Pursuant to a backchannel discussion the Outside the Beltway associate bloggers have been conducting I’m going to engage in a little thought experiment. How would I change the federal budget given plenipotentiary authority (which God forbid!) and freed from political constraints?
I believe that it’s frivolous to enter into such a discussion as a mere mathematical exercise, detached from considerations of what sort of country you would like this to be, so I’ll start there. I would like a country that, while zealous in maintaining its own security, intervenes less in other countries. I would like a country in which gaming the system is less important than creativity and effort. I would like a country in which large institutions, whether those of government, business, labor, or any other facet of society, have less influence over our daily lives than they do now. I would like a country that balances a commitment between people undertaking responsibility for their own lives and destinies and not allowing people to fall into desparate circumstances due to age, illness, infirmity, or just plain bad luck. I would like to see a country that supports robust economic growth by creating a reasonably level playing field rather than by attempting to pick winners and losers. Hopefully, the choices reflected in this post will be consistent with those objectives.
Let’s deal with the revenue side first since it’s the easiest. I would abolish all forms of federal taxation in favor of a consumption tax somewhat along the lines of the FairTax. All goods and services would be subject to the tax and the tax, would be taxed at the same rate, and would be prebated in such a way as to ensure progressivity of the tax. Whether the tax would be handled as a straightforward sales tax or a VAT would be a logistical decision that I’m not prepared to express an opinion on right at this moment. I suspect there would be good reasons for it to be handled as a VAT.
The spending side is much thornier. Here’s how current spending breaks down:
There’s an old principle of optimization that your best targets for optimization are where there’s something to optimize. Obviously, Other, which includes interest on the debt, the porkbarrel spending referred to as earmarks, and all other expenses of government is not a particularly fruitful target. This is not to say that I wouldn’t like to eliminate certain programs, e.g. agricultural subsidies. It’s only to point out the obvious, that we can’t make great headway just by cutting earmarks.
I should also mention that although waste, fraud, and abuse are perennial objects of ire there is no line item on the budget for waste, fraud, and abuse. You address them where you find them and, frankly, although I think they need to be addressed when found I doubt that there’s nearly enough there to get us where we need to go.
The three best targets are defense, pensions (federal employee pensions and Social Security), and healthcare.
I would cut defense spending by reducing our overseas commitments, re-unifying the Air Force and Army, and reducing the size of the air force and the standing army. I would leave the Navy largely untouched. I would eliminate programs that don’t contribute directly to the conditions in which we find ourselves today (I could name names on this but doing so would bring this post to too great a length). Withdrawing from Afghanistan or (my preference) reducing our objectives in the country to minimalist objectives and cutting the force there back to between 20,000 and 50,000 would probably save $100 billion on its own. I would eliminate or reduce the size of our bases in Europe, the Middle East, and Asia. The target level of spending should be between 2 and 3% of GDP. As I’ve said elsewhere I would assess the actual pragmatic value of our involvement in NATO and reduce our commitment there appropriately. Europe is capable of taking care of itself and too many of our NATO allies have reduced their spending on defense below 2%, a level too small to satisfy their commitments to the alliance.
Federal employee pensions should be entirely a defined contributions plan rather than the hybrid plan it is now. Essentially, the FERS annuity should be abolished in favor of a defined contributions plan. The minimum changes that should be made to Social Security are that the Social Security retirement age should be raised and there should be something intermediary between disability and ordinary Social Security for those performing physical work and, consequently, unable to work until full Social Security retirement age. It might be sufficient to redefine disability.
My preference would be to means-test Social Security as well. I’m not sufficiently conversant with the numbers to be sure whether it would be required if the SSRA were raised.
The most difficult of the knotty problems is healthcare. The greatest gift that the U. S. federal government could give to the world and American state and local governments would be to reform our healthcare system in such a way as to reduce costs. Let’s be very explicit about this. There is no mystery. We spend a multiple of what any other country in the world spends for healthcare on a per capita basis because prices are higher here.
This post is limited to breaking the laws of politics. We can’t break the laws of mathematics or physics. We can’t go back in time and undo all of the policy errors of the last 50 years. Or the last century for that matter. How do we reduce healthcare costs going forward?
It would be nice if we could implement a system here similar to the French system. If I could do it, I would reduce prices here to levels commensurate to those paid in other OECD countries and implement a French-like system. I’m not certain that even that would be enough.
I could go into a more substantial analysis here of more market-based systems as opposed to less market-based ones. As long as the providers’ oligopoly is in place and the insurance companies are in the picture, I’m skeptical that healthcare costs can be reduced sufficiently. I’m also skeptical that good public health can be maintained without leaving the providers’ oligopoly in place.
I’ve nattered on for long enough about this for one blog post. Feel free to submit your own preferences or to critique mine. If you elect the latter, please be gentle and courteous.