Follow Up Thoughts from Thomas
Here is an interesting graph based on CBO estimates that shows how we got into this deficit problem in the first place. By far, the biggest one is all the tax cuts, which I think were ill-advised, especially with two wars and an unfunded expansion of medicare in the form of prescription drugs. I'm not advocating raising taxes at this juncture. The economy is just starting to find its feet again, and it doesn't make a lot of sense to increase taxes during a recession. But as far as dealing with the deficit in the future, I think increased revenue is an important option to consider. As you know, I'm not part of the anti-tax crowd, nor do I think we are over-taxed. (side note: our current income tax under Obama is at a historical low, 9.2%.) Anyway, along with spending cuts (and here I would advocate cuts in subsidies to big business, like the nearly 40 billion that goes to the oil and gas industry) I think increased revenue in the future would be a good approach to the deficit issue.
If may be so bold as to use an analogy (because analogies can be slippery sometimes), it's like an average person in debt trouble whose only going to solve the problem by cutting spending without even considering the option of also earning more money, like a second job, to get out of debt. It's a like financial planner telling you the only way of your debt is to cut out that pesky third meal a day, move your family into a one room apartment, and put off that tumor removal, but by all means don't work more and make more money and if fact take a few days off. That last one is a bit facetious, but I think you get the point.
Anyway, to get back to the graph, one partial solution would be phase out the tax cuts or let them expire. That way we'll have a more manageable problem on our hands. Personally, I don't mind paying a bit more money if it means putting our economy on a sturdier foundation. In the long run, it not only benefits me, but it also benefits society at large and future generations.
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According to some recent data and polls (see below), Americans seem to have a fundamental disconnect on how to reduce the deficit. They want to keep taxes low and at the same time they want to keep all programs fully funded. It appears they want their cake and to eat it too. This disconnect makes the government's task more difficult because law-makers must maneuver within nearly impossible political confines. If a politician wants to increase taxes, it is a political killer, but if a politician wants to cut spending, especially in Social Security, Medicare, Medicaid, or defense, it is also a political killer (once again see below). This leaves our government almost paralyzed in its abilities to make any headway in the deficit problem. With that said, I think the American people need to take some responsibility for the problem in hamstringing our elected officials with contradictory messages.
From the Center for America Progress (http://www.americanprogress.org/issues/2010/04/taxday2010.html):
“Americans paid a lower share of their national income in taxes in 2009 than at any time since 1950. Thanks to the American Recovery and Reinvestment Act, 98 percent of working families got a tax cut this year. The rich, too, have been treated very kindly by the tax code in recent years. The top marginal tax rate on income is fully half of what it was 30 years ago, and the top rate on capital gains is at its lowest point since 1933.
“… even with taxes at historic lows, 62 percent of Americans in a recent Economist/YouGov poll said that they would prefer to deal with budget deficits by reducing spending alone rather than increasing any taxes at all.
“But, the American public’s disdain for 'government spending' only holds up in the abstract. The public is much less willing to pull out the hatchet when asked about specific parts of the federal budget. That same Economist poll gave respondents a list of budget areas and asked them which ones should be cut. Only one area garnered majority support for reductions— foreign aid. And foreign aid makes up less than 2 percent of the federal budget even using the most expansive definition. Even eliminating it completely would have little discernible impact on the federal bottom line.
“There was not even one other area aside from foreign aid where support for cuts cracked 30 percent, let alone 50, including everything from science and technology to aid to the poor. Support for cuts to two of the biggest budget items—Social Security and Medicare—didn’t even make it out of the single digits. And lest one think this one poll was an anomaly, recent polls from Quinnipiac and Democracy Corps confirm the overall message: people support the abstract idea of spending reductions, but don’t like actually cutting specific programs.”
--Thomas
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