Monday, August 15, 2011

Ten Steps On the Road to a Balanced Budget

Since the 2010 election placed the fiscal crisis on the table as the great issue of the day, the debates raging in Washington have been bitter, rancorous, and highly misleading. Both sides acknowledge the need to reduce government spending, though they differ widely on how best to achieve this objective. But in all their pronouncements, both Republicans and Democrats speak only of the need to "reduce the deficit", as if the problem is that the deficit is too big and simply needs to be made smaller. This is a dangerous delusion.

The fact of the matter is that the deficit needs to be done away with entirely. Simply reducing the deficit only lessens the problem; it does not solve it. Our fiscal crisis will not be ended unless and until we fully balance the budget and begin to pay off our national debt. The powers-that-be in Washington are trying to persuade the American people that we can solve all our problems if we simply borrow less money, but the truth is that we have to stop borrowing altogether and find a way to live completely within our means.

Considering the vast expanse of federal spending and the comparatively low levels of taxes paid by Americans, balancing the federal budget seems like an impossible task unless we want to reduce spending so much that the national infrastructure collapsed or raise taxes so much that the economy completely tanks. But in truth, like any problem, balancing the federal budget can be achieved if only we approach the issue rationally and unclouded by old dogmatism.

But just as the Allies didn't capture Berlin on D-Day, we cannot simply balance the budget with the stroke of a single pen, no matter how much we might want to do so. It is going to be a painful process and will take a long time. With the threat of a default temporarily lifted thanks to the debt ceiling deal, we can only hope that our elected leaders in Washington now get to work on balancing the budget within the next decade, with a steady paying down of the debt to commence immediately thereafter.

To get us to the ultimate goal of a balanced budget, I have a few modest suggestions:

1. Let the Bush tax cuts on those making $250,000 more a year expire. The enactment of these tax cuts back in 2001 and 2003 were a major factor in bringing on the fiscal crisis to begin with, and they were intended to eventually expire anyway.

2. Eliminate earmarks. Truth be told, eliminating earmarks will not make much of a dent in the federal budget deficit, since their total cost amounts to only a small percentage of annual federal spending. But every little bit helps, and every dollar not spent on earmarks is another dollar closer towards balancing the budget. Besides, earmarking is an insidious practice that ought to be done away with even if it has no effect on the deficit.

3. End our permanent military deployments in Western Europe and East Asia. There is no need for us to maintain 80,000 men in Europe, 28,000 men in South Korea, and 30,000 in Japan. Our allies are perfectly capable of defending themselves without our help, and it makes no sense for American soldiers and American taxpayers to bear the burden of protecting countries other than the United States itself.

4. Reduce our nuclear weapons arsenal. We should eliminate our land-based nuclear missiles and our nuclear bomber fleet and rely instead exclusively on submarines, while reducing our nuclear arsenal to 500 weapons. This would in no way endanger national security, since our arsenal would still be more than sufficient to completely destroy any conceivable enemy, and would save us an enormous amount of money every year. As a bonus, it's the moral thing to do, too.

5. Push free trade. Since growing the economy is the best way to help balance the budget, the government should quickly ratify the pending free trade agreements with South Korea, Columbia, and Panama. Once we've finished that, we should immediately resume talks with the European Union on the establishment of a Trans-Atlantic Free Trade Area, while starting negotiations on free trade agreements with India, Brazil, and perhaps other countries.

6. Get realistic about Social Security. We need to remember that Social Security was originally intended as a means to assist extremely elderly people, not provide full incomes for newly-retired people. The age at which its benefits started should have been adjusted as life expectancy increased in the decades since the programs enactment. Clearly, the eligibility age must increase in gradual stages to 70. Of course, in the long run we might consider abolishing Social Security altogether and replacing it with a negative flat income tax, but that's a whole other battle.

7. Enact comprehensive medical malpractice reform. Physicians regularly order unnecessary tests and procedures in order to avoid potential lawsuits, the cost of which is ultimately passed onto the American taxpayer. While serious negligence and criminal incompetence obviously need to be subject to proper litigation, it's clear that we must come down hard on frivolous lawsuits that not only unfairly punish doctors but also cost the federal government billions of dollars every year.

8. Get Medicare under control. This could be done in the same way as with Social Security, by raising the eligibility age to 70. Alternatively, we could simply adopt a Republican proposal to cap Medicare spending at a certain portion of GDP, thus keeping costs down at the price of passing more of the cost onto citizens. Most importantly, we need to use Medicare to keep overall healthcare costs down by using its immense bargaining power to lower the costs of drugs and other medical products. We also need to end the legal immunity that health insurance companies enjoy against antitrust laws.

9. Legalize marijuana. As I discussed in a previous blog post, the simple act of legalizing marijuana would allow the government to raise money by hitting marijuana with a hefty excise tax, similar to the excise taxes already imposed on tobacco and alcohol products, and to save money by massively reducing the cost to law enforcements, the justice system, and the prison system. It's such an obvious move that it seems bizarre that the logic of it is not immediately clear to everybody.

10. Eliminate agricultural subsidies. Whether we're talking about subsidies for ethanol in Iowa or subsidies for sugar producers in South Carolina, these unnecessary government interventions in the economy cost the federal government billions of dollars every year. Even worse, they often artifically raise prices on many products for American consumers by undercutting competition.

These ten steps would by themselves put uon the road towards a balanced budget. But political realities dictate that achieving any of them, to say nothing of all of them, will be very difficult. Still, there is no other way; the budget simply must be balanced. America has triumphed over adversity in the past, and we shall do so again. But it is going to require a great deal of effort and sacrifice on the part of American citizens. One thing is clear: the age of ease is over.

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