Sunday, November 14, 2010

How I Balance the Budget

I know, I know.  I don’t blog about politics.  But the NYTimes has this nifty little gadget that lets you balance the federal budget.   So I did it.

First, let me say that I agree with Felix Salmon’s analysis of the budget tool -  that it makes it both too easy and too hard.  But it was hard to resist playing with it.

I also agree with Kevin Drum’s analysis of most deficit reduction plans -  that no proposal for balancing the budget can be serious if it doesn’t deal with the rising costs of Medicare over the long haul.  As Salmon and Drum point out, these costs will go up no matter what because ALL the baby boomers will be retired (and not paying in), they will ALL be aging and, thus needing more health care (thus taking out) and the cost of end of life care will continue to increase.   As Salmon points out, that effectively means that the NYTimes’ budget selection for controlling Medicare costs (a cap) will not, in the end, work.  Why?  Because when the rationing starts and all the Old People Who Vote In Great Numbers complain – well, you can guess what will happen.  And in fact, the amount budgeted might not be a realistic number based on those rising costs.

But, leaving aside that I think this is a pointless exercise, it was fun.  The goal is to close the budget gap in 2015 and in 2030 with a combination of increases to revenue and decreases in expenses. The 2015 budget shortfall is $418 billion and the projected 2030 budget shortfall is $1,355 billion.

On the expense side, I wanted to be sure to do the least harm to individual people whose lives aren’t as good as mine.  I’ve seen a number of people want to increase, for instance, the age at which SS and or medicare is received.  That’s probably fine for people like me who have a desk job but it isn’t ok for people who are in jobs that are hard on the body.  And people who weren’t as lucky as me to have healthcare their whole life may end up with big health problems earlier due to lack of care.  And finally, this economy sucks and the people being laid off who are over 60 aren’t going to get good jobs with healthcare again, no matter how hard they try.

On the other hand,  I think we spend way to much on our military industrial complex and we could be just as safe for less money. So those are cuts I want to make even without a budget crisis.

So, with that in mind I eliminated earmarks ($14 billion), reduced the nuclear arsenal and space spending ($38 billion), cut our US military presence in Europe and Asia and the size of our standing army ($49 billion) and reduced the number of troops in Iraq/Afghanistan to 30,000 by 2013 ($169 billion).  I decided I could enact malpractice reform ($13 billion) mostly to make conservatives happy but also so that the lawyers could wail with the doctors who make less money when I cap Medicare growth starting in 2013 ($562 billion). 

I like that series of cuts and most of them I would make anyway even if the budget was in balance.  My cuts would reduce our supply of nuclear warheads to 1,050, from 1,968, which seems to me quite enough to blow up the whole earth. My theory is that we only need enough missiles and military r&d to figure out how to protect ourselves and we can stop being the policeman for the world. And the cuts to the military personnel would only take it back to where it was pre-Iraq/Afghanistan. If it were up to me, I ‘d make it even smaller but that wasn’t an option.  Finally the sooner we get out of Iraq/Afghanistan the happier I’ll be. 

Of course the elimination of military personnel and the cuts in military spending mean that a lot of people are going to have to get non-military jobs.  So the economy had better pick up  which is why I didn’t want a lot of the additional taxes that are proposed – at least not right now.  I realize that most of those possible taxes wouldn’t affect most businesses, but it’s easier to pass MORE taxes when people are doing better.  I mostly want to go back to the Clinton era on estate taxes ($104 billion) and investment taxes ($46 billion)  and also on personal income taxes except that I’d keep the Bush level taxes for people making less than $250,000 ($115 billion).  I’d subject some income over $106,000 to the payroll taxes ($106 billion).   The big tax bonus is the $315 billion I get from from eliminating loopholes without lowering taxes.

Again, there were options I’d take that weren’t given.  If it were up to me, I’d eliminate the cap on the payroll tax entirely for individuals but cap the employer’s half.  That would probably allow for lower rates which would be better for the economy because it would put more cash in the pockets of people with lower income – and they would spend it. But they didn’t give me that option. 

So I solved the budget problem.   I balanced the budget using a 49% increase in revenue (i.e. taxes) and a 51% decrease in expenses (i.e. budget cuts). And other than raising the bar on the the payroll tax, I didn’t take anybody’s taxes up higher than they would have been in the 1990’s.   I think that makes me pretty moderate. 

Of course, I have my doubts.  I’ve never been sure how earmarks are a problem since they aren’t new budget items but rather the direction that already budgeted items are sent.  I believe that for every loophole closed another one will open.  And as I said above, I don’t think a cap on Medicare will work.  But these were my options so I took them and that’s why I thought I should budget for a surplus – in case the projections are wrong. 

Yes, I created a surplus.  It gives me some flexibility.  As I said, it might turn out that the projections are wrong – and if so we’ll still be in pretty good shape. Of course, I didn’t have to budget for a surplus.   I could take back all my reductions of military spending EXCEPT the reduction of troops in Iraq and Afghanistan and still have a balanced budget. And if I put that spending back in and I went with President Obama’s more moderate estate tax plan plan  instead of President Clinton’s I would STILL solve the deficit. 

But I would rather cut unnecessary military spending and go back to the Clinton era on taxes and try to have a bigger surplus.  Why not give the kids a hopeful future?  That’s where I thought we were in 2000, before the era of  BIG spending and lower taxes kicked in and put us in this predicament.   Again. 

Now, who is going to make me King for a Day so I can do these things?   Here’s the link to my plan.