn't a problem with Medicare or Medicaid. The overall system needs to be overhauled in a way Obama refused to tackle. But what needs to be done is well known to health economists whose focus is to provide quality medical care to all for an affordable price. A single payer plan and evidence-based medicine would save far more than any proposals being suggested.
3) The general budget. Obviously since the military is the main cost in the general budget, the only way to balance it is with huge cuts in military spending. But there will need to be large tax increases and there are other options that should be on the table. First is taxing capital gains and dividends at marginal rates, not just a return to 20%. There is no evidence that a lower rate for capital gains has actually produced enough growth to warrant it. Second is a sliding scale for income tax instead of brackets, which would be trivial with modern day computing, with much, much higher rates for the super rich. Inevitably to balance the budget even the upper middle class will have to pay more, but it is time to push against the trend Frank Rich talked about in today's column, where wealth has become more and more concentrated among the super rich. Supply side economics was a lie. Throwing money at the rich has not brought about enough growth to compensate for lost revenues.
1) Social Security. This is a non-problem that leads to huge deficit projections but can be fixed with a little tweaking (I'm not even sure if projections fail to include all the money that was supposed be be set aside in the trust fund for boomer retirements, which means the real shortfall is in the general budget that has been borrowing from the trust fund). Completely eliminating the cap on FICA would cover much of the deficit, and my proposal to do the rest of the job is to treat investment income as self-employment income (with compensatory income tax breaks to protect the middle class). Social Security is a progressive retirement program, but as it stands now, the progressive element stops at about $100,000 and the super rich contribute no more to subsidizing the program than those earning $100,000.
2) Health Care. This isn't a problem with Medicare or Medicaid. The overall system needs to be overhauled in a way Obama refused to tackle. But what needs to be done is well known to health economists whose focus is to provide quality medical care to all for an affordable price. A single payer plan and evidence-based medicine would save far more than any proposals being suggested.
3) The general budget. Obviously since the military is the main cost in the general budget, the only way to balance it is with huge cuts in military spending. But there will need to be large tax increases and there are other options that should be on the table. First is taxing capital gains and dividends at marginal rates, not just a return to 20%. There is no evidence that a lower rate for capital gains has actually produced enough growth to warrant it. Second is a sliding scale for income tax instead of brackets, which would be trivial with modern day computing, with much, much higher rates for the super rich. Inevitably to balance the budget even the upper middle class will have to pay more, but it is time to push against the trend Frank Rich talked about in today's column, where wealth has become more and more concentrated among the super rich. Supply side economics was a lie. Throwing money at the rich has not brought about enough growth to compensate for lost revenues.
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