The Balanced Approach

The Washington Post’s editors are becoming skeptical of the credibility of the “balanced approach” for fiscal reform:

We’ve said time and again that revenue must rise. The latest Republican position on taxes, while an improvement, remains inadequate. GOP leaders now admit the need for more revenue, but they refuse to say how they would obtain it. Given the political difficulty of limiting any deduction or loophole, their supposed commitment to tax reform isn’t worth much without specifics.

But the underlying fiscal problem is that federal expenditures are slated to rise faster than economic growth because of rising health-care costs and an aging population. The long-term drivers are Medicare, Medicaid, Social Security and subsidies for the health-care exchanges established by the Affordable Care Act.

The budget can’t be brought even remotely into balance solely by taxing the top 1% or 2% of income earners and cuts in defense spending. If you add the income realized by the tax increases on the table and the savings realized cutting the defense budget in half (something I’ve advocated but which isn’t even remotely foreseeable), it doesn’t amount to half the deficit. 4% or 5% growth rates, something included in most budget-balancing projections, are figments of the imagination. Or outright lies, depending.

With a truly balanced approach to deficit reduction, tax increases must extend down to the top quintile (and maybe the top two quintiles) of income earners. That’s people earning more than $60,000 in round numbers. There must be serious defense spending cuts which means manpower cuts which means doing less. There must be new cuts in entitlements (Social Security, Medicaid, and Medicare). Counting the old cuts twice won’t do it.

Or we must plan to run high deficits for the foreseeable future.

That’s not partisanship. That’s mathematics.

2 comments… add one

  • With a truly balanced approach to deficit reduction, tax increases must extend down to the top quintile (and maybe the top two quintiles) of income earners. That’s people earning more than $60,000 in round numbers. There must be serious defense spending cuts which means manpower cuts which means doing less. There must be new cuts in entitlements (Social Security, Medicaid, and Medicare). Counting the old cuts twice won’t do it.

    A recipe for a recession.

  • Drew

    “A recipe for a recession.”

    Well, that’s correct. So we can revisit Dave’s query of several essays ago concerning just how long we can run those deficits, or we can contemplate near term recession and probably poor long term growth prospects.

    Neither of these avenues are likely to have good outcomes and therefore are not desirable, but we seem hell bent on doing so. The eventual mathematical reality isn’t going to be pretty.

    So what to do? As a businessman, I have watched, and have participated in, the total reinvention of business models when the mother of necessity showed up. Businesses generally do this because they will perish otherwise.

    Government is different. It has the power to reach into your pocket, or reduce your standard of living, utilizing standard techniques of propaganda, numbers fraud or crass class warfare. That seems to be our current situation, and I’m not optimistic of prospects for government reinvention. I have noted that I don’t think the president knows jack about economics or business. Neither his academic, professional or governing history would suggest anything but that. However, he has competant staff. So it begs the question: what is really going on?

    Do they really believe the dire math is faulty? Do they simply lust for power and know that they will be long gone before the shit hits the fan, all the while not really caring about the mess they will make of peoples lives? (Remember, people, the unemployment rate numbers are bull, we could find ourselves with a real unemployment rate of 13%-15% easily. That’s cruel.) Do they just want to stick it to the man? Or perhaps, as has been suggested, Obama views himself as a transformational president who will take down the top quartile for the benefit of the bottom two quartiles. I think that’s a pipe dream, and would basically destroy the economic lives for most people 40 and over for the balance of their lives all in the name of a “re-do.” But he may believe he can pull it off, and what’s a few broken eggs…….?

    When I see the comments of the Ed Schultz’s or Reynolds of the world playing small ball like “you go first Republicans” I really think they they have no understanding of the havoc they would foist upon the people they claim to want to help. I know of no example in real life of helping the poor by harming the rich. Especially in an environment of large government which the latter will always bend to their advantage.

    Its a suicide show. Europe is a preview. The current ruckus over public sectors is the next preview. Get your popcorn, the main event is about to start. BTW – its a tragedy.

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