We are going to balance the budget….Maybe?

Shannon Bohrer

(July & August, 2011) Both major political parties have agreed to some significant points. Both parties agree that the national debt (money that we owe) is too great and we need to balance the budget, which in many ways is a good start. Last year when congress passed the national health care bill, the republicans said the democrats were going to throw grandma under the bus. This year when the republicans put forth their budget reduction plan with the inclusion of elderly health care, the democrats said that the republicans were going to throw grandma under the train. At least we have two starting points. Point one being that we need to balance our budget(s) and point two being that both parties want to kill grandma, at least from the perspective of the other party.

Other than the two starting points, the two parties agree on very little. One party says reduce the size of government and the other side says lets tax the oil companies and the rich. Maybe both perspectives have some validity and maybe both positions do not!

Reducing the size of government is something that sounds reasonable. Of course I do not know how big government is and how big it should be. Personally, I think it should be large enough to provide any service that I might need, like Social Security and Medicare, but as for the things that I do not need, I don’t care. Well I do care - just not that much.

I hear the constant rhetoric from politicians about reducing and/or eliminating programs, which is supposed to reduce government. At the same time I also hear individuals in congress being questioned about specific programs that they have a share in and/or in which they have a vested interest in. Specifically a congressman who happens to be a doctor was questioned if he would take less for Medicare. He adamantly rejected the idea of reducing payments to Medicare, stating he (doctors) could not afford to take less. Several congress persons were questioned about farm subsidies because their families all receive significant monies in the form of farm subsidies. They rejected eliminating the farm subsidies saying they were needed to produce enough food for the country. Apparently, agreeing on what to cut could be a problem, since no one wants their ox gored. It is alright to gore the other man’s ox, but not mine. The problem may be that everyone is vested in an ox and there are no unprotected oxen to gore.

Balancing the budget is something that has been in the news for a long time. It has been an issue since the 1980’s and is even more important today. In the early 1990’s Ross Perot ran for President on the issue that we had too much debt. In 1992 it was just over 4 trillion. I wonder what he thinks today with the national debt currently over 14 trillion, which equates to about $47,000 per citizen. It has been reported that less than 50 percent of the population pay taxes. I do not know if the 50 percent is taxpayers or all citizens? I would hope that it is all citizens; if it just includes taxpayers then each one of us who pays taxes really owes $94,000, and that is not a comforting thought. Of course, $47,000 per person is not so comforting either.

When examining government revenue it is important to remember that individuals are not the only ones who do not pay taxes. In a well reported news event, a very large business (GE) paid no taxes in 2010. Related to this issue, in a government study that examined businesses between 2001 and 2006, they found that 40 percent of the corporations examined paid no taxes. If you examine the national debt problem from the perspective of what comes in and what goes out, maybe we do not have enough coming in because so many individuals and businesses do not pay anything. Of course, if you are an individual and/or a business and the law allows you to not pay taxes, what would you do?

Recently, congress held hearings on the tax exemptions enjoyed by the oil companies. The oil company executives were not concerned about the public’s perception and stated they believed they needed and deserved them. One executive complained that they were being singled out, the idea that many industries have tax laws that benefit each industry. The implication from oil company executives was that all industries enjoy some sort of tax benefits! I did not see the hearings, only the news accounts of them. What was not reported but I am sure someone from congress reminded them, is that free enterprise works best with the least amount of government interference. Government support of business in the form of tax subsidies is not free enterprise, nor is it a free market. Maybe, just maybe, part of our national debt problem is a lack of free enterprise/free market. If we eliminate the entire tax loophole (I mean subsidies) for individuals and corporations, maybe real free markets could flourish. Of course, this would equate to goring a lot of oxen, a lot of protected oxen.

I really do not know how much money would be collected if everyone who earned money paid taxes and every business paid taxes. I certainly believe the revenue would help, but I do not know if it would even come close to the $47,000 for every person. It may be more realistic to approach the problem from both directions - reducing what we spend and increasing revenue by collecting more, especially from those who do not pay.

"The budget should be balanced. Public debt should be reduced. The arrogance of officialdom should be tempered, and assistance to foreign lands should be curtailed, least Rome become bankrupt."
         Marcus Tullius Cicero (Ancient Roman lawyer, writer, scholar, orator and statesman, 106 BC – 43 BC)

As you can see, this is not a new problem.

With a national debt of $47,000 for every person in America, we need to do something. The question then becomes how do we reduce the size of government, reduce government programs and/or benefits and/or how do we increase government revenue. The conventional wisdom is that one party wants to reduce the size of government and the other wants to raise taxes. The party that wants to reduce the size of government wants to reform social security and Medicare and the other party wants to keep social security and Medicare by raising taxes. I think we know where we want to go - maybe the real problem is how do we get there? And maybe the second question should be - can we get there? If we raise taxes, can we still afford social security? If we reduce spending, can we balance the budget?

Contrary to political conventional wisdom the issue of our debt will not be easily solved, it will not be painless, nor will it be quick. As Ross Perot said "If you can’t stand a little sacrifice and you can’t stand a trip across the desert with limited water, we’re never going to straighten this country out," and when he said that the debt was smaller, much smaller. I do believe that we need to reduce our spending and it will be painful. With over 30 years of spending more than we earn, the road to financial stability can only be solved if the sacrifice is large, something we don’t want. Maybe if everyone just wrote a check to the government for $47,000.00, the problem would be solved, or there would be a lot of bounced checks.

"If you can’t stand a little sacrifice and you can’t stand a trip across the desert with limited water, we’re never going to straighten this country out."
        Ross Perot

The American people are not stupid, well maybe sometimes, but not always. They understand that the financial problems we have can only be addressed by working toward a balanced budget and that someone, some group, etc., is going to have to give up something. In fact I believe they understand that we all have to give up something. But what they will not tolerate is for them to give something, while others don’t contribute. A very good case can be made that if we have to give up something, it should be equitable. Cutting, reducing and/or eliminating social security, while millionaires pay 15 percent in taxes (less than I pay), is not equitable.

Think of it like this, we (the entire nation) are all sitting around the dinner table and because times are tight there is not much on our plates. The portion is small and it does not look very appetizing. The resemblance is that of a dirt sandwich. You can look left, right and across from where you’re sitting, and everyone has the same thing, almost everyone. One person sits down to a plate of roast beef! You look down at your plate and look at the roast beef and say to yourself, why do I have a dirt sandwich and they have roast beef? The analogy is very simple: we don’t mind sacrifice, we understand we can’t have everything (well sometimes we don’t), but if one group and/or segment in our society is required to sacrifice and another segment/group does not, then it’s not equitable, it’s not fair.

To this end, neither side is really being honest. We cannot tax our way out of our debt, nor can we reduce our spending enough to make up for the shortfall. It took over 30 years for the country to spend so much that each of us owes $47,000. If we reduce spending a lot and if we raise revenue (taxes), it will still take many years before the debt is reduced and the budget is balanced.

Some of the honest experts (non-politicians) have stated that the mess we are in will require us to reduce, cut and eliminate some government programs and at the same time increase revenues. To ensure that we all share in the pain the PEA Party (People for Ethical America) suggests the following:

1. Our elected federal officials should immediately take a 10 % reduction in pay and benefits. Additionally, their operating cost should also be reduced by 10%. This would show leadership. Of course, that’s why they won’t do it.
    
2. All government funding, and I mean all funding will be reduced 5% each year until we have a balance budget. This does not address the national debt, but only the annual budget.
    
3. To the individuals and companies that do not pay any taxes, a minimum tax of 10 % on all income, before any deductions should be paid. They have a minimum alternative tax for middle income people, why not for everyone else. Everyone and every company would pay a minimum of 10 %, including non-profits. This would allow everyone to share in the pain.

While the PEA Party believes these ideas are reasonable and equitable they will never be instituted. After all, if your industry paid for a few congress persons you should expect some special treatment. Why should the government expect everyone to contribute when they can extract what they need from those of us who are not represented? Another reason why it will not work is that congress cannot work together. If you could place the congress in a well and started filling the well with water, and then gave congress a pump that required the entire congress to work together to pump the water out of the well, they would drown.

Government is really good at creating solutions for symptoms of problems. In doing so, it often appears that they are addressing the issue. In fact it has been our governments solving of symptoms that created our debt. Both parties chastise the other for spending too much and they are both right. Congress acts as if they woke up one morning and answered a knock at the door. When they opened the door, the National Debt just came in… The debt has been accumulating for a long, long time and congress has continued to spend and ignore the problem for a long, long time.

Next month – why the future looks bright….