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Opinion

Opinion

Spending cuts essential start to reducing deficit

April 16, 2011

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— The most serious charge against Rep. Paul Ryan’s budget is not the risible claim, made most prominently by President Obama in his George Washington University address, that it would “sacrifice the America we believe in.” The serious charge is that the Ryan plan fails by its own standards: Because it only cuts spending without raising taxes, it accumulates trillions of debt and doesn’t balance the budget until the 2030s. If the debt is such a national emergency, they say, Ryan never really gets you there from here.

But the critics miss the point. You can’t get there from here without Ryan’s plan. It’s the essential element. Of course Ryan is not going to propose tax increases. You don’t need Republicans for that. That’s what Democrats do. The president’s speech was a prose poem to higher taxes — with every allusion to spending cuts guarded by a phalanx of impenetrable caveats.

Ryan reduces federal spending by $6 trillion over 10 years — from the current 24 percent of GDP to the historical post-World War II average of about 20 percent.

Now, the historical average for revenues over the last 40 years is between 18 percent and 19 percent of GDP. As we return to that level with the economic recovery (we’re now at about 15 percent), Ryan would still leave us with an annual deficit in 2021 of 1.6 percent of GDP.

The critics are right to focus on that gap. But it is bridgeable. And the mechanism for doing so is in plain sight: tax reform.

Real tax reform strips out exclusions, deductions, credits and the innumerable loopholes that have accumulated since the last tax reform of 1986. The Simpson-Bowles commission, for example, identifies $1.1 trillion of such revenue-robbers. In one scenario, it strips them all out and thus is able to lower rates for everyone to three brackets of 8 percent, 14 percent and 23 percent.

The commission does recommend that, on average, about $100 billion annually of that $1.1 trillion be kept by the Treasury (rather than going back to the taxpayer) to reduce the deficit. This is a slight deviation from revenue neutrality, but it still yields a major cut for the top rate from the current 35 percent to 23 percent. The overall result is so reasonable and multiply beneficial that it rightly gained the concurrence of even the impeccably conservative (commission member) Sen. Tom Coburn.

That’s the beauty of tax reform: It is both transparent and flexible. That flexibility and transparency can be applied to the Ryan plan. If you need a bit more deficit reduction to bridge the 1.6 percent GDP gap that remains after 10 years, you can get there by slightly raising the final rates.

Ryan’s tax reform envisions three brackets with a top rate of 25 percent. There’s nothing sacred about that number. In principle, you could raise all the rates slightly with the top rate going to, say, 28 percent — the top rate that came out of Ronald Reagan’s 1986 tax reform. You’re still much lower than the current 35 percent. And yet that final boost could bring you closer to a fully balanced federal budget at roughly 20 percent of GDP.

Nor would any great conservative principle be violated. The historical average of revenues — 18 percent to 19 percent of GDP — could be raised one point or so on the perfectly reasonable grounds that we are a slightly older society, and that we wish to avail ourselves of the extraordinary but expensive medical technology that can increase both the quality and length of life.

This one concession would yield a fully balanced budget more quickly than Ryan’s plan and would reduce the debt/GDP ratio even more steeply (because GDP would be growing, while debt would not). The effect on America’s financial standing in the world would be dramatic: Restored confidence in U.S. fiscal health would reduce interest rates, which would lower the overall debt burden, which could allow lower taxes, which could stimulate yet more economic growth. A virtuous circle.

That’s the finish line. But it starts with spending cuts. Serious cuts, as Ryan suggests — not the smoke and mirrors the Obama speech shamelessly presented as a plan.

Given the Democrats’ instinctive resort to granny-in-the-snow demagoguery, the Republicans are right not to budge on taxes until serious spending cuts are in place. At which point, the grand compromise awaits. And grand it would be. Saving the welfare state from insolvency is no small achievement.

— Charles Krauthammer is a columnist for Washington Post Writers Group.

Comments

Richard Heckler 3 years, 3 months ago

NOT Entitlements no way jose'!!!

People pay for medicare insurance there is nothing free about it. How is that an entitlement?

People pay for Social Security Insurance. How is that an entitlement?

Let's talk Entitlements:

A. Why not cut off tax dollar ENTITLEMENTS aka subsidies that go to many many wealthy corporations?

B. Why not curtail ENTITLEMENTS aka tax abatements,tax rebates,Tax Increment Financing and other tax dollar entitlement subsidies? http://www.democracynow.org/2008/1/18/free_lunch_how_the_wealthiest_americans

http://www.uua.org/events/generalassembly/2008/commonthreads/115777.shtml

C. Of course tax cuts such as Bush Tax Cuts are ENTITLEMENTS: http://www.dollarsandsense.org/archives/2001/0301miller.html

D. How about that automatic $4,000 increase in pay to legislators? Of course that is an ENTITLEMENT. Put repubs on the defensive by eliminating this. Taxpayers simply dislike this pay increase.

E. War Profiteers represent ENTITLEMENTS: Boeing
Blackwater USA / Xe Services LLC
Lockheed Martin
Northrop Grumman
General Dynamics
Raytheon
United Technologies
Halliburton
General Electric
Science Applications International Corporation
CSC/ DynCorp

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Richard Heckler 3 years, 3 months ago

PEOPLES BUDGET

The Congressional Progressive Caucus meanwhile has unveiled an alternative plan called the "PEOPLES BUDGET. But we do not hear about the PEOPLES BUDGET, and you’re the largest caucus in the entire House of Representatives. How is that? And what is your assessment of the deal that Obama has reached with the Republicans?

REP. RAÚL GRIJALVA: We want, with our PEOPLES BUDGET, to provide a contrast and a choice between what Ryan’s draconian budget is, basically destroying societal support for each other, and the President’s, which kind of takes a half step toward dealing with some of the issues that we feel need to be preserved and protected: Social Security, Medicare, investments in education, job creation. Our PEOPLES BUDGET is solid.

We have third-party validation from Professor Sachs to many other economists, Professor Irons, as well. So we feel very strongly about our PEOPLES BUDGET, and we want it to be on the table.

We deal with the deficit reduction, and we do it within a 10-year period. We deal with job creation in a substantial way, to put people back to work in this country. We protect the middle class and the poor by protecting their programs and increasing job training and early childhood education.

We cut military spending in a significant way. The key to that, getting us out of Afghanistan and out of Iraq.

And we take care—we deal with healthcare by reintroducing the public option, which could save up to $68 billion a year from providing a competitive choice for the American people.

We didn’t do this on a lark. We have tracked every public opinion poll. And the American people want gas and oil subsidies to be cut. They want the rich and the corporations to pay taxes. They want military spending cut. And so, as we listen to the American people, our budget reflects that listening and really deserves a voice and deserves some attention.

JUAN GONZALEZ: Well, Congressman, you mentioned reintroducing the public option in terms of healthcare as being one of the ways that you would reduce the budget deficit. But could you point out maybe some of the key—what you consider to be the key points that differentiate your budget from both those of the Republicans, of Ryan, as well as of the President?

REP. RAÚL GRIJALVA: I think the key point is that American people said preserve Social Security, invest in education, preserve Medicare and Medicaid, invest in job training, and we reflect that in our budget. Ryan’s budget does not reflect that. And in fact, even some of the administration’s initiatives go counter to that feeling among the American people.

What we do, very specifically, http://www.democracynow.org/2011/4/14/while_obama_touts_compromise_with_gop

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mloburgio 3 years, 3 months ago

All four memebers of the United States House of Representatives from kansas Tim Huelskamp, Lynn Jenkins,Kevin Yoder and last but not least Mike [i love the koch brothers] Pompeo voted today to cut medicare and medicaid as we know it. replacing it with subsidies for private insurance and it would simultaneously spend trillions of dollars to reduce tax rates on the wealthiest americans. The plan contains $1.4 trillion in Medicaid cuts over ten years (which includes repeal of the health reform law’s Medicaid expansion); large cuts in food stamps, low-income housing, Pell Grants, and other programs for people with limited incomes; and repeal of the health reform law’s subsidies to help low- and moderate-income people purchase health insurance.... Cuts of this magnitude in programs for people of low or modest incomes will lead to substantial increases in poverty and hardship. In addition, the steep cuts in programs like Pell Grants to help low-income students get a college education would reduce the opportunity for many individuals to lift themselves out of poverty. http://www.dailykos.com/story/2011/04......

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just_another_bozo_on_this_bus 3 years, 3 months ago

This Republican proposal has absolutely nothing to do with deficit reduction.

It's pure class warfare that seeks to preserve the corporate cash cows for the wealthiest 1% (the war machine and other corporfascist institutions) while essentially ending Medicare and Medicaid, with Social Security in the crosshairs.

It's naked class warfare.

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jafs 3 years, 3 months ago

Except that the reverse is true as well.

And, thus we have gridlock rather than a solution.

Interestingly, I find this column to be fairly reasonable, given the author. And, it's also interesting that the debt commission's suggestions have bi-partisan support.

Let's hope they're implemented.

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jayhawklawrence 3 years, 3 months ago

There is nothing new in the Republican plan. It is the same kind of planning in a different package.

Benefit the very wealthy and make life more difficult for everyone else.

Rely on the good intentions of over compensated CEOs to create jobs and build the economy.

The problem is that our country is moving steadily toward a society we never intended when our ancestors came here seeking freedom from oppression by a privileged elite. Where there were no Democracies and you relied on the mercy of a King and his court for favors.

We have a country that promotes a pay to play political system that is dead set on eliminating its social responsibilities in the name of profit at all cost and feels that 50 million Americans with no health care is not their responsibility.

The Democratic Party needs to ask why they are not able to appeal to small and medium sized businesses. Perhaps these people are casualties of too much time spent pandering to unions, immigration activists, cap and trade promoters, gun control organizations and trial lawyers.

Small and medium sized businesses often feel they are the victims of Washington style politicians and they fear the Democratic Party. Why is that?

The Democratic Party should run surveys to determine how they are perceived among these businesses and they need to make radical changes to win that support. These businesses are filled with independent minded and talented individuals who feel their needs are never addressed by the Democratic Party. They perceive that the values the Democrats promote are in conflict with their hard fought for and won achievements. They don't want what they have fought so hard for given to somebody for nothing.

The Democrats had some traction when they began to work on supporting manufacturers and got more involved in International Trade issues. That has given way to issues such as the Wisconsin labor "battle" and the Arizona immigration controversy. Their approach to these and other issues widened the gap between the Democratic Party and the small and medium sized business owner.

That sign that supposedly hung on Clinton's door should now say, "it's about the GLOBAL economy stupid."

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Brent Garner 3 years, 3 months ago

Those "grants" you are complaining about are to enable the states to, if they choose, buy health insurance policies for those on medicaid who are insurable. This transfers the risk from the tax payer to someone else and makes perfect financial sense. It also leverages the medicaid dollars so that they go further. Despite the fact that this will give business to those "evil" insurance companies, it is far more efficient and effective than paying tax dollars for every expense.

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