Wednesday, April 20, 2011

Big Problem, Bold Proposal

For years I've warned of the coming tipping point of the American economy:
What happens when the voter in the exact middle of the earnings spectrum receives more in benefits from Washington than he pays in taxes?
WaPo economic columnist Robert Samuelson says we're there:
Few Americans realize the extent of their dependency. The Census Bureau reports that in 2009 almost half (46.2 percent) of the 300 million Americans received at least one federal benefit: 46.5 million, Social Security; 42.6 million, Medicare; 42.4 million, Medicaid; 36.1 million, food stamps; 3.2 million, veterans’ benefits; 12.4 million, housing subsidies. The census list doesn’t include tax breaks. Counting those, perhaps three-quarters or more of Americans receive some sizable government benefit. For example, about 22 percent of taxpayers benefit from the home mortgage interest deduction and 43 percent from the preferential treatment of employer-provided health insurance, says the nonpartisan Tax Policy Center.
What next? Nothing good, he concludes:
The concept of "vital national interest" is stretched. We deploy government casually to satisfy any mass desire, correct any perceived social shortcoming or remedy any market deficiency. . .

[G]overnment can’t easily correct its excesses, because Americans depend on it for so much that any effort to change the status arouses a firestorm of opposition that virtually ensures defeat. Government’s very expansion has brought it into disrepute, paralyzed politics and impeded it from acting in the national interest.
Samuelson has a point. But -- especially after Standard and Poor warned about the U.S. debt outlook -- we need a solution short of the China-like "one-party autocracy," New York Times columnist Tom Friedman preferred a year and a half ago--that merely was an attempt to steamroll those on the right who dispute Friedman and other liberals. That starts with actual, not imaginary, budget numbers, and dumping fantasy. But, in our democracy, we need more than just a technocrat's Disney Land. President Obama clearly isn't delivering any solutions--and the Republicans, while better, still shun fixing Social Security. So, what to do?

Try embracing log-rolling. Accept cuts in both entitlements and defense--even though the former is the root of the problem with no end in sight. And start considering some tax increases, paired with privatization--of Social Security as a minimum, health insurance too. Put everything on the table.

And then, my suggestion: overcoming the projected deficit over a decade requires over $7 trillion. Calculate the cumulative savings necessary to balance outlays and revenues by then, and the annual contribution required. Then take that number, cut it in two, and let the Senate (controlled by Democrats) and the House (controlled by Republicans) choose the combination of reduced spending and raised taxes appropriate to cover each half. Marry the two and shut up.

People say politics makes deficit reduction difficult. But in our constitutional democracy, preventing politics is flatly impossible. Harness it instead.

5 comments:

Lame-R said...

I suppose I receive a "sizable government benefit" courtesy of some small tax breaks on my mortgage interest and from charitable contributions, etc. It'd be nice not to lose those b/c every little bit helps, but fact of the matter is if they didn't take so much in the first place I wouldn't miss my "benefits" in the least.

A_Nonny_Mouse said...

I really get annoyed when pundits lump "Social Security entitlements" in with frivolous-government-giveaway dollars.

That money was TAKEN FROM workers by government --with a matching amount from their employers-- for the specific purpose of giving it back to them when they are old and no longer in the workforce.

Until retirees have actually gotten back the total amount of money which government collected from them and their employers, please don't lump them in with the other "parasites upon the government".

(And please note, once people finally retire and Social Security starts "giving" them their money back, IT'S TAXED AGAIN. Oh, sheer joy!)

Carl said...

Actually, A_N_M, you're wrong: Social Security is a "pay-as-you-go" system. The money you put in gives you no legal rights to an equivalent return. And, given the sad state of SS financing, I wouldn't count on it.

Anonymous said...

Roy said:
Ie, Carl, OASDI is a Ponzi scheme, not parasitic give away.

Carl said...

Roy: reluctantly, I'm forced to agree. OASDI must be converted from pay-as-you-go to something like a 401(k).