Let's Play: Balance the Budget!

[Dark Silver]

The NYTimes is running a interactive quiz thing that proposes you attempting to balance the 2015/2030 budgets.

Go here to give your fixes.


Here are my personal fixes. Summarized:
*Eliminate Earmarks
*Reducing Military to Pre-Iraq War size
*Reducing Troops in Iraqisthan to 60k
*Enabling Malpractice Reform
*Raise Medicare to 68
*Reduced Tax Break for Employer Healthcare
*Cap MEdicare Growth
*Raise Social Security to 68
*Reduced SS Benefits to those with high incomes
*Tighten disability eligibility
*Returning most tax rates to Clinton-era levels
*Ending Bush era tax cuts above 250k
*Updating Income Tax code
*"Millionare's Tax"
*Bowles-Simpson Loophole/tax rate plan
*Bank Tax


It not only eliminates the budget issues, but generates a substantial surplus that can be used to pay down the exsisting national debt.

[frigidmagi]

Mine

You know it's funny DS, you don't know what you want the military to do, but you know what size you want it to be?

[Dark Silver]

That's mostly because to help balance the budget, I'd be rolling back numbers in Iraqistahn, thus we won't need the Military to be as large as it is right now.

But honestly, that's probably the smallest bit of the budget package I put together on the quiz, and STILL netted us a large enough surplus to help the budget out for the next 15 years.

[The Minx]

Personally, while I don't claim to know exactly what I want the military to be able to do, I know what I don't want it to do, and that is to break the budget.

OK, that's a bit of a hyperbole of course. I want the military to be able to defend the US (and allies as far as is possible), and to quickly and efficiently eliminate imminent threats abroad. What I don't think we need is a military that occupies foreign countries for decades on end. America is not supposed to be a British-style empire after all.

Anyway, since apparently I can't sleep I decided to try this game instead. Here's my solution:

• Eliminate farm subsidies:
  Subsidies tend to be bad economically, as they distort incentives. Ideally you should not use subsidies for profit generating things, only for things which cannot be produced by the market as much as you would like, such as pure research.
• Cut 250,000 government contractors:
  Contractors have the run of the hill with their lobbyists. Get them out. To be fair, they do a lot of work for less cost than the government, but this has turned into a crypto-public works system. We don't need that.
• Cut aid to states by 5 percent:
  I think they can survive a 5% cut, especially since they have been treating the federal government as their piggy bank with Senators being sent forth to bring back the bacon.
• Reduce military to pre-Iraq War size and further reduce troops in Asia and Europe:
  The pre-Iraq War sized army was still the most powerful in the world, so that should be plenty for what I want the armed forces to do (see above). I don't know how much they mean by "further reduce troops in Europe and Asia", so I might have to partially de-click this one and select something else to make up for it. But on the face of it, I'm going with this one for now.
• Reduce the number of troops in Iraq and Afghanistan to 30,000 by 2013:
  Iraq and Afghanistan troop reduction, for the same reasons as above.
• Enact medical malpractice reform:
  Malpractice reform should be enacted on principle, even without the benefits to the budget.
• Cap Medicare growth starting in 2013:
  One of the largest items, and one that needs to be revised anyway.
• Allow [Bush tax cut] expiration for income above $250,000 a year:
  No brainer.
• Allow [Bush tax cut] expiration for income below $250,000 a year:
  As above.
• Carbon tax:
  Carbon tax is another item that should be done on principle, even without benefits to the budget.
• Reduce mortgage deduction and others for high-income households:
  This mortgage reduction is totally not needed.

So, to summarize: return to the Clinton era where possible.


Things I don't think that should be done:

• Earmarks:
  These are usually unpopular, but some of them actually go to useful things. Eliminating them might be a matter of principle, but the actual projects might still be needed (and thus paid for anyway), so I don't think that this item should be clicked out of hand.
• Cut pay:
  No I don't think that would be fair, especially since people are hurting in the recession.
• Reduce the workforce:
  What services should be cut, then?
• "Other cuts":
  To include research into fossil fuels, National Parks and the Smithsonian? Haha. As if I'd select this. Besides, 30 billion is a pittance compared with both the benefit this spending gives and the size of the deficit.
• Reduce nuclear arsenal:
  A deterrent is needed, though I don't think it really needs to be this huge. Still, this item is a bit vague, so I have reservations about selecting it. Might go for it with more information, and deselect some of the minor things above.
• Reduce Navy and Air Force:
  Nope. Still need these to accomplish the items the military should be able to do (as I mentioned above).
• Weapons programs:
  These are needed to keep the edge the US has. See the second class battleship fallacy.
• Reduce noncombat military compensation and overhead:
  I'm not keen on giving veterans the short end of the stick. The description seems to imply that premiums would rise, but I really don't know enough about this to give it the benefit of the doubt.
• Increase the Medicare eligibility age:
  Nope. Some people work in jobs where they can't remain competitive at 65. Not everyone is in that kind of a job, but we can't make life miserable for the first group.
• Reducing the tax break for employer-provided health insurance:
  This would mean that employers would provide less health insurance for their employees. Bad option.
• Raise the Social Security retirement age:
  Same answer as for raising the Medicare age.
• Reduce Social Security benefits for those with high incomes:
  Um, no. The whole point of welfare is that everyone gets it, and as soon as you start playing favorites, you open a can of worms you really would prefer to stay closed.
• Tighten eligibility for disability:
  No, it's bad enough already.
• Use an alternate measure for inflation:
  This is a stealth method for Social Security reduction. Bad accounting trick is bad.
• Estate tax:
  I don't think we need this one. Taxing dead people doesn't sit well with me, rich or not. Besides, they have already been taxed on that income in the first place, so we're looking at a double taxation system.
• Investment tax:
  Bad choice, as we want more investment in a recession, not less.

All other options involve more taxes and new taxes, which we definitely don't need, especially in a recession, provided that we have balanced the budget. Which these options manage to do.

So sleepy. Zzzz. -.-


PS: I made a mistake as I had misread one of the entries. OOPS.

The Clinton tax I called a "no-brainer", I thought were the regular taxes, not investment taxes. Anyway, revised list is above. ^^

PPS: And now I apparently can't use list tags. Gah. >.<

[frigidmagi]

You may want to wonder over to the Military Discussion thread Minx.

[Charon]

Here's Mine

Alright, to explain some of my choices.

Farm Subsidies: Many farms are super-farms now, subsidies did nothing to stop this trend.

Government Contractors: This is getting ridiculous. Do we really need as many as we have? I don't think so.

Cut State Aid: I clicked this one at first, but considering all the cuts to things my state is already making I don't want to make things any worse. Should this be cut eventually? Yes. Immediately? I don't think so.

Reduce Nuclear Arsenal: We don't need 2,000 nukes. I'm uncertain if this includes NASA spending, if it does I will unclick it.

Military to Pre-Iraq size: Yes please. And do we really need that many troops in Europe and Asia right now? I'm pretty sure 50,000 in each can handle most problems that are going to arise in those areas for long enough that reinforcements can arrive.

Troops in Afghanistan and Iraq to 60,000: 30,000 in a shorter period of time just seemed to be too much too fast in my mind, especially since Afghanistan is still in the midst of hell.

Medical Malpractice Reform: Saves us money and it's ethical? Yes please.

Raising Medicare or SS age: Sorry, I'm not sure my folks could have made it to 68, let alone 70.

Cap Medicare: 568 billion dollars? Unless this puts health care up against a wall and rapes it to death I'm pretty sure I'm for it.

Estate Tax: Went with the Obama plan. It's actually not that hard to get an estate value up into the million mark without being a millionaire yourself.

Bush Tax cuts above $250,000: Trickle down doesn't work. We've had 10 years to prove it. The rich don't need that tax cut.

Payroll tax: If I read this right. Above a certain amount of income and you actually don't have to pay this tax. Am I actually reading that right? If so, NO SOUP FOR YOU.

Millionaire's Tax: No brainer. These people make over double the current top of the tax. That requires a new tax bracket.

Eliminate Loopholes, keep current rates: Loopholes make things more complicated than they need to be and in my opinion only help the rich out.

Carbon Tax: Ethical and it saves us money? Woohoo.

Bank Tax: Forcing Banks to face consequences for taking big risks? All for that.

[Derek Thunder]

I hope everyone knows that this article/'interactive 3D budgeting experience' is designed to constrain any debate on the problems of capitalism and create a false sense of urgency about the national debt, an anxiety which is not borne out in the price of bond yields.

Edit: To those gung-ho about cutting aid to states, that's entirely separate from earmarks, and it's a very effective form of stimulus. States by law cannot run deficits, so they can't borrow to weather tough times - they must instead shrink, often times through draconian pay cuts and layoffs.

[SirNitram]

Fucking treasury bonds no more interest earning than a SAVINGS account...

[Derek Thunder]

Let's just say that we'll be wishing for inflation (or a quick and merciful death) when the yields on treasuries turn negative and we start entering a Japanese-style deflationary spiral.

I was happy to lurk instead of jump back into the fray as LibArc's resident trollcialist but this thread just bugged me too much.

Edit:

Investment tax:
Bad choice, as we want more investment in a recession, not less.

Assuming that you mean the Capital Gains tax, this is that wonderful discrepancy that allows Warren Buffet to pay a lower overall tax rate than his salaried secretary.

[The Minx]

Investment tax:
Bad choice, as we want more investment in a recession, not less.

Assuming that you mean the Capital Gains tax, this is that wonderful discrepancy that allows Warren Buffet to pay a lower overall tax rate than his salaried secretary.

Personally, I'm more worried about the 10% of Americans who don't have jobs. Though the recession is supposed to be over, it really isn't for a lot of people right now. Maybe in a boom period it might be a better idea.

[frigidmagi]

Expect we already are have massive low capital gains taxes with record corporate profits and no hiring. So I'm not sold, they get taxed.

[The Minx]

Expect we already are have massive low capital gains taxes with record corporate profits and no hiring. So I'm not sold, they get taxed.

I don't think that adding more taxes to investment will help with the hiring problem. Besides, we don't need investment tax to balance the budget anyway.

[frigidmagi]

I don't think that adding more taxes to investment will help with the hiring problem. Besides, we don't need investment tax to balance the budget anyway.

I don't think not taxing hedge funds mangers and stock brokers matters. Look let me repeat myself. We have already given them a massively low tax environment. They have made record profits. And there has been no hiring. So I am utterly unconvinced that the taxes on investment matter one way or another. We have had higher investment taxes in the past and it hasn't killed off hiring. Given their profits and our problems, they can stand to lose a few more percentage points here and there for the team, cause they aren't doing much else for the team.

[Derek Thunder]

Companies are sitting on large piles of cash right now due to investment and cheap loans, and they're primarily using it to 1) buy other companies, and 2) buy back stock. Investors are also sending a lot of money overseas, due to higher returns in the BRIC and other developing nations. The problem we're having right now isn't due to a lack of investment, it's due to a complete void of consumer demand caused by unemployment, foreclosures, de-leveraging from debt, and a lingering sense of fear caused by those factors.

In fact, I'm willing to go out on a limb and say that taxing profits from investment may actually help the economy, as idle capital being used for speculation can be put to better use. Besides, it should be done anyway due to the inherent unfairness of the flat capital gains tax compared to the progressive income tax.

[The Minx]

I get the argument, but my point is that it's not just a matter of them either hiring or not hiring. For every dollar you reduce investments by, you cut X cents from hiring.

OTOH, if you want the money they're hoarding, there are other ways to get at that, for example by the millionaire's tax. That's money the company executives are paying themselves and high level managers, and not the collective pool of money they're using to do all kinds of other things too.

[frigidmagi]

I get the argument, but my point is that it's not just a matter of them either hiring or not hiring. For every dollar you reduce investments by, you cut X cents from hiring.

And our point is that they're not hiring, there are no cents in hiring. So the taxes don't matter either way.

[The Minx]

In understood that. But to say that "they're not hiring" is to imply that 0% of investments go into jobs. That's not entirely true, is it?

Link

Though they should be hiring more than they're doing, obviously. There are other, better taxes that can be used instead of the investment tax.

[Derek Thunder]

In understood that. But to say that "they're not hiring" is to imply that 0% of investments go into jobs. That's not entirely true, is it?

Link

Though they should be hiring more than they're doing, obviously. There are other, better taxes that can be used instead of the investment tax.

I hate to be a chronological nitpicker, but the article you cited is from April and Larry Summers' pollyannish predictions of job growth have yet to pan out, as the unemployment rate now is the same as it was when the article was published.

[frigidmagi]

You're right I exaggerated, apologies.

Though they should be hiring more than they're doing, obviously. There are other, better taxes that can be used instead of the investment tax.

Minx, our argument here, and one you have not addressed is this.

Taxes on investment are already the lowest in the 1st world.

They are nearly the lowest in American history (not quiet given Obama's nudge on it).

Compared to the Clinton years, or earlier, hiring is at a low.

The investors, many of whom don't run companies and wouldn't be hiring anyone anyways (hedge funds, day traders, wall street raiders, whatever), are making piles of money while everyone else is in trouble. 2009 with economic trouble aplenty resulted in epic level profits for the companies and investors in question. Nearly none of that profit has gone into hiring or other expansion. Most of it has gone into buying back their own stocks in an effort to rise the price and make more money. To be fair, I don't blame them. A companies job is to make money, if it doesn't it will be replaced by one that does. I have no desire to make it impossible for them to turn a profit. That said, everyone else is catching it in the face for their profit and this is unacceptable.

Given that we have given them an environment for easy profit and low risk investment, by your logic, they should already be hiring. They are not.

My conclusion is then, that they will not start hiring. They do not intend to start hiring. No matter how low we keep the investment tax, they will not use that money to hire, but instead to prop up their stock prices.

Therefore it doesn't matter how much we tax investors, it will have little impact on their refusal to hire. On the flip side a good idea would be to slam them on this and give them an out if they start hiring American Citizens and opening American Factories (fair note, I stole this idea from the 1950s, where more Americans were employed then ever and the tax was higher, not to mention higher personal income taxes on the upper brackets.)

I believe Minx, with all due respect that I have addressed your argument and now I ask if you will kindly address mine?

[The Minx]

Fair enough, a more recent article:

Link

[quote]Payrolls rose more than forecast in October, a sign businesses may be starting to look past what the Federal Reserve calls the “disappointingly slowâ€

[frigidmagi]

I apologize for taking so long to reply, I was working this weekend and didn't have time to line up my sources.

frigid, I acknowledge that most of the money investors are spending is not being used to create jobs, and that the investment tax is at a historic low. But you must also look at the fact that we've just come out of the worst economic crisis since the Great Depression, so it's not as if these are normal circumstances.

Expect by looking at the profits the companies are reporting, you wouldn't know this is the biggest crisis since the Great Depression.

In fact In this last quater corporations are reporting the greatest profits in 60 years!

Let me repeat that, the companies are making more now then they have ever made before since we started keeping records.

You're right these aren't normal circumstances. Most of us are suffering under hard times while a small part of us are having the best year ever.

I've mentioned in other threads that while high income tax and capital gains tax is low compared with elsewhere in the world, corporate taxes are high, so the incentive is not to hire domestically instead of paying out dividends and boosting stock.

Not as high as you would think...

The listed rate is 35% as the maximum but given the ease of shifting that around.... At 7 other nations have higher tax rates, including Canada, Germany and Brazil all of which are doing much better economically in regards to coping with this crisis.

Perhaps the investment tax is not the most important factor currently, but even so, I think that high income tax would be a safer way to do this than capital gains.

I disagree here because a higher income tax will fall on small business owners, professional workers and various others. Men and women who work for their dollars. Why tax these people who are the real producers of our economy?

Meanwhile a Capital Gains Tax taxes people who make their money off of investment, those who give money and make profit off of others people's work. Why not tax them more? Not to mention, they're the ones with the most free cash. It makes sense to tax them not the rest of America who are suffering a cash flow problem.

In short Minx, I must say the evidence shows that the companies are not hurting in this economic climate. They are not replacing the jobs we lost, so we will be left with mass unemployment for the duration. And the least industrialist and hard working of us pay the least.

With all due respect your arguement does nothing to address these points and I must ask you show some level of proof that a higher capital gains tax will be an undue burden on the companies and individuals in question.

[The Minx]

I did not claim that capital gains taxes would produce an undue burden on companies, but on job creation. Here's a relevant study on the effects of raising capital gains taxes: link.

The effective tax rate for corporations may be lower than the statutory rate, but the system is still unwieldy and uncompetitive. The statutory rate is the highest in the developed world and the loopholes corporations use to get around these taxes are hardly conductive to good business (link). That was the point I raised in that earlier thread: the taxes are too high, and the loopholes make people do stupid things to avoid them. Better to eliminate both the loopholes and reduce the statutory rates to avoid this.

When I mention income tax in my previous post I'm not talking about income taxes such as those professionals would be paying, only for the very high income earners (i.e. a millionaire's tax). Of course, I did not include the millionaire's tax in the solution to the game above, I only mentioned it as a less bad solution to getting at the money of the very rich.

[frigidmagi]

I did not claim that capital gains taxes would produce an undue burden on companies, but on job creation.

I and the economist disagree

Futhermore if you look here you'll see that taxes were only lower then they were recently in the 1920s and the first 3 years of the depression and the low taxes on capital gains did not excite more hiring then. Nor does it now. At least not at the rates we're talking about. It is certainly possible to overtax to the point where a business cannot make a profit without lying and cheating. A business that cannot make a profit will certainly not hire new employees. But I don't think that's the case here.

Why?

Let me hit some points again. As I have repeatly shown since late 2009 the corporations of America have made huge profit. That's not a bad thing. In fact it's a good thing, we want corporations to make profit. Let me be clear here, it is not my intention to make it impossible for a corporation or another business to make a profit.

However when they make record profits as in the best year they've had in 60 years...

Well they have plenty of free cash. They have had plenty of free cash for over 18 months now and to be blunt in the words of our own government the hiring does not even cover the job loses we suffered in 2008. In other words the low taxes we've given has done nothing for job creation. Nothing. Because as long as they're hiring in a trickle, our unemployment situation does not improve. In fact given that new workers are hitting the market in numbers greater then the hires and there are unemployed veteran workers fighting for those same jobs... Our situation stands to get worse.

Let me blunt here, if they're making over 1 and a half trillion dollars and more profit then ever before, taxes are not to high. You cannot claim that you're paying to much when your wallet is bursting open.

My point Minx is that they have had plenty of money to hire people with and have had it for over a year. Moving the Capital Gains Tax from 20% to 23% or even 28% isn't even gonna dent that level of profit. In short if you were right and it was a lack of cash that was stopping them from hiring, they should have started hiring this year! In February!