Tax Policy vs. Spend Policy

[Nikki]

Not wanting to hijack JRB's UBS thread, I'm opening this one as a forum regarding one of the magic words in a recent post there: Grandchildren.

Thanks to decades of "spend what you don't have" and "tax cuts cure everything" actiona and philosophies by the leaders of the central government, this country now has a national debt comprehensible only by mathematicians.

Since the beginning of the 1930's (per today's Washington Post) {80 years in total}, there have been approximately eight years when the government did not operate at a defecit.

Interest on the debt service, alone, is projected at $178 billion in the 2010 budget.

One of the simplest tenets of basic economics is that if expenditures exceed income there is a defecit.

So, to reduce the defecit (perhaps even pay down some of the national debt eventually) there are two options:

1 - Increase income
2 - Decrease expenditures

No one wants to increase the government's income because that means increased or additional taxes and fees {unless the impact of the increase falls on someone else}.

Similarly, no one wants to decrease expenditures unless the cut comes from someone else's pork.

So, before I throw this open to heated debate, the following are my thoughts on actions which would move towards a defecit reduction:

Income side:
Roll back all income tax cuts to the pre-Bush (preferably pre-Reagan) era.
Revise the estate tax to support the continuation of working farms and small businesses, but roll the rest of the cuts back.
Eliminate treating capital gains as a separate item. Index it for inflation (by category if necesary) and tax it as ordinary income.
Eliminate the cap on Social Security taxes.
Charge user fees across the government to cover the actual costs of providing individual services. For example, the FDA should charge drug companies the government's actual costs to review and approve new medication and should charge food processors the actual cost of the inspection system. FAA should charge all airlines and private pilots the actual cost of operating the air traffic control system.
Increase the gasoline tax to force gas up to the $6 - $7 per gallon range.
Legalize and tax most (if not all) of the 'controlled substance' recreational drugs.

Expenditure side:
Take a serious ax to Defense spending. We have already demonstrated that our military is capable of fighting several wars, simultaneously, against any nation that is likely to threaten us. The Army, Navy, Marines, Coast Guard, and Air Force do not necessarily need bigger, brighter, faster, better of everything -- especially when their procurement processes are so screwed up that a replacement for the President's helicopter will now cost more than replacing Air Force One.
Kiss agricultural price supports and controls goodby. We pay twice for them. First, we pay tax dollars that go to the farmer. Then we pay additional dollars at the grocery for the higher-priced products.
Foreign aid: Re-route the bulk of it to domestic aid. We should be building schools, bridges, etc HERE before we build them in other countries.


The floor is now open for serious debate, cheap shots, snide remarks, etc.

[The Operative]

So, to reduce the defecit (perhaps even pay down some of the national debt eventually) there are two options:

1 - Increase income
2 - Decrease expenditures

No one wants to increase the government's income because that means increased or additional taxes and fees {unless the impact of the increase falls on someone else}.

Agreed. Unfortunately, when income is increased, the government seems to find some excuse to increase expenditures. Even the few years where the Clinton administration had a surplus, the surplus was spent on other things and did not pay down the debt.

Similarly, no one wants to decrease expenditures unless the cut comes from someone else's pork.

So, before I throw this open to heated debate, the following are my thoughts on actions which would move towards a defecit reduction:

Income side:
Roll back all income tax cuts to the pre-Bush (preferably pre-Reagan) era.

pre-Bush era should do it, if expenditures can be controlled.

Revise the estate tax to support the continuation of working farms and small businesses, but roll the rest of the cuts back.
Eliminate treating capital gains as a separate item. Index it for inflation (by category if necesary) and tax it as ordinary income.

I disagree with these. People should be able to pass on their estates without the government taking an exorbitant amount out of it. I disagree with eliminating the capital gains treatment. I would modify it instead. The paying less taxes on capital gains was intended to increase personal investment in the stock market and thereby increase capital funding of corporations. Since the most successful strategy for 'beating the market' is 'buy and hold', I would recommend changing the time frame between what is considered a short-term capital gain and a long-term capital gain. Short-term capital gains, which are treated as ordinary income, would be anything held for less than three years. Long-term capital gains, which are items held for three years or longer, would still be 15%.

Eliminate the cap on Social Security taxes.

I assume you mean the level of income which is subject to Social Security taxes. I have been saying this for years. The contribution rate should also be increased by about 1%.

Charge user fees across the government to cover the actual costs of providing individual services. For example, the FDA should charge drug companies the government's actual costs to review and approve new medication and should charge food processors the actual cost of the inspection system. FAA should charge all airlines and private pilots the actual cost of operating the air traffic control system.

That may work for a purely domestic program, but I have my doubts that it would work for the FAA in dealing with foreign airlines. Also, what about cargo shipments and package services? Will you increase fees on those also? If so, have you considered the impact on businesses?

Increase the gasoline tax to force gas up to the $6 - $7 per gallon range.

Have you considered the impact on businesses? And have you considered that businesses will pass on increased costs in transportation to consumers?

Legalize and tax most (if not all) of the 'controlled substance' recreational drugs.

Is there a relationship between the amount of taxes collected on alcohol and the cost of treatment programs for alcohol abuse? Do the taxes collected on alcohol cover the cost of those programs? I ask this, because 'recreational drugs' are just a susceptible, if not more, to misuse as is alcohol. So, would this really result in an income increase?

Expenditure side:
Take a serious ax to Defense spending. We have already demonstrated that our military is capable of fighting several wars, simultaneously, against any nation that is likely to threaten us. The Army, Navy, Marines, Coast Guard, and Air Force do not necessarily need bigger, brighter, faster, better of everything -- especially when their procurement processes are so screwed up that a replacement for the President's helicopter will now cost more than replacing Air Force One.
Kiss agricultural price supports and controls goodby. We pay twice for them. First, we pay tax dollars that go to the farmer. Then we pay additional dollars at the grocery for the higher-priced products.
Foreign aid: Re-route the bulk of it to domestic aid. We should be building schools, bridges, etc HERE before we build them in other countries.

I wouldn't necessarily put a major cut on defense spending, but I would reroute it. Some things are needed, like replacing aging aircraft systems. Other items, like building a robot to carry two or three hundred pounds over rough terrain, not so much. I would attempt to use the money on enlisted military pay increases instead of many research projects. I specify enlisted because officer pay increases are already high. Does an O-2 really deserve a $400 per month pay increase for simply being in the service more than 2 years? Does that same officer deserve almost $600 more for making it to year 3?

As for foreign aid, I agree. Other countries need to stop complaining when the U.S. Government doesn't contribute as much. The citizens of the U.S. more than make up for any differences in the level of contribution between countries.

To decrease expenditures, I would rate each project by the number of people it would affect. Then, I would start cutting until there was approximately $300 to $400 billion in surplus. I would also recommend that the government reduce the debt by at least $100 billion per year until the debt was less than 40% of GDP.

The floor is now open for serious debate, cheap shots, snide remarks, etc.

Sorry, I am all out of cheap shots and snide remarks.

[Judge Roy Bean]

....
No one wants to increase the government's income because that means increased or additional taxes and fees {unless the impact of the increase falls on someone else}.

That's not necessarily true. 30% of 100 is 30; 20% of 200 is 40. If more people are employed in tax-paying jobs and companies expand, the total amount coming in increases even with lower rates.

Politically, though, to be elected to (and stay in) power today you have to have the votes of those who want to punish people who are more successful than themselves. A large component of the voting population now believes what they're being told about success being the moral equivalent of greed.

So we're going to be punishing all those greedy people for a while. Some of the people I know who own and operate their own companies (small to large) are going to have to let more people go. 401K contributions have been stopped. Some are turning full time positions into part time to cut benefit expenses. And how does the equation of higher taxes increase the possibility that they'll have more money to hire or retain more people?

We're now on the path that will ensure our grandchildren will not have the opportunities in the coming years that many have enjoyed in previous decades. Take three generations of a typical middle to upper-middle class family today and realize that their total net worth will decline steadily for at least the next decade (or more, depending on how long we leave socialists in power) as opposed to experiencing predictable growth. Unlike prior generations, there will be no family holdings or private economic safety net behind them. The great leveling will ensure they don't have that traditional backing millions of us may have had and used.

All any of us can do is make the best of our own circumstances and try to ride it out. Until the ability to blame George Bush becomes shop-worn and a voter-backlash makes almost wholesale corrections in the power structure in DC we're going to have to be really, really creative.

And you thought the TP and TD crowd was creative?