Deficit: Fix It ?

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us_deficit.png
Deficit as % GDP
 Courtesy: US Government Spending.Com

The American people have this in common politically, whether they lean left, right, or have a foot in both camps: They want to know that they, and their children, will reside, work, and play in the best country on Earth. Deficits threaten that future. The American public want the deficits fixed. Contrary to some talking head fear-mongerers and biased pundits, most Americans are willing to sacrifice something toward this end. Deficits are really just an 8th grade math problem. Here is a road map to working that problem.

Deficits and Debt


First a note of fact about deficits and debt. If you go over budget, it is a result of revenue, or income being less than spending. If you increase revenue, the overspending is reduced. If you decrease spending, overspending is reduced. If you increase revenue by half the deficit amount, and decrease spending by half the deficit amount, you balance the budget with half as much revenue increase and half as much spending cuts.


Hence, government has 3 options to eliminate deficits. 1) Increase revenue by the amount of the overspending. 2) Decrease spending by the amount of the overspending. 3) Increase revenues and decrease spending to the combined extent that overspending is eliminated. Option 1 would crater the economy through tax increases far too large. Option 2 would impoverish America's parents and grandparents and deprive Americans of needed medical care or force them into bankruptcy. Option 3 provides the most politically expedient and least negative consequence path to ending our deficits. Disregard all partisan political rhetoric to the contrary, designed to protect Party supporting lobbyists.


For the last 30 years, Republicans talked incessantly about cutting taxes. The net result of their years in power were debt and deficits, and hidden tax increases to compensate income tax cuts. Everything from National Park entrance fees to gasoline tax increases to taxes on equity trading increased under Republicans.


For the last 30 years, Democrats kept saying that growing the economy and increasing wages would balance the budget. When they were in power, however, they had this nasty habit of increasing spending right along with growth in the economy and wages in the upper income groups, while real wages, thanks to Republicans, remained stagnant for the Middle Class. In the end, as wages and economic growth increased revenues, Democrats increased spending by even more, with the exception of the last 2 years of Clinton's presidency, when Congress was partially held by a Republican majority.


Note in the graph above (click on image for larger view), that current deficits as a percent of GDP (total economic activity), is far lower than the concluding years of WWII in the 1940's. This means, even at current levels, we have a bit of time yet to bring them down and reverse them. Not a lot of time, of course, but, we can take an incremental approach, which allows us to get our economy stable, and  the unemployment rate back down to at least 7% or so, before dramatically tightening our belts. The key issue here is our government putting in place a deficit reduction plan that investors in our debt can believe in. Failing that, those lending us the money to keep our government afloat, will find other nations to lend their money to, and then, our goose is overcooked.


Below are polls reflecting American views. Polls have some serious limitations. To review these, see the Polling section of this article at the end.


Raising Income Taxes

A poll in April, 2010 indicates most Americans believe the the income taxes they pay are fair. This is even true of those who identified themselves as Tea Party supporters. (CBS/NYTimes poll, April 2010.)

Historically, however, most Americans said their federal income taxes were too high. (Gallup).

Most Americans believe tax hikes are OK if you're making more than $250,000, but hands off Medicare and Social Security. More than 70 percent, including a majority of Republicans, say those making more than $1 million should pay more. (You won't hear any Republican politicians citing this poll). (Quinipiac, Mar. 2010).

Majority of Americans did NOT want the Bush tax cuts for the wealthiest, extended. (Bloomberg, Dec. 2010, PDF).

With some deductive reasoning, these polls taken together paint a picture of the attitude of the majority of Americans about income taxes and spending cuts, at this time.

They believe the wealthiest should pay as great, or greater, share of income taxes than the non-wealthy. The word "share" is hotly debated by Democrats and Republicans, since Democrat's definition of share tends to mean equal or higher percentage of income in taxes, and Republicans define share in shear dollar amount touting how the wealthiest 20 percent, in 2006, paid 86.3 percent of all federal income taxes received by the government. Yet, Warren Buffet, for example, paid a lower percentage of his income in tax in 2006 than his secretaries and office staff did. (4% of $100 = $4.00 will always be greater in dollar amount than 10% of $1 = 10 cents, even though 4% is a lower rate than 10%). For the simplicity of argument, the wealthiest do contribute the largest dollar amount in taxes, but, pay a lower percentage of their income in taxes after deductions and loopholes, than the teacher, janitor, or secretary.

This debate conducted by liberals and conservatives is constantly changing public opinion numbers on income tax levels. For example, in Sept. 2010, three months earlier than the Dec. poll cited above, 52% of Americans thought the Bush tax cuts for the wealthiest should have been extended. But, by Dec., liberals arguments won over enough public opinion for a majority to favor allowing tax cuts for the wealthiest to expire. Congress and the President chose to extend tax cuts for the wealthiest for a short time, and revisit the question in an upcoming budget.

Generally, with few exceptions, the American people believe income taxes should be as low as possible while preserving government services and obligations. This moment in time, is one of those exceptions however, where debt and deficits are now perceived by the public as a real threat to their future. Because of this new perceived reality, raising income taxes on those able to pay them without significant loss to quality of life, or standard of living, is viewed favorably by a majority of Americans.

Spending Cuts.

Here is an interesting poll, though misread and interpreted, already. Rasmussen reports 58% of Americans would prefer a partial government shutdown if Democrats and Republicans fail to agree on spending cuts, provided that Soc. Sec., Medicare, and unemployment payments are continued. The last part of the previous sentence isn't reported or found in the interpretation by conservative pundits, by googling this poll. But, there literally is no other interpretation since, Rasmussen already informed the respondents that Soc. Sec., Medicare, and unemployment payments would continue in the event of a partial government shutdown. And that was fine with 58% of respondent who said they would prefer the partial government shutdown. (Rasmussen's polls deviate from aggregate polls in favor of Republicans consistently making them the most sought after and quoted by conservatives. Their methodology for selecting respondents is suspect.)

According to a CNN/Opinion Research Corporation survey released in November, the number of Americans who want more government spending on domestic programs equals the number who want the government to spend less. Overall, 49 percent say the federal government should spend more money for domestic programs; that figure is up 17 percentage points since 1994. Another 49 percent saying less should be spent on domestic programs.

In fact, the majority of Americans don't believe spending cuts should touch programs that help Americans in need. A CNN, Jan. 2011 national poll asks which programs should not be cut to decrease deficits, and the results closely mirror November's results. But, look at the numbers:

Prevent significant cuts to:

Medicare - the federal health program for the elderly, 81%

Medicaid - the federal health program for the poor, 70%

Social Security, 78%

Defense spending, 49%

Welfare programs in general, 44%

Assistance to unemployed workers, 61%

Veterans benefits, 85%

Education programs, 75%

Pensions and benefits for retired government workers, 39%

Programs to build and maintain roads, bridges and mass transit, 61%

Aid to foreign countries, 18%

These results are no doubt the reason neither Republicans nor Democrats want to address the real economic threat which is Medicare and Medicaid spending. However, their fear of this '3rd rail' issue, clouds their reason and judgment. The concept of universal health care is not incompatible with affordable health care. Other nations have created such systems. The public seemed to be way ahead of the politicians in 2009 when polling demonstrated the majority of Americans were in favor of the Public Option for health care reform, including many Republican and Independent voters, which would have provided both the health care safety net and dramatically lowered the cost of health care. To go the rest of the way toward balanced budget health care, America would have had to adopt incentives to providers to move from 'for-profit' to non-profit organizations over time.

But, these results also demonstrate that Republicans are on the wrong side of most Americans views on what needs to be cut. Americans want to see military and foreign aid spending cuts, which Republicans oppose in the main. Republicans want to cut spending on education, which 3 out of 4 Americans oppose. These statistics could spell voter buyer remorse toward Republicans in 2012, if Republican Governors like those in Wisconsin and Ohio continue to wage campaigns against middle class worker's favored institutions and wages, while cutting taxes on corporations and the wealthiest.

Americans believe spending cuts should be implemented, provided those cuts do not erode the public's sense of security, their social safety nets, or undermine their quality of life in America. I suspect, it would be difficult indeed to find a majority of the public to support any spending cuts which were not labeled, waste, fraud, or abuse, or foreign aide. That remains a major hurdle for both parties seeking to cut government spending.


Americans want the Deficits fixed. However, they want them fixed in the least costly way to them. Politicians will alienate many voters and some campaign contributors by advocating for any particular solution. Raising taxes on the wealthiest means many wealthy persons will not contribute to reelection campaigns. Cutting safety net spending means many more voters will not vote for the politicians that advocate such cuts and might even switch parties. Raising taxes on middle class working people at this time will curtail consumer spending and retard economic growth, and in turn, government revenues, deepening deficits.


To be sure, the American public does not know specifically how they want the deficits to end. The answers they come up with fall far short of being effective answers. This is a monumental challenge to our elected leaders, who would rather play politics with it, than solve it. The American people however, as a majority, will recognize and support a viable plan if, and that's a huge if, both parties can agree on an effective solution to our deficits. The greater challenge by far, however, for our politicians is to find a way to put partisan politics aside long enough to create an effective deficit solution that will pass into law. Devising an effective deficit ending plan is by far the easier task. 


Road Map For Ending Deficits


End the Bush tax cuts on the wealthiest, returning their tax rates to where they were when we last balanced the budget, in 1999 and 2000. They can well afford it, without giving up a single truffle or limousine, or, real estate deal.


Adopt the Public Option for health care, and institute a carrot and stick approach to moving for-profit health care providers to become non-profit health care providers (which most hospitals are, already).


Overhaul our tax system making it far simpler to comply with for small businesses and family filers.


Raise taxes on corporations that are sitting on mountains of cash while offering tax reductions for those that invest that cash in job creating expansion.


Go after waste, fraud, and abuses in spending and taxation with a vengeance, leaving no area untouched including defense spending, Medicare, and Soc. Sec.


Invest in future energy infrastructure at the grass roots level, providing incentives to rewrite local building codes to insure greener and more energy efficient development requirements, and establish a fluctuating transportation tax system that allows tax rates on transportation fuels to go up or down as required by established economic conditions and trends, moderating the price of fuel as needed to help assure economic growth and predictability of future fuel pricing in America. This one simple step could dramatically improve the future of airline competitiveness and profitability in America, not to mention give families relief from spiking transportation costs due to fuel reserve fluctuations and market speculation.


Invest in education, especially, in civics and financial management education throughout the K-12 curriculum. Not only will this result in a better political future for America, but, it will produce a better work force for American employers as well as better family budgeters going forward.

 

Means test Social Security and Medicare in the future for younger workers, converting Soc. Sec. and Medicare from entitlement programs to poverty insurance programs. This action would likely do more to resolve America's future debt issues than any other single action.


Deficits and debt are quite literally a simple math problem. Increase revenues, decrease spending, and deficits disappear. Create more revenues than being spent, and the debt begins to disappear. Conceptually, this is an 8th grade math problem. Politically, it is a nightmare coming true. Voters can use their vote against their representatives who insist on solutions that make no sense, and use their vote for politicians demonstrate 8th grade math proficiency in dealing with the deficits in the  common sense ways outlined above.


In a democratically elected nation, ultimately, the people have no one to blame but themselves, if their government leads them over the cliff.



Polling Limitations

There are 4 very important notes everyone should know about polling research. There is sound and reliable polling, and then, there are all the others. Polls conducted of a particular audience to a particular web site, TV show, or other media outlet, are worthless, except for insight into that particular and limited viewing/listening audience. Such insight however, cannot be extrapolated to the American population, because the rest of the public is not a part of that audience, and may hold very different views, as a result.

Results oriented polls are designed by pollsters who know before hand, what result they want from people polled, and who shape the questions to achieve that polling result. (One of the best known results oriented pollsters is Frank Lutz).

A classic example of how this is done, is where the sponsor of the poll wants to show that Americans are violent people. So they frame the polling question: "If you had to choose, would you choose 1) to beat your spouse but, not your child, or 2) beat your child, but not your spouse, for calling you a bad name?" No matter how the respondent answers, their response can be interpreted as revealing a violent preference, which is what the poll's sponsor wanted.

The polling results cited below are not of this kind, and readers are advised to take care in giving too much credit to polls that either run against common sense, or, which are not backed up by a consensus of other polling research by entirely different sponsors with different objectives.

Polls are snapshots in time. Polling results can literally change over night. The best historical example was how Americans felt about entering WWII prior to Dec. 7, 1941, and then on Dec. 8, 1941. Prior to the news of the bombing of Pearl Harbor, the majority of Americans opposed entering WWII. After the bombing, the vast majority favored declaring war with Japan. People's opinions change based on information they receive on any given polling issue. Beware of polling data which is either dated, or, which lacks an on-going repetitive polling on the same topic over time.

Polls Never provide the whole picture.

Take the issue of taxes. A poll, like the first one below on income taxes, lacks specificity. The poll failed to distinguish between Federal, State, and local income taxes. The poll has some benefit in reflecting overall opinion about income taxes in general, but, completely fails to learn whether people's attitudes about income tax in general are being shaped predominantly by a particular income tax of a specific level of government. It may be the case, that most folks believe their local and State income taxes are fair, but, Federal income tax is not fair, or vice versa. There is no way of knowing from that particular poll, since the poll fails to query respondents on each different kind of income tax. 


1 Comments

It is of greater importance for the students that they get the education related to tax and deficits in economy because they are the students who will take initiative to settle the problems of the country in near future. A lot of students buy online essay toget help.

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This page contains a single entry by David R. Remer published on March 5, 2011 12:58 PM.

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